The forecast was 70 units for the current period while actual demand was 76.The forecast for the next period is 75.8.What is alpha if a simple exponential smoothing forecast method is being used?
A)0.004
B)0.967
C)0.040
D)0.097

Question

Quizplus · Accepted Answer

Using the formula for simple exponential smoothing, we can calculate alpha as follows: 
Actual demand for current period = 76 
Forecast for current period = 70 
Forecast for next period = 75.8

76 = α(70) + (1-α)(70 + ε) 
76 = 70α + 70 - αε 
6 = α(ε) 
ε = 6/α

75.8 = α(76) + (1-α)(70 + ε) 
75.8 = 76α + 70 - αε 
5.8 = α(ε) 
5.8 = 6

Therefore, α = 0.967 (nearest three decimal places), which is the answer choice B.

The Forecast Was 70 Units for the Current Period While