Question

Suppose retailers would like to forecast the percentage of customers who plan to purchase gift cards during the upcoming holiday season. The following data show this percentage from 2002 to 2009. The data is as follows:

Year	Percent
2002	55
2003	60
2004	64
2005	67
2006	66
2007	69
2008	66
2009	64

Perform the following:

1. Using a 3-period simple moving average, forecast the percentage of holiday shoppers who will purchase a gift card in 2010.

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2. Calculate the MAD for the forecast in part a.

3. Using a 3-period weighted moving average with the weights 5, 3, and 1, forecast the percentage of holiday shoppers who will purchase a gift card in 2010.

4. Calculate the MAD for the forecast in part c.

5. In which forecast do you have the most confidence?

Answer 1

a)

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

Hence, for 2010 3 Period Moving Average = (69+66+64)/3 = 66.33

b)

MAD = Average of Absolute Deviation = 3.47

c)

Weight 5,3,1 ie 5/(5+3+1),3/9,1/9 or (0.56,0.33,0.11)

Hence, for 2010 3 Period Moving Average = (69*0.56+66*0.33+64*0.11) = 67.46

d)

MAD = Average of Absolute Deviation = 4.19

e)

We have more confidence in Forecast from part a as MAD is less than part c.