John Kittle, an independent insurance agent, uses a five-year moving average to forecast the number of claims made in a single year for one of the large insurance companies he sells for. He has just discovered that a clerk in his employ incorrectly entered the number of claims made four years ago as 1,400 when it should have been 1,200.a. What adjustment should Mr. Kittle make in next year’s forecast to take into account the corrected value of the number of claims four years ago?b. Suppose that Mr. Kittle used simple exponential smoothing with a = .2instead of moving averages to determine his forecast. What adjustment is now required in next year’s forecast? (Note that you do not need to know the value of the forecast for next year in order to solve this problem.)
John Kittle, an independent insurance agent, uses a five-year moving average to forecast the number of claims made in a single year for one of the large insurance companies he sells for. He has just discovered that a clerk in his employ incorrectly entered the number of claims made four years ago as 1,400 when it should have been 1,200.
a. What adjustment should Mr. Kittle make in next year’s forecast to take into account the corrected value of the number of claims four years ago?
b. Suppose that Mr. Kittle used simple exponential smoothing with a = .2
instead of moving averages to determine his forecast. What adjustment is now required in next year’s forecast? (Note that you do not need to know the value of the forecast for next year in order to solve this problem.)
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