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CMA Intermediate · Operations Management and Strategic Management · Operations Planning

Rohan Foods forecast demand for a product in July as 500 units using exponential smoothing with alpha 0.2. Actual July demand was 600 units. A second approach uses alpha 0.6 from the same July forecast. What is the August forecast under alpha 0.6, and how does it compare with the alpha 0.2 forecast?

With alpha 0.6 the forecast is 500 + 0.6×(600-500) = 560, while alpha 0.2 gives 500 + 0.2×100 = 520. The higher alpha gives a forecast 40 units higher because it weights recent demand more heavily.

  1. A560; higher by 40 than the alpha 0.2 forecast of 520Correct
  2. B560; higher by 20 than the alpha 0.2 forecast of 540
  3. C540; higher by 40 than the alpha 0.2 forecast of 500
  4. D580; higher by 60 than the alpha 0.2 forecast of 520

Explanation

New forecast = old forecast + alpha(actual - old forecast). Alpha 0.2: 500 + 0.2×100 = 520. Alpha 0.6: 500 + 0.6×100 = 560. Difference = 40. A higher alpha reacts faster to recent demand.

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