Monthly demand for a product has been as follows in the last 2 months. July 60 unitsAugust 56 unitsWhat is the forecast for September using exponential smoothing with alpha = 0.4 if the forecast for July was 70 units?

The forecast for September using exponential smoothing with alpha = 0.4 is  62.

Explanation:

Forecasting Formula

Forecasting the next point is determined using the forecasting formula is the basic equation

S(t+1)=αy(t)+(1−α)S(t), 0<α≤1,t>0.

α = alpha =0.4

New forecast S(t+1) is previous forecast S(t) plus an error adjustment. This can be written as:

S(t+1)=S(t)+αϵ(t),

where ϵ(t) is the forecast error (actual - forecast) for period t.

In other words, the new forecast is the old one plus an adjustment for the error that occurred in the last forecast.

New forecast for August  S(t+1) = 0.4×60 + (1-0.4)×70

                                                   = 66

New forecast for September S(t+1) =0.4×56 + (1-0.4)×66

                                                          =62

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