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In: Finance

The next three questions are based on the following information. Sam has a cleaning service. To...

The next three questions are based on the following information.

Sam has a cleaning service. To better allocate his resources, he would like to forecast his weekly orders based on the order number he received in the past 13 weeks as shown in the following table.

Week	Demand
Week 1	11
Week 2	14
Week 3	16
Week 4	10
Week 5	15
Week 6	17
Week 7	11
Week 8	14
Week 9	17
Week 10	12
Week 11	14
Week 12	16
Week 13	15

Using a three week moving average, Sam's forecast for his Week 14 order number is ________ . (Please round to two decimal points and include no units.)
Using a three week weighted moving average with weights 3, 2, and 1 given to the most recent, second most recent, and third most recent week, respectively, Sam’s forecast for his week 14 order number is _____________ . (Please round to two decimal points and include no units.)
If the MAD for moving average is 4.17 and the MAD for weighted moving average is 2.38, then which forecast is more accurate?

Moving average
Weighted moving average
The same
Not enough information to evaluate

Expert Solution

A) Calculation of Week 14 order using a three week moving average:

-To derive the demand for week 14, we need to calculate the average of demands of week 11, 12 and 13 (Using a three week moving average)

-The three weeks selected (i.e:11,12 and 13) are the latest and hence the best indicators to calculate the demand for week 14.

-Therefore,

14+15+16/3

=15

Hence, the demand for Week 14 is 15 units.

B) Calculation of Week 14 order using a three week weighted moving average:

-To derive the demand for week 14, we need to calculate the weighted average of demands of week 11, 12 and 13 (Using a three week weighted moving average)

-Week 13 being the latest will be assigned a weight of 3.Similarly, week 12 will be assigned a weight of 2 and week 11 will be assigned a weight of 1.

-Therefore,

Week	Demand	Weights	*Demandweight**
11	14	1	14
12	16	2	32
13	15	3	45
		6	91

Therefore, weighted average demand=Demand*weight/weights

=91/6

=15.17 units

Hence the demand using the weighted moving average approach is 15.17 units.

C) MAD is an acronym of mean absolute deviation. It is the deviation of a population from its average (mean) in absolute terms. Therefore, lesser the deviation from the mean, the more accurate the population is.

In the above case, MAD for moving average is 4.17 and for weighted moving average is 2.38. Hence, the forecast using the weighted moving average is more accurate as compared to moving average since its deviation from the mean is lesser.

jeff jeffy answered 1 year ago

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