Given the following data, use exponential smoothing (α = .2) to develop a demand forecast for period 3. Assume the forecast for the initial period is 5. What is the forecast? Period Demand 1 7 2 9 a. 9 b. 3.72 c. 9.48 d. 5 e. 6.12

Forecast [Period 3] = 6.12

Explanation:

Given:

Period    Actual Demand    Forecast   Error (actual demand - Forecast )

1                7                  5                     2

2                9                  ?                         ?

3                     ?           ?                         ?

Computation:

Forecast [Period 2] = Forecast [Period 1]  + (α)(error)

Forecast [Period 2] = 5 + (0.2)(2)

Forecast [Period 2] = 5.4

Forecast [Period 3] = Forecast [Period 2] + (α)(error)

Forecast [Period 3] = 5.4 + (0.2)(3.6)

Forecast [Period 3] = 6.12

Note:

Period    Actual Demand    Forecast   Error (actual demand - Forecast )

1                7                  5                     2

2                9                  5.4                     3.6

3                     ?           6.12                       ?

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