CMA Intermediate · Operations Management and Strategic Management · Operations Planning
A Jaipur textile unit uses single exponential smoothing with alpha = 0.3. Its forecast for the last month was 200 units and the actual demand turned out to be 240 units. What is the forecast for the next month?
The next forecast is 212 units. Exponential smoothing adjusts the old forecast by alpha times the forecast error: 200 + 0.3 x (240 - 200) = 212. The forecast therefore moves only 30 percent of the way toward actual demand.
- A212 unitsCorrect
- B228 units
- C220 units
- D240 units
Explanation
New forecast = old forecast + alpha x (actual - old forecast) = 200 + 0.3 x (240 - 200) = 200 + 12 = 212 units. The 228 option wrongly uses alpha = 0.7 as the weight on error (200 + 0.7 x 40). The 220 option is the simple average of 200 and 240, which implies alpha = 0.5.
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