13. Historical demand for a product is as follows Demand 60 April May June July

Question

13. Historical demand for a product is as follows Demand 60 April May June July August September 75 60 80 75 a. Using a simple four-month moving average, calculate a forecast for October. b Using single exponential smoothing with ? = 0.2 and a September forecast-65, calculate a forecast for October. c. Using simple linear regression, calculate the trend line for the historical data. Let's say the X axis is April 1, May 2 and so on, while the Y axis is demand. d. Calculate a forecast for October using your regression formula

Explanation / Answer

Answer to question a :

Forecast for October =   ( Demand for June +   Demand for July + Demand for August + demand for September ) /4

                                   = ( 75 + 60 + 80 + 75 ) /4

                                    = 72.50

FORECAST FOR OCTOBER = 72.50

Answer to question b :

Forecast for October

= alpha x demand for September + ( 1 – alpha) x Forecast for September

= 0.2 x 75 + 0.8 x 65

= 15 + 52

= 67

FORECAST FOR OCTOBER = 67

Answer to question c :

Let Y = a + b.X

Where ,

Y = Demand

X = Serial number of month

A, b = Constants

We place all the values of X and Y in 2 adjacent columns in excel and apply the formula LINEST ( ) . Accordingly , we obtain following values of a and b :

A = 54

B = 3.857

Therefore , regression equation is   : Y = 54 + 3.857.X

TREND LINE : Y = 54 + 3.857.X

Answer to question D :

To calculate forecast for October, we need to use X = 7

Therefore forecast for October = 54 + 3.857 x 7 = 54 + 26.999 ( 27 rounded to nearest whole number ) = 81

FORECAST FOR OCTOBER = 81

FORECAST FOR OCTOBER = 72.50

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