CMA Final · Strategic Cost Management · Business Forecasting Models - Time Series and Regression Analysis
A firm uses exponential smoothing with alpha = 0.3. The forecast for March was 200 units and actual March demand was 240 units. What is the forecast for April?
The April forecast is 212 units. Exponential smoothing adds alpha times the forecast error to the previous forecast: 200 + 0.3 × (240 - 200) = 212. Applying 0.7 to the error instead would wrongly give 228.
- A212Correct
- B228
- C204
- D240
Explanation
New forecast = old forecast + alpha(actual - old forecast) = 200 + 0.3(40) = 212. Using 0.7 as the weight on the error gives 228, which swaps alpha and (1 - alpha).
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