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CMA Intermediate · Management Accounting · Forecasting, Budgeting and Budgetary Control

A Chennai company uses exponential smoothing with alpha = 0.3. The forecast for the last month was 200 units and the actual sales were 250 units. What is the forecast for the next month?

The next forecast is 215 units. Exponential smoothing gives weight 0.3 to the actual sales of 250 (75) and weight 0.7 to the old forecast of 200 (140), totalling 215. Swapping the weights would wrongly give 235.

  1. A215 unitsCorrect
  2. B225 units
  3. C235 units
  4. D245 units

Explanation

New forecast = alpha x actual + (1 - alpha) x old forecast = 0.3 x 250 + 0.7 x 200 = 75 + 140 = 215 units. The option 235 comes from swapping the weights (0.7 on actual: 175+60).

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