Suppose that the 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.)
A) 9.00
B) 3.72
C) 9.48
D) 5.00
E) 6.12

Question

Quizplus · Accepted Answer

The forecast for period 2 is calculated using the formula for exponential smoothing: Forecast for next period = Forecast for current period + α(Actual demand in current period - Forecast for current period). For period 2, this is 5 + 0.20(7 - 5) = 5 + 0.40 = 5.40. For period 3, using the actual demand of 9 for period 2, the forecast is 5.40 + 0.20(9 - 5.40) = 5.40 + 0.72 = 6.12.

Suppose That the Demand in Period 1 Was 7 Units