Forecasting sales and mean square error
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6. Observed monthly sales of a popular brand tennis shoe at a medium-sized sports store at the town?s mall over the first six months of the year are given in the following table.
Month Jan Feb Mar Apr May June July Aug
Demand 26 30 33 45 36 40 38 42
a) Use a three-month moving average method to forecast the sales for the months April through September. Also compute the mean squared error (MSE) based on the sales and forecasts for months April through August.
b) If the forecast for January was 25, determine the forecast for sales for the months February through September using an exponential smoothing method with alpha = 0.60. Also compute the mean squared error (MSE) based on the sales and forecasts for months April through August.
c) Which method would you recommend based on MSE? Why?
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Solution Summary
This solution compares two forecasting methods for forecasting the sales of tennis shoes: 3-month moving average and exponential smoothing. Then the mean squared errors (MSE) are calculated and a better forecasting method is chosen.
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Dear Student:
In this exercise you are looking for two different methods of forecasting and then choosing the better option. No individual forecasting method is better than another; it depends upon the actual situation, which one gives a more reliable result.
All the calculations are in the ...
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