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Mean Absolute Percent Error

An electronic test equipment manufacturing company markets a certain piece of specialty equipment. The company has several competitors who currently market similar pieces of equipment. hile customers have repeatedly indicated they prefer the company's equipment, they have historically proven to be unwilling to wait for the company to manufacture this certain piece of equipment on demand and will purchase equipment from the company's competitors in the event the company does not have the desired equipment available in inventory for immediate delivery. Thus, the key to the company successfully maintaining market share for this particular piece of equipment has been to have it available in stock for immediate delivery. Unfortunately, it is a rather expensive piece of equipment to maintain in inventory and customer demand tends to fluctuate. Thus, the president of the company is very interested in accurately forecasting market demand in order to ensure he has adequate inventory available to meet customer demand without incurring undue inventory costs. His sales department has provided the following historical data regarding market demand for this piece of equipment for the past 24 months. Use this data to answer questions 1 through 9.

Time Period Actual Number of Units Sold
1 87
2 75
3 83
4 68
5 85
6 79
7 78
8 69
9 74
10 81
11 76
12 74
13 73
14 80
15 77
16 75
17 69
18 73
19 74
20 71
21 67
22 64
23 70
24 72

1. What is the projected demand for the equipment for time period 25 based upon using a 3-month moving average forecast model?

2. What is the mean absolute percent error (MAPE) for months 4 through 24 based upon using a 3-month moving average forecast model?

3. What is the projected demand for the equipment for time period 25 based upon using a 3-month weighted moving average forecast model for which the weighting factor for actual demand one month ago is 3, the weighting factor for actual demand two months ago is 2, and the weighting factor for actual demand three months ago is 1?

4. What is the mean absolute percent error (MAPE) for months 4 through 24 based upon using a 3-month weighted moving average forecast model for which the weighting factor for actual demand one month ago is 3, the weighting factor for actual demand two months ago is 2, and the weighting factor for actual demand three months ago is 1?

5. What is the projected demand for the equipment for time period 25 based upon using an exponential smoothing forecast model for which alpha = 0.35?

6. What is the mean absolute percent error (MAPE) for months 1 through 24 based upon using an exponential smoothing forecast model for which alpha = 0.35?

7. What is the projected demand for the equipment for time period 25 based upon using a regression forecast model for which the desired confidence level is 95%?

8. What is the mean absolute percent error (MAPE) for months 1 through 24 based upon using a regression forecast model for which the desired confidence level is 95%?

9. Based upon comparing the mean absolute percent error (MAPE) values for the four forecasting models, which of the forecast models provides the greatest degree of forecasting accuracy?

Solution Preview

See the attached file.

1. What is the projected demand for the equipment for time period 25 based upon using a 3-month moving average forecast model?
Projected demand for period 25: (64+70+72)/3=68.67
2. What is the mean absolute percent error (MAPE) for months 4 through 24 based upon using a 3-month moving average forecast model?

Please see attachment for table.

First, we figure out the predicted value for each time period. Then we use the formula to figure out the individual absolute percentage error: absolute value of (actual-predicted)/actual*100%.
After figure out each absolute percentage error, we take the average to obtain MAPE:
(20.10%+11.37%+...+6.94%)/21=6.15%.

3. What is the projected demand for the equipment for time period 25 based upon using a 3-month weighted moving average forecast model for which the weighting factor for actual demand one month ago is 3, the weighting ...

Solution Summary

The solution determines the mean absolute percent error.

$2.19