Question

The Carbondale Hospital is considering the purchase of a new ambulance. The decision will rest partly on the anticipated mileage to be driven next year. The miles driven during the past 5 years are as follows:

YEAR MILEAGE

1 3,000

2 4,000

3 3,400

4 3,800

5 3,700

a) Forecast the mileage for next year (6th year) using a 2-year moving average.

b) Find the MAD based on the 2-year moving average. ( Hint: You will have only 3 years of matched data.)

c) Use a weighted 2-year moving average with weights of .4 and .6 to forecast next year’s mileage. (The weight of .6 is for the most recent year.) What MAD results from using this approach to forecasting? ( Hint: You will have only 3 years of matched data.)

d) Compute the forecast for year 6 using exponential smoothing, an initial forecast for year 1 of 3,000 miles, and a=.5.

Answer 1

A.

2 year MA for year 6 = (3800+3700)/2

2 year MA for year 6 = 3750

B.

MAD = sum of the absolute deviation / no. of observation

Year	Mileage	2 year MA	Absolute Deviation
1	3000
2	4000
3	3400	3500	100
4	3800	3700	100
5	3700	3600	100
MAD =			100

C.

2 year WMA for year 6 = .4*3800 + .6*3700

2 year WMA for year 6 = 3740

Year	Mileage	2 year WMA	Absolute Deviation
1	3000
2	4000
3	3400	3600	200
4	3800	3640	160
5	3700	3640	60
MAD =			140

D.

Year	Mileage	EMA
1	3000	3000
2	4000	3000
3	3400	3500
4	3800	3450
5	3700	3625
		3662.5

EMA forecast for year 6 = (3700 - 3625)*.5 + 3625

  EMA forecast for year 6 = 3662.5