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# Forecasting and Forecasting Errors in Business

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Should your division be using moving average, weighted average, or exponential smoothing in forecasting calculations? Why?
What are some sources of forecast errors?
What is a control chart, and what is the benefit to using them for forecasting errors?
What are aggregate capacity requirements, and how could they be applied?

#### Solution Preview

Should your division be using moving average, weighted average, or exponential smoothing in forecasting calculations? Why?

I will be selecting exponential smoothing because the trends in the last few years have been quite different as compared to previous years and thus, I want to give more weightage to the demand in the more recent periods as compared to earlier periods.

What are some sources of forecast errors?

Some of the sources of forecast errors include wrong use of forecasting ...

#### Solution Summary

Discusses forecasting errors, control chart, aggregate capacity requirements.

\$2.19

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.

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