The Carbondale Hospital is considering the purchase of a new ambulance. The deci

Question

The Carbondale Hospital is considering the purchase of a new ambulance. The decision will rest partly on the anticipated mileage to be driven next year. The miles driven during the past 5 years are as follows: Year 1 2 3 4 5

Mileage 3050 4050 3400 3850 3800

a) Using a 2-year moving average, the forecast for year 6 = ____miles (round your response to the nearest whole number).

b) If a 2-year moving average is used to make the forecast, the MAD based on this = _____miles (round your response to one decimal place). (Hint: You will have only 3 years of matched data.)

Explanation / Answer

Following to be noted :

Forecast basis moving average ;

Ft = 0.50 x At-1 + 0.50 x At-2

Where,

Ft = Forecast for period t using weighted moving average method

At-1 , At-2 = Actual mileage for period t-1 and t-2 respectively

a)Accordingly , forecast for year 6 using weighted moving average = 3825 miles

Using a 2 year moving average , the forecast for year 6 = 3825

b)Absolute deviation for period t = absolute difference between Ft and At

Based on above, please find below Forecast and value of absolute deviation for year 3, 4 and 5 :

Year

Actual Mileage

Forecast (2 year moving average)

Absolute deviation ( AD)

1

3050

2

4050

3

3400

3550

150

4

3850

3725

125

5

3800

3625

175

6

3825

Sum of absolute deviation values = 150 + 125 + 175 = 450

Therefore, Mean absolute deviation ( MAD ) = 450 / 3 = 150

If a 2 year moving average is used to make the forecast , the MAD based on this =150 miles

Using a 2 year moving average , the forecast for year 6 = 3825

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