Use a simple moving average of three periods to forecast the demand for October. What is the forecast?
Understand the Problem
The question is asking to calculate the forecast demand for October by using a simple moving average based on the demand figures for the three previous months: July, August, and September.
Answer
The forecast for October is $70,252$.
Answer for screen readers
The forecast for October is $70,252$.
Steps to Solve
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Identify the relevant data To forecast the demand for October using a moving average, we need the demand values for July, August, and September.
- July: 69,602
- August: 70,348
- September: 70,806
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Calculate the total of the previous three months' demand We will sum the demand figures for July, August, and September.
$$ \text{Total Demand} = 69,602 + 70,348 + 70,806 $$
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Calculate the average demand Next, we divide the total demand by the number of periods (which is 3).
$$ \text{Forecast for October} = \frac{\text{Total Demand}}{3} $$
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Compute the final values Now we will compute the total and then the average based on that total.
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Total Demand: $$ \text{Total Demand} = 69,602 + 70,348 + 70,806 = 210,756 $$
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Average Demand (Forecast for October): $$ \text{Forecast for October} = \frac{210,756}{3} = 70,252 $$
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The forecast for October is $70,252$.
More Information
Using a simple moving average allows businesses to smooth out demand fluctuations and make more informed decisions based on historical data.
Tips
- Forgetting to include all three months: Ensure that you sum only the last three months' figures.
- Incorrectly dividing the total by the number of periods: Remember to divide by 3 for a three-month average.
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