Problem 5-24

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Problem 5-24

• Sales of industrial vacuum cleaners at R.
  Lowenthal Supply Co. over the past 13 months are
  as follows

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(a) Moving average with three periods, determine
the demand for vacuum cleaners for next February.
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• (b) Using a weighted moving
• average with three periods,
• determine the demand for
• vacuum cleaners for February.
• Use 3, 2, and 1 for the weights
• of the most recent periods.

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Weighted Moving Average with Three Periods
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• (c) Evaluate the accuracy of each of these
  methods.
• The mean absolute deviation (MAD) of the moving
  average and weighted moving average is computed
  by taking the sum of the absolute values of the
  individual forecast errors and dividing by the
  number of errors (n).

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Forecast Error of the MAD.Sum of absolute values
of the individual forecast errors divided by the
number of errors n10
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Forecast Error of the Weighted MAD.Sum of
absolute values of the individual forecast errors
divided by the number of errors n10
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• (d) What other factors might R. Lowenthal
  consider in forecasting sales?
• Two problems with moving average method.
• 1. Increasing the size of n smoothes out
  fluctuations better, but makes the method less
  sensitive to real changes in the data.
• 2. Cannot pick up trends very well because they
  are averages, using past levels and will not
  predict a change to a higher or a lower level.