Question

 

STPL is considering acquiring Pie Smiles, a small chain bakery that specialise in making gourmet pies. A sales manager from Pie Smiles has provided the following actual sales:

Year	Sales ($)
1	9,000
2	9,900
3	10,360
4	11,260
5	11,680
6	?

The sales manager from Pie Smiles has suggested that sales would be $8,200 in year 1.  

Required:

1. Using exponential smoothing with a weight of α =0.3, develop forecasts for years 2 through to 6 .
2. Using smoothing constants of 0.6 and 0.9, develop forecasts for the sales of pies.
3. What effect did the smoothing constant have on the forecast for the sale of pies?
4. Use a 3-year moving average forecasting model to forecast the sales of pies.
5. Using the trend projection model, develop a forecasting model for the sales of pies.
6. Which is the preferred method to predict the sales of pies: exponential smoothing with a smoothing constant of 0.3, a 3-year moving average or a trend line? In your response justify why you made that choice.

Answer 1

 

1)

Month	Sales ($)	Forecast t +1 = yt*a + t*(1-a)
2020	9000
2021	9900	9000
2022	10360	9270
2023	11260	9597
2024	11680	10095.9
2025		10571.13

2)

Month	Sales ($)	Forecast t +1 = yt*a + t*(1-a)
2020	9000
2021	9900	9000
2022	10360	9540
2023	11260	10032
2024	11680	10768.8
2025		11315.52

Month	Sales ($)	Forecast t+1 = yt*a + t*(1-a)
2020	9000
2021	9900	9000
2022	10360	9810
2023	11260	10305
2024	11680	11164.5
2025		11628.45

3)

Smoothimg constant increase the forecast.

4)

Month	Sales ($)	Moving average
2020	9000
2021	9900
2022	10360
2023	11260	9753.333
2024	11680	10506.67
2025		11100

5)

Month	Sales ($)	Trend
2020	9000
2021	9900	9000
2022	10360	10800
2023	11260	11113.33
2024	11680	11940
2025		12456

6)

For exponential = MAD/MAE = = 1454.80

For Trend = MAD/MAE = = 436.67

For Moving average = MAD/MAE = = 1340.00

Hence Trend is BEst fir as MAE (error is minimum)