Question

Question 2:

A Chemical Company estimates the annual demand for a certain product as follows:

Week	1	2	3	4	5	6
Demand	649	524	561	738	511	590

1. Forecast the demand for week 7 using a five-period moving average? (Marks 0.5) (word count maximum:100)
2. Forecast the demand for week 7 using a three-period weighted moving average. Use the following weights: W1 = 0.5, W2 = 0.3, W3 = 0.2.? (Marks 0.5) (word count maximum:100)
3. Forecast the demand for week 7 using exponential smoothing. Use an α value of .1 and assume the forecast for week 6 was 602 units? (Marks 1) (word count maximum:100)
4. What assumptions are made in each of the above forecasts? (Marks 0.5) (word count maximum:150)

Answer 1

a) 5 period moving average = Average value of last 5 period = (Week 2+Week 3+Week 4+Week 5+Week 6)Actual value/5 = (524+561+738+511+590)/5 = 584.80

b) Weighted moving average for three period:

Forecast (t+3) = Weight (t+2)*Period (t+2) + Weight (t+1)*Period (t+1) + Weight (t)*Period (t)

Forecast for Week 7 = 0.5*738 + 0.3*511 + 0.2*590 = 640.30

c) Exponential smoothing:

Forecast (t+1) = Forecast (t) + alpha*(Actual (t) – Forecast (t))

Forecast Week 7 = Forecast Week 6 + 0.1*(Actual Week 6 – Forecast Week 6) = 602 + 0.1*(590 – 602) = 600.80

d) In case of weighted moving average, it is assumed that value of W1 is for latest week, W2 is for week before latest week and W3 is for week before W2.

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