Question

In: Operations Management

The accounting department needs to forecast the profit for a subsidiary. The data for several months...

The accounting department needs to forecast the profit for a subsidiary. The data for several months is supplied below. Be careful since the data is listed beginning with the most recent. The forecasting method to be used here is exponential smoothing with trend accounting for seasonality given a smoothing constant (alpha) of 0.69, a trend smoothing constant (delta) of 0.3, a previous trend amount, seasonally adjusted, of 65, and a previous seasonal forecast of 582. Please round your forecast to the nearest whole number.

Jul 2020: 544 Jun 2020: 274 May 2020: -1684 Apr 2020: 1439 Mar 2020: 970 Feb 2020: -1689
Jan 2020: 340 Dec 2019: 253 Nov 2019: 1631 Oct 2019: 257 Sep 2019: -660 Aug 2019: 582
Jul 2019: 2258 Jun 2019: 945 May 2019: 2580 Apr 2019: 704 Mar 2019: -1884 Feb 2019: 1902
Jan 2019: 1477 Dec 2018: 2141 Nov 2018: -778 Oct 2018: 1609 Sep 2018: -1625 Aug 2018: 1187
Jul 2018: 2959 Jun 2018: -653 May 2018: -16 Apr 2018: 2132 Mar 2018: -979

Solutions

Expert Solution

Answer:

Formula’s used:

Ft+1 = α*Dt + (1-α)*Ft

Tt+1 = δ*(Ft+1-Ft) + (1-δ)*(Tt)

AFt+1 = Ft+1 + Tt+1

Where,

Ft+1 = Unadjusted Forecast for current period

Dt= Sales for previous period

Ft= Forecast for previous period

Tt+1 = Trend factor for current period

Tt = Trend factor for previous period

AFt+1 = Adjusted forecast for current period

Final forecast required is shown as “Adjusted Forecast in the last column of below table:

α =

0.69

δ =

0.3

Month (t)

Profit (Dt)

Seasonal Forecast (Ft)

Trend factor (Tt)

Adjusted Forecast (AF)

AF = Ft+Tt

Mar-18

979

582

65

647

Apr-18

2132

855.930

127.679

984

May-18

-16

1736.418

353.522

2090

Jun-18

-653

527.250

-115.285

412

Jul-18

2959

-287.123

-325.011

-612

Aug-18

1187

1952.702

444.440

2397

Sep-18

-1625

1424.368

152.608

1577

Oct-18

1609

-679.696

-524.394

-1204

Nov-18

-778

899.504

106.684

1006

Dec-18

2141

-257.974

-272.565

-531

Jan-19

1477

1397.318

305.792

1703

Feb-19

1902

1452.299

230.549

1683

Mar-19

-1884

1762.593

254.473

2017

Apr-19

704

-753.556

-576.714

-1330

May-19

2580

252.158

-101.986

150

Jun-19

945

1858.369

410.473

2269

Jul-19

2258

1228.144

98.264

1326

Aug-19

582

1938.745

281.965

2221

Sep-19

-660

1002.591

-83.471

919

Oct-19

257

-144.597

-402.586

-547

Nov-19

1631

132.505

-198.680

-66

Dec-19

253

1166.467

171.113

1338

Jan-20

340

536.175

-69.309

467

Feb-20

-1689

400.814

-89.125

312

Mar-20

970

-1041.158

-494.979

-1536

Apr-20

1439

346.541

69.824

416

May-20

-1684

1100.338

275.016

1375

Jun-20

274

-820.855

-383.847

-1205

Jul-20

544

-65.405

-42.058

-107

Excel working is shown below:


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