Question

Your manager is trying to determine what forecasting method to use. Based upon the following historical data, calculate the following forecast and specify what procedure you would utilize.

MONTH	ACTUAL DEMAND
1	59
2	62
3	64
4	65
5	73
6	75
7	75
8	78
9	78
10	81
11	82
12	85

a. Calculate the simple three-month moving average forecast for periods 4–12. (Round your answers to 3 decimal places.)

Month	Three-Month Moving Average
4
5
6
7
8
9
10
11
12

b. Calculate the weighted three-month moving average for periods 4–12 using weights of 0.40 (for the period t−1); 0.50 (for the period t−2), and 0.10 (for the period t−3). (Do not round intermediate calculations. Round your answers to 1 decimal place.)

Month	Three-Month Weighted Moving Average
4
5
6
7
8
9
10
11
12

c. Calculate the single exponential smoothing forecast for periods 2–12 using an initial forecast (F₁) of 58 and an α of 0.40. (Do not round intermediate calculations. Round your answers to 3 decimal places.)

Month	Single Exponential Smoothing Forecast
2
3
4
5
6
7
8
9
10
11
12

d. Calculate the exponential smoothing with trend component forecast for periods 2–12 using an initial trend forecast (T₁) of 1.50, an initial exponential smoothing forecast (F₁) of 57, an α of 0.40, and a δ of 0.40. (Do not round intermediate calculations. Round your answers to 3 decimal places.)

Month	Exponential Smoothing with Trend
2
3
4
5
6
7
8
9
10
11
12

e-1. Calculate the mean absolute deviation (MAD) for the forecasts made by each technique in periods 4–12. (Do not round intermediate calculations. Round your answers to 3 decimal places.)

	Mean Absolute Deviation
Three-month moving average
Three-month weighted moving average
Single exponential smoothing forecast
Exponential smoothing with trend

e-2. Which forecasting method is best?

	Single exponential smoothing forecast
	Three-month weighted moving average
	Three-month moving average
	Exponential smoothing with trend forecast

Answer 1

a)

3 Moving Average = (Sum of Previous 3 Months Value)/3

b)

c)

Exponential Smoothing = αA_t + (1-α) F_t

d)

E1)

Three Moving Average

MAD = Average of Absolute Deviation = 4.630

Weighted Three Moving Average

MAD = Average of Absolute Deviation = 3.911

Exponential Smoothing

MAD = Average of Absolute Deviation = 5.619

Exponential smoothing with trend component

MAD = Average of Absolute Deviation = 2.064

E2)

Exponential smoothing with trend forecast is the best as MAD is least.