A check-processing center uses exponential smoothing to forecast the number of incoming checks each month. The number of checks received in June was 42 million, while the forecast was 42 million. A smoothing constant of 0.15 is used. A) What is the forecast for July? B) If the center received 45 million chekcs in July, what would be the forecast for August? C) Why might this be an inappropriate forecasting method for this situation?

Question

Business

Pierce Trevino

4 November, 23:52

A check-processing center uses exponential smoothing to forecast the number of incoming checks each month. The number of checks received in June was 42 million, while the forecast was 42 million. A smoothing constant of 0.15 is used. A) What is the forecast for July? B) If the center received 45 million chekcs in July, what would be the forecast for August? C) Why might this be an inappropriate forecasting method for this situation?

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Answers (1)

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Yair Gill · Answer 1

A. Forecast for July = 42.

B. Forecast for August = 42.45

C. Because of seasonality in the banking industry.

Explanation:

A. Forecast for July = Forecast for June + Smoothing constant x (Forecasting error)

= 42 + 0.15 (42-42) = 42

B. Forecast for August = Forecast for July + 0.15 (Forecasting error)

= 42 + 0.15 (45-42) = 42.45

C. Because there is a great deal of seasonality in the processing requirements of banking industry, this forecasting method (exponential smoothing) might not be appropriate for this situation.