Question

The Bonavista Patient Transfer Company is considering the purchase of a new ambulance. The decision will rest partly on the anticipated distance to be driven next year. The kilometers driven during the past five years are as follows: 

Year 

1 3000 

2 4000 

3 3400 

4 3800 

5 3700 

.1. Forecast the number of kilometers for next year using a two-year moving average. 

2. Find the MAD based on the two-year moving average forecast in part (a). (Hint: You will have only three years of matched data.) 

3. Use a weighted two-year moving average with weights of 0.4 and 0.6 to forecast next year's mileage. (The weight of 0.6 is for the most recent year.) 

4. What MAD results from using this approach to forecasting? (Hint: You will have only three years of matched data.)

Answer 1

ANSWER::

1).

Forecast = Sigma(Demand in previous N periods) / N

Where N = 2

FORECAST 3 = (3000 + 4000) / 2 = 3500

FORECAST 4 = (4000 + 3400) / 2 = 3700

FORECAST 5 = (3400 + 3800) / 2 = 3600

FORECAST 6 = (3800 + 3700) / 2 = 3750

2).

MAD

PERIOD	ACTUAL	FORECAST	DEVIATIONS	ABSOLUTE DEVIATION
1	3000
2	4000
3	3400	3500	-100	100
4	3800	3700	100	100
5	3700	3600	100	100
SIGMA			100	300

MAD = SIGMA(ABS DEV) / N

MAD = 300 / 3 = 100

3) and 4)

. Forecast = Sigma(weight for period N * Demand for period N) / Sigma(weights)

Where the highest weights are multiplied with the most recent demand value.

FORECAST 3 = (0.4 * 3000) + 0.6 * 4000) / (0.4 + 0.6) = 3600

FORECAST 4 = (0.4 * 4000) + 0.6 * 3400) / (0.4 + 0.6) = 3640

FORECAST 5 = (0.4 * 3400) + 0.6 * 3800) / (0.4 + 0.6) = 3640

FORECAST 6 = (0.4 * 3800) + 0.6 * 3700) / (0.4 + 0.6) = 3740

MAD

PERIOD	ACTUAL	FORECAST	DEVIATIONS	ABSOLUTE DEVIATION
1	3000
2	4000
3	3400	3600	-200	200
4	3800	3640	160	160
5	3700	3640	60	60
SIGMA			20	420

MAD = SIGMA(ABS DEV) / N

MAD = 420 / 3

MAD= 140