Question

Suppose that demand in period 1 was 7 units and the demand in period 2 was 9 units. Assume that the forecast for period 1 was for 5 units. If the firm uses exponential smoothing with an alpha value of .20, what should be the forecast for period 3? (Round answers to two decimal places.)

Answer 1

Explanation:

Forecast for period 1 is 5

Demand For Period 1 is 7

Demand for Period 2 is 9

Forecast can be given by

`F_(t+1)=F_t+\alpha (D_t-F_t)`

where

`F_(t+1)=Future Forecast`

`F_t=Present\ Period\ Forecast`

`D_t=Present\ Period\ Demand`

`\alpha =smoothing\ constant`

`F_(t+1)=5+0.2(7-5)`

`F_(t+1)=5.4`

Forecast for Period 3

`F_(t+2)=F_(t+1)+\alpha (D_(t+1)-F_(t+1))`

`F_(t+2)=5.4+0.2\cdot (9-5.4)`

`F_(t+2)=6.12`