Chapter 4 Exercise Question 1 Income at the architectural firm Spraggins and Yun

Question

Chapter 4 Exercise Question 1 Income at the architectural firm Spraggins and Yunes for the period February to July was as follows Month February March pri MayJuneJuly Income 90 91.5 96 854 92.2 96 a. What is the naive forecast for the month of August? What is its MAD? b. What is the two-month average forecast for the month of August? What is its MSE? c. What is the weighted two month average forecast for the month of August (weights are 0.6,0.4)? What is its MAPE? d. What is the exponential forecast for the month of August with smoothing constant alpha as o.2? e If using exponential forecast, what is the tracking signal for July?

Explanation / Answer

Answer A) By use of MAD ( mean absolute Deviation )

Aug sales = July + MAD

Answer b) MSE for two months basis.

Answer C)

MAPE

Answer d) exponential constant formula :

Alpha*Sales of previous month+(1- Alpha )* forecast of previous month.

Answer E)

Tracking Signal for July = Accumulated Forecast Errors / Mean Absolute Deviation

= 8.5/ 1.87 = 4.54 .

Naïve Model period month sales forecast error ABS(error) 1     Feb 90 - - - 2     Mar 91.5 90 1.5 1.5 3     Apr 96 91.5 4.5 4.5 4     May 85.4 96 -10.6 10.6 5     June 92.2 85.4 6.8 6.8 6     July 96 92.2 3.8 3.8 7     Aug 98.47 0 0 0 0.55 2.47 BIAS MAD

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