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Business Forecasting: Exponential Smoothing

HP uses the AMD chip in some of its desktop computers. The prices for the chip during the last 12 months were as follows:

Month Price per Chip
January $1.80
February $1.67
March $1.70
April $1.85
May $1.90
June $1.87
July $1.80
August $1.83
September $1.70
October $1.65
November $1.70
December $1.75

A. Use a 2 month moving average on all the data and plot the averages and prices.
B. Use a 3 month moving average and add the 3 month plot to the graph created in part (A)
C. Which is better (using the mean absolute deviation): the 2 month average or the 3 month average?
D. Compute the forecasts for each month using exponential smoothing, with an initial forecast for January of $1.80 Use α = .3, and finally α = .5 Using MAD, which α is the best?

Must show all work via excel.

Solution Summary

This response compares the 2 month moving average and the 3 month moving average of HP.

$2.19