Question

For a product the forecast and actual sales for December 2002 were 25 and 20 respectively. If the exponential smoothing constant is taken as 0.2, then forecast sale for January 2003 would be
1. 21
2. 23
3. 24
4. 27

Answer 1

Correct Answer - Option 3 : 24

Concept:

When actual demand and forecast for previous month is known, we can calculate the forecast for current month by the relation:

\(F_t=F_{t-1}\;+\;\alpha(D_{t-1}\;-\;F_{t-1})\)

F_t-1 = forecast for previous month/year

D_t-1 = demand for previous month/year

F_t = forecast for current month

Calculation:

Given:

Forecast sale for December 2002 (F_t-1) =  25, Actual sales for December 2002 (D_t-1) = 20, Exponential smoothing constant (α) = 0.2

Forecast sales for January 2003 is given by

\(F_t=F_{t-1}\;+\;\alpha(D_{t-1}\;-\;F_{t-1})\)

F_t = 25 + 0.2(20 - 25) ⇒ 24 unit.