Introduction to Management Science 12th Edition by Bernard Taylor

Exercise 41

In Problem in Chapter , Carpet City orders Soft Shag carpet from its own mill. Using the 3-month moving average forecast of demand for month 9 as the monthly forecasts for all of next year, a production rate at the mill of 1,200 yards per day (with the mill operating 260 days per year), an annual carrying cost of $0.63, a $425 cost for setting up a production run and delivering the carpet to the store, and a lead time for receiving an order of 7 days, determine the optimal order size, the minimum total annual inventory cost, and the reorder point (given that Carpet City is open 360 days per year).
Problem
The manager of the Carpet City outlet needs to make an accurate forecast of the demand for Soft Shag carpet (its biggest seller). If the manager does not order enough carpet from the carpet mill, customers will buy their carpet from one of Carpet City's many competitors. The manager has collected the following demand data for the past 8 months:
a. Compute a 3-month moving average forecast for months 4 through 9.
b. Compute a weighted 3-month moving average forecast for months 4 through 9. Assign weights of.55,.33, and.12 to the months in sequence, starting with the most recent month.
c. Compare the two forecasts by using MAD. Which forecast appears to be more accurate