Suppose that demand in period 1 was 7 units and the demand in period 2 was 9 units. Assume that the forecast for period 1 was for 5 units. If the firm uses exponential smoothing with an alpha value of .20, what should be the forecast for period 3? (Round answers to two decimal places.)
A) 9.00
B) 3.72
C) 9.48
D) 5.00
E) 6.12

Question

Quizplus · Accepted Answer

The forecast for period 3 using exponential smoothing is calculated as follows: Forecast for period 3 = Forecast for period 2 + α(Actual demand in period 2 - Forecast for period 2). Given that the forecast for period 1 was 5 units and the actual demand in period 1 was 7 units, we first update the forecast for period 2: Forecast for period 2 = 5 + 0.20(7 - 5) = 5 + 0.20(2) = 5 + 0.40 = 5.40. Then, we update the forecast for period 3 using the actual demand in period 2 (9 units): Forecast for period 3 = 5.40 + 0.20(9 - 5.40) = 5.40 + 0.20(3.60) = 5.40 + 0.72 = 6.12.

Suppose That Demand in Period 1 Was 7 Units and the Demand