Question 1. Data collected on the yearly demand for 50-pound bags of fertilizer at Wallace Garden Supply are shown in the following table. Develop a three-year moving average to forecast sales. Then estimate demand again with a weighted moving average in which sales in the most recent year are given a weight of 2 and sales in the other two years are each given the weight of 1. Which method do you think is best?
|
3 period moving averages
|
|
Year
|
Demand
|
Forecast
|
Error
|
Absolute error
|
|
1
|
4
|
|
|
|
|
2
|
6
|
|
|
|
|
3
|
4
|
|
|
|
|
4
|
5
|
4.67
|
0.33
|
0.33
|
|
5
|
10
|
5.00
|
5.00
|
5.00
|
|
6
|
8
|
6.33
|
1.67
|
1.67
|
|
7
|
7
|
7.67
|
-0.67
|
0.67
|
|
8
|
9
|
8.33
|
0.67
|
0.67
|
|
9
|
12
|
8.00
|
4.00
|
4.00
|
|
10
|
14
|
9.33
|
4.67
|
4.67
|
|
11
|
15
|
11.67
|
3.33
|
3.33
|
Next period 13.67
MAD 2.54
|
Weighted moving averages
|
|
Year
|
Actual value
|
Weights
|
Forecast
|
Error
|
Absolute error
|
|
1
|
4
|
1
|
|
|
|
|
2
|
6
|
1
|
|
|
|
|
3
|
4
|
2
|
|
|
|
|
4
|
5
|
|
4.50
|
0.50
|
0.50
|
|
5
|
10
|
|
5.00
|
5.00
|
5.00
|
|
6
|
8
|
|
7.25
|
0.75
|
0.75
|
|
7
|
7
|
|
7.75
|
-0.75
|
0.75
|
|
8
|
9
|
|
8.00
|
1.00
|
1.00
|
|
9
|
12
|
|
8.25
|
3.75
|
3.75
|
|
10
|
14
|
|
10.00
|
4.00
|
4.00
|
|
11
|
15
|
|
12.25
|
2.75
|
2.75
|
Next period 14.00
MAD 2.313
Weighted moving average is slightly more accurate than 3-period moving average as MAD for Weighted moving average is less among the two.
Question 2. Develop a trend line for the demand of fertilizer in above problem.
Question 3. Three different forecasts were developed for the demand for fertilizer. (3 year moving average, weighted moving average, and a trend line. Which would you use? Explain