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# Forecasting Techniques: Moving Average and Exponential Smoothing

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The Carbondale Hospital is considering the purchase of a new ambulance. The decision will rest partly on the anticipated mileage to be driven next year. The miles driven during the past 5 years are as follows:
YEAR MILEAGE
1 3,000
2 4,000
3 3,400
4 3,800
5 3,700

a) Forecast the mileage for next year (6th year) using a 2 year moving average.
b) Find the MAD based on the 2 year moving average. (Hint; You will have only 3 years of matched data).
c) Use a weighted 2 year moving average with weights of .4 and .6 forecast next year's mileage. (The weight of .6 is for most recent year.) What MAD results from using this approach to forecasting? (Hint; You will have only 3 years of matched data).
d) Complete the forecast for year 6 using exponential smoothing, an initial forecast for year 1 of 3,000 miles and α = .5

#### Solution Summary

This solution depicts the steps to forecast the mileage by moving average and exponential smoothing techniques.

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## Moving average and exponential smoothing methods of forecasting.

The K&M company has the following historical sales data:

Year Sales
2001 \$200,000
2002 \$300,000
2003 \$270,000
2004 \$280,000
2005 \$320,000

1) Using the moving average method, predict sales for 2006 using the data for all of the years provided.

2) Using the exponential smoothing and that data for all of the years provided, predict sales for 2006. Assume that the most recent years are the most representative of future sales. In other words, 2005 is more representative of future sales than 2004, that 2004 is more representative than 2003, etc.

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