Certified Production & Operations Manager (POM) Practice Exam

What is the forecast for this year using exponential smoothing with alpha = .4 if the forecast for two years ago was 750?

1. 300

2. 163

3. 420

4. 510

The correct answer is: 510

To find the forecast using exponential smoothing, you start with the formula: \( F_t = \alpha \times A_{t-1} + (1 - \alpha) \times F_{t-1} \) where: - \( F_t \) is the new forecast, - \( \alpha \) is the smoothing constant (given as 0.4), - \( A_{t-1} \) is the actual value from the previous period, - \( F_{t-1} \) is the forecast from the previous period. In this scenario, since we only have the forecast from two years ago and not the actual value for the year before the most recent one, we will assume that this is a steady state forecast where the actual values are approximated with the last known forecast. Starting with the forecast two years ago at 750, for the first year, if we just assume the actual for that year was roughly 750 (as a simplification), the calculation would look as follows: Let's consider that the forecast for the past year equals 750. So, for Year 1: - \( A_0 \) (actual for year one) = 750 - \( F_0 \)