Actual sales of a company (in millions of dollars) for January through April are

Question

Actual sales of a company (in millions of dollars) for January through April are shown below January February March April May Sales 95 110 105 110 a 0.3 to compute the exponential smoothing values for sales. Compute MSE and Use forecast sales for May. Show all of your computations from February through May. a. b. Use a 0.1 to compute the exponential smoothing values for sales. Compute MSE and c. Based on MSE, which a provides a better forecast? Explain why? forecast sales for May. Show all of your computations from February through May.

Explanation / Answer

Sol,

a) Exponential Smmothing at alpha =0.3

Forcast Value can be calculated by

Ffeb=0.3* Sale( Jan)+0.7* FJan( Since forcasted data of jan is not given hence we                    assume Fjan=Sales(jan))

FMarch=0.3* Sale( Feb)+0.7* FFeb= 0.3*110+0.7*95= 99.5,

Also MSE= Mean square Error calculated by Calculating Error of alll monts and Squaring them and then finding the average. Hence

MSE= 111.19

Also Calculated Forecast For may

Fmay=0.3*110+0.7*101.15=103.81.

b) Similary Smoothing at alpha = 0.1

Also,

FMarch=0.1* Sale( Feb)+0.9* Ffeb

Also MSE calculated as 152.42

and also

Fmay=0.1*110+0.9*97.35=98.62

c) Based on alpha smoothing at o.3 and 0.1 as Mean Squared error calculated and compared , then it is clear that using 0.1 as Exponential Smoothing creates more MSE, hence It is evident that Smoothing With alpha= 0.3 will provide a better forecast. .

Month Sales Forecast( alpha=0.3) F Error Squared Error January 95 February 110 95 15 225 March 105 99.5 5.5 30.25 April 110 101.15 8.85 78.32 May 103.81 MSE= 111.19

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