Question

Following are the daily sales for pens at Paula’s store. Predict week 6 using the following approaches:

1. Naive

2. 4 period moving average

3. Exponential smoothing using smoothing constant (a)= 0.6 and forecast of time period 3 is 45

Time period	1	2	3	4	5
Sales	45	53	48	46	54

Answer 1

In Naive Method, Actual data for previous month will be treated as forecast for current month.

In 4 period moving average method, we need to find out the average of earlier 4 months actual data to find out the forecast for current month. for example, to compute the forecast for period 5, we will have to find out the average of actual data from period 1 to 4.

Formula to be used for exponential smoothing -

F_t+1 = Alpha * A_t + (1-alpha)*F_t

Below is the screenshot of formula applied in excel -

Book5 Excel Abhishek Rai X File Home Insert Page Layout Formulas Data Review View Help Tell me what you want to do Share fr | Time Period a 0.6 ntial Smoothin Time Period Sales Naïve Method 4 Period Moving Average B3 -B4 -B5 AVERAGE (B3:B6) AVERAGE(B4:B7 0.6 B5+(1-0.6) ES 0.6 B6+(1-0.6)"E6 0.6 B7+(1-0.6)E B7 16 19 24 Sheet1 Ready Display Settings ®凹 + 100% Type here to search ENG 12:02 AM US 28-Feb-19

Below is the screenshot of result -

Book5 Excel Abhishek Rai -O × File Home Insert Page Layout Formulas Data Review View Help Tell me what you want to do A2 Time Period a = 0.6 tial Smoothin 2 Time Period Sales Naive Method 4 Period Moving Average Ex 53 45 53 45.00 46.80 46.32 50.93 46 50.25 10 16 17 18 19 20 23 24 26 Sheet1 Ready Display Settings - + 100% Type here to search ENG 12:03 AM US 28-Feb-19

Below is forecast result of period 6 by using different methods -

Naive = 54

4 - Period Moving average = 50.25

Exponential Smoothing = 50.93