The manager of the Carpet City outlet needs to make an accurate forecast of the demand for Soft Shag carpet (its biggest seller). If the manager does not order enough carpet from the carpet mill, customers will buy their carpet from one of Carpet City's many competitors. The manager has collected the following demand data for the past eight months.
Month Demand for Soft Shag Carpet (1,000 yd)
a) Compute a three-month moving average forecast for months 4 through 9
b) Compute a weighted three-month moving average forecast for months 4 through 9 Assign weights of .55, .33, and .12 to the months in sequence, starting with the most recent month.
c) Compare the two forecasts using MAD (mean absolute deviation). Which forecast appears to be more accurate?
Solve using EXCEL.
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The solution computes a three-month moving average forecast and a weighted three-month moving average forecast and compares the two forecasts using MAD (mean absolute deviation).