Question

Exotic Wines, Inc. wants to use exponential smoothing with α = 0.8 to forecast demand in bottles sold. The demand the last four months are 2,421, 4,097, 3,345, and 4,312 bottles. The forecast for bottles was 2,421 bottles for the second month. What is the forecast for the fifth month? Round your answer to the nearest whole number.

Answer 1

The forecast for fifth month demand in bottles using exponential smoothing with a smoothing factor of 0.8 is approximately 4,154 bottles.

Step-by-step explanation:

The student is asking about forecasting demand using exponential smoothing, which is a time series forecasting method for univariate data. In this scenario, we are given the demand for the last four months and the smoothing factor (α = 0.8). We are also given the forecasted demand for the second month. To compute the demand forecast for the fifth month (the next month), we will use the exponential smoothing formula:

Forecastt+1 = α * Actual + (1 - α) * Forecast

Let's calculate the forecast step by step for months 3, 4, and 5:

1. Forecast for month 3: (0.8 * 4,097) + (0.2 * 2,421) = 3,277.6 + 484.2 = 3,761.8
2. Forecast for month 4: (0.8 * 3,345) + (0.2 * 3,761.8) ≈ 3,426.24
3. Forecast for month 5: (0.8 * 4,312) + (0.2 * 3,426.24) ≈ 4,153.79

Therefore, the forecast for the fifth month is approximately 4,154 bottles, rounding to the nearest whole number.