Question

A check-processing center uses exponential smoothing to forecast the number of incoming checks each month. The number of checks received in June was 40 million, while the forecast was 42 million. A smoothing constant of .2 is used. a) What is the forecast for July? b) If the center received 45 million checks in July, what would be the forecast for August? c) Why might this be an inappropriate forecasting method for this situation?

Answer 1

Answer:

a. 41.6 million

b. 42.28 million

Explanation:

The computations are shown below:

a. For the forecast for July month:

= Number of checks received in June × smoothing constant + (1 - smoothing constant) × forecast in June

= 40 million × 0.2 + (1 - 0.2) × 42 million

= 8 million + 33.6 million

= 41.6 million

b. For the forecast for August month:

= Number of checks received in  July × smoothing constant + (1 - smoothing constant) × forecast in July

= 45 million × 0.2 + (1 - 0.2) × 41.6 million

= 9 million + 33.28 million

= 42.28 million

c. In this, the exponential method is used. But in the given situation we use linear forecasting method