Assume that your stock of sales merchandise is maintained based on the forecast
ID: 465200 • Letter: A
Question
Assume that your stock of sales merchandise is maintained based on the forecast demand. If the distributor's sales personnel call on the first day of each month, compute your forecast sales by each of the three methods requested here. Actual June 140 July 180 August 170 a. Using the simple three-month moving average, what is the forecast for September? Round your answer to 2 decimal places. Forecast for September _______ b. Using a weighted moving average, what is the forecast for September with weights of 0.20, 0.30, and 0.50 for June, July, and August, respectively? Forecast for September _______ c. Using single exponential smoothing and assuming that the forecast for June has been 130, forecast sales for September with a smoothing constant alpha of 0.30. Round your answers to 2 decimal places. Forecast for September ________. Please show your work.
Explanation / Answer
a. 3-month moving average approach
Forecast for September by 3month moving avg. = (total of sales in previous 3 months)/3
Fsep = ( 140 + 180 + 170)/3 = 163.33
Forecast for September = 163.33
b. 3-month weighted average method
n-month weighted average = [(weight for period n)(sales in period n)]/weights
Fsep = [(0.2 × 140) + (0.3 × 180) + (0.5 × 170)]
Fsep = 28 + 54 + 85
Fsep = 167
Forecast for September = 167
c. Exponential Smoothing method
In exponential smoothing method, the new forecast is based on the previous forecast, plus a percentage of the difference between that forecast and the actual forecast of the series at that point.
Next forecast = Previous forecast + (Actual Previous forecast)
The equation is:
Ft = Ft-1 + (At-1 Ft-1)
Ft = Ft-1 + At-1 Ft-1
Ft = At-1 + (1 – )Ft-1
Where,
Ft = Forecast for time period t
Ft1 = Forecast for time period t1
At1 = Actual value in period (t1)
= Smoothing constant (percentage)
= 0.30, 1 = 0.70
Fjun = 130
Fjuly = 0.3Ajun + 0.7Fjun = 0.3 × 140 + 0.7 × 130 = 133
Faug = 0.3Ajuly + 0.7Fjuly = 0.3 × 180 + 0.7 × 133 = 147.1
Fsep = 0.3Aaug + 0.7Faug = 0.3 × 170 + 0.7 × 147.1 = 153.97
Fsep = 153.97
Forecast for September = 153.97