Question:

Actual demand for 8 months:

January

February

March

April

May

June

July

August

14

13

12

14

11

15

10

12

Calculate demand for September using 2 months moving average and 2 months weighted moving
average in which recent one is 0.7.
Which Method should the company use?
Answer:
January

February

March

April

May

June

July

August

14

13

12

14

11

15

10

12

Moving Average:
March = 14 + 13 = 27 = 13.5
2
2
April = 13 + 12 = 25 = 12.5
2
2
May = 12 + 14 = 26 = 13
2
2
June = 14 + 11 = 25 = 12.5
2
2
July =

11 + 15 = 26 = 13
2
2

August = 15 + 10 = 25 = 12.5
2
2
September = 12 + 10 = 22 = 11
2
2

January February

March

April

May

June

July

August

12

14

11

15

10

12

Forecast

13.5

12.5

13

12.5

13

12.5

Deviation

1.5

-1.5

-2.5

0.5

|Deviation|

1.5

1.5

2.5

0.5

Actual

14

13

Mean Absolute Deviation = 1.5 + 1.5 + 2 + 2.5 + 3 + 0.5

6
= 11
6
= 1.833
Weighted Moving Average:
January

February

March

April

May

June

July

August

14

13

12

14

11

15

10

12

March = 13 * 0.7 + 14 * 0.3

= 9.1 + 4.2
= 13.3
April = 12 * 0.7 + 13 * 0.3
= 8.4 + 3.9
= 12.3
May = 14 * 0.7 + 12 * 0.3
= 9.8 + 3.6

= 13.4
June = 11 * 0.7 + 14 * 0.3
= 7.7 + 4.2
= 11.9
July = 15 * 0.7 + 11 * 0.3
= 10.5 + 3.3
= 13.8
August = 10 * 0.7 + 15 * 0.3
= 7 + 4.5
= 11.5
September = 12 * 0.7 + 10 * 0.3
= 8.4 + 3
= 11.4

January February

March

April

May

June

July

August

12

14

11

15

10

12

Forecast

13.3

12.3

13.4

11.9

13.8

11.5

Deviation

1.3

-1.7

2.4

-3.1

3.8

-0.5

|Deviation|

1.3

1.7

2.4

3.1

3.8

0.5

Actual

14

13

Mean Absolute Deviation = 1.3 + 1.7 + 2.4 + 3.1 + 3.8 + 0.5

6
= 12.8
6
= 2.133

MAD for Moving Average = 1.833

MAD for Weighted Moving Average = 2.133
Hence, the company should use moving average method since the value is lower.