Problem 5-17 Data collected on the yearly demand for 50-pound bags of fertilizer at Wallace

Garden Supply are shown in the following table. Develop a 3-year moving average to forecast
sales. Then estimate demand again with a weighted moving average in which sales in the most
recent year are given a weight of 2 and sales in the other 2 years are each given a weight of 1.
Which method do you think is best?

DEMAND FOR FERTILIZER

YEAR
(1000S OF BAGS)
1 4
2 6
3 4
4 5
5 10
6 8
7 7
8 9
9 12
10 14
11 15

Answer:

In this case, the weighted moving average method is the better method as the Mean Absolute
Deviation (MAD) is lower and only 2.313 as compared to 2.542 for the three-year moving
average method. What it actually means is that each forecast missed the actual value by 2.313
units instead of 2.542 units. It can provide a better forecast as it can give a more accurate
projection. Although there might be one potential problem, the correct weight should be inputted
in the calculations because it might cause random fluctuations.

Please refer to the following tables for the calculation.

Table 1: 3-Year Moving Average Forecasting Results

Table 2: 3-Year Moving Average Details and Error Analysis

Table 3: 3-Year Moving Average Errors as a function of n

Table 4: 3-Year Moving Average Control (Tracking Signal)

 3-Year Moving Average Graph

Table 5: Weighted Moving Average Forecasting Results

Table 6: Weighted Moving Average Details and Error Analysis

Table 7: Weighted Moving Average Control (Tracking Signal)

Weighted Moving Average Graph