Answer:
a. Year 6 Forecast = 3,775
b. Mean Absolute Deviation (MAD) = 108.3
c. Year 6 Forecast = 3,780
Explanation:
Given
The miles driven during the past 5 years are as follows
Year 1 -- 3,100
Year 2 --- 4,050
Year 3 --- 3,450
Year 4 ---- 3,750
Year 5 --- 3,800
a. The forecast for year 6 is calculated as follows;
Using a 2 year moving average
Forecast = ½(Year 4 + Year 5)
Forecast = ½(3750 + 3800)
Forecast = ½ * 7550
Forecast = 3,775
b. Calculating the Mean Absolute Deviation (MAD), if two years moving average is used.
------------------------------2 year difference ----- Difference
Year 1 -- 3,100 ------------------------------------------
Year 2 --- 4,050 -----------------------------------------
Year 3 --- 3,450 ---- 3,575 -------- 125
Year 4 ---- 3,750 ---- 3,750 ------ 0
Year 5 --- 3,800 ----- 3,600 ------ 200
The 2-year difference column is calculated using.
Summation of previous 2 years forecast * ½
Year 1 and 2 are empty because they don't have previous 2 years.
For year 3;
2 year difference = ½ (year 1 + year 2)
= ½(3,100 + 4,050)
= ½ (7,150)
= 3,575
For year 4
2 year difference = ½ (year 2 + year 3)
= ½(4,050 + 3,750)
= ½ (7,500)
= 3,750
For year 5:
2 year difference = ½ (year 3 + year 4)
= ½(3,750 + 3,450)
= ½ (7,200)
= 3,600
Mean Absolute Deviation (MAD) = (Summation of Difference)/3
Mean Absolute Deviation (MAD) = (125 + 0 + 200)
Mean Absolute Deviation (MAD) = 325/3
Mean Absolute Deviation (MAD) = 108.3
c. for year 6 using a weighted 2-year moving average with weights of 0.40 and 0.60
For year 5:
Forecast = 0.4 * year 4 + 0.6 * year 5
= 0.4(3,750) + 0.6(3,800)
= 3,780
