CMA Final · Strategic Cost Management · Business Forecasting Models - Time Series and Regression Analysis
Exponential smoothing with alpha = 0.4 is used by a Chennai retailer. The forecast for May was 500 units and actual May sales were 560 units. What is the forecast for June?
The June forecast is 524 units. Exponential smoothing adds alpha times the forecast error to the previous forecast: 500 + 0.4 x (560 - 500) = 524. Using 0.6 instead of 0.4 would wrongly give 536.
- A524Correct
- B536
- C500
- D548
Explanation
F(June) = F(May) + alpha x (A - F) = 500 + 0.4 x 60 = 524. The value 536 results from using alpha = 0.6 (weights reversed), which is a wrong weighting.
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