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Exponential Smoothing Model: Given the annual sales (in $1000s) for a small business Year Sales. Year...

Exponential Smoothing Model: Given the annual sales (in $1000s) for a small business Year Sales.

Year Sales
1 283
2 288
3 336
4 388
5 406
6 412
7 416
8 435
9 428
10 435
11 462
12 452
13 474
14 476
15 497
16 487
17 523
18 528
19 532
20 552

answer the following questions. a) Please use Exponential Smoothing method to forecast the sales in Period 21. Show your result in the spreadsheet. Notice that you should use Solver to determine the optimal value of Alpha, where the optimal Alpha minimizes the MSE. b) What is the optimal value of Alpha? c) What the corresponding MSE using this method?

business   Operations-Management   
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Answer #1

Let's assume alpha = 0.5 and then later optimize it.

In exponential smoothing, we assume forecast for period 1 = Actual value for period 1

MSE is least when alpha = 1

MSE for alpha =1 is 473.150

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