Kanyay Records Inc. sells music of various artists online. Monthly sales for the last six-month period were as follows:
Month: Actual Sales:
September 24,000
October 27,500
November 24,000
December 25,100
January 21,400
A) Calculate what the forecast sales volume for February using both forecast model #1 and forecast model #2
Forecast Model 1: A four month moving average
Forecast model 2: Exponential smoothing with a=0.4 and a sales forecast for November of 25,000
Formulas: errort = Demandt - Forecastt and (Exp. smoothing) Forecastt = Forecastt-1 + smoothing coefficient * (Demandt-1 – Forecastt-1)
B) For forecast model #1, if you used a six month moving average (instead of a 4 month moving average), would your forecast be more or less affected by outliers in demand?
C) Kanyay Records Inc. also sells music CDs at their Times Square store in New York City. For their music CDs, they have already calculated what the forecasts would have been using Forecast Model A and Forecast Model B. Monthly CD demand and the forecast results using Forecast Model A and Forecast Model B for the last four-month period were as follows:
Month Demand Forecast A Forecast B
Sept 2,400 2,450 2,450
Oct 2,750 2,500 2,600
Nov 2,400 2,600 2,500
Dec 2,410 2,550 2,500
1. Calculate the MFE and MAD for both Forecast Model A and Forecast Model B
2. Which of the forecasting models would you reccomend for future use on the music CDs in the store. Explain why.