CMA Intermediate · Operations Management and Strategic Management · Operations Planning
A Surat firm's forecasts and actual demand for four months were: Month 1 forecast 100, actual 110; Month 2 forecast 120, actual 110; Month 3 forecast 130, actual 150; Month 4 forecast 140, actual 130. What is the Mean Absolute Deviation (MAD) of the forecasts?
MAD is 12.5 units. The absolute forecast errors are 10, 10, 20 and 10, totalling 50, and dividing by four months gives 12.5. Signed errors must not be averaged because positive and negative errors would offset each other and hide the true error size.
- A12.5 unitsCorrect
- B10 units
- C15 units
- D0 units
Explanation
Errors (actual - forecast): +10, -10, +20, -10. Absolute errors: 10, 10, 20, 10, sum = 50. MAD = 50/4 = 12.5 units. The 0 option comes from summing signed errors (+10 -10 +20 -10 = 10, bias, not zero) and 10 is the mean of signed errors wrongly used as 40/4... both ignore absolute values.
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