8. Talbot Publishing Company’s production planning manager has provided the following historical sales data for its leading textbook on forecasting:

The firm is considering using a basic exponential smoothing model with α = 0.2 to forecast this item’s sales.

a. Use the sales average of 20,000 units through year 3 as the forecast for period 4. Prepare forecasts for years 5 through 7 as of the end of year 4.

b. Calculate the average error and MAD value for the three forecasts using the actual sales data provided. Estimate the standard deviation of the forecast errors using the calculated MAD.

c. Redo the forecasts and MAD calculations, updating the forecasts for years 6 and 7 at the end of years 5 and 6, respectively. What do you observe?

Transcribed Image Text:

Year 5 6 7 Sales (in 21 18 20 17 1,000 units)