Problem 5-24

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# Problem 5-24 - PowerPoint PPT Presentation

Problem 5-24. Sales of industrial vacuum cleaners at R. Lowenthal Supply Co. over the past 13 months are as follows:. (a) Moving average with three periods, determine the demand for vacuum cleaners for next February. (b) Using a weighted moving average with three periods,

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Problem 5-24

Sales of industrial vacuum cleaners at R. Lowenthal Supply Co. over the past 13 months are as follows:

Angie Cook

(a) Moving average with three periods, determine the demand for vacuum cleaners for next February.

Angie Cook

(b) Using a weighted moving

average with three periods,

determine the demand for

vacuum cleaners for February.

Use 3, 2, and 1 for the weights

of the most recent periods.

Angie Cook

(c) Evaluate the accuracy of each of these methods.

The mean absolute deviation (MAD) of the moving average and weighted moving average is computed by taking the sum of the absolute values of the individual forecast errors and dividing by the number of errors (n).

Angie Cook

Forecast Error of the MAD.Sum of absolute values of the individual forecast errors divided by the number of errors n=10

Angie Cook

Forecast Error of the Weighted MAD.Sum of absolute values of the individual forecast errors divided by the number of errors n=10

Angie Cook

(d) What other factors might R. Lowenthal consider in forecasting sales?

Two problems with moving average method.

1. Increasing the size of n smoothes out fluctuations better, but makes the method less sensitive to real changes in the data.

2. Cannot pick up trends very well because they are averages, using past levels and will not predict a change to a higher or a lower level.

Angie Cook