Chapter 2, Problem 47AP

A

Summary Introduction

To determine: The adjustment that should be made by Mr. Kittle to make in next year’s forecast to take into account the corrected value of the number of claims four years ago Introduction: Forecasting is the main function of predicting the future using the information available for decision making. It is a mechanism for planning decisions based on the predicted information.

Answer to Problem 47AP

There should be a decrease in forecast by 40.

Explanation of Solution

Computing the difference made four years ago

Number of claims = 1400-1200

N = 200

Since it is a five year moving average, the change in calculation is shown below:

C = $\frac{200}{5}=40$

Therefore, there should be a decrease in forecast by 40.

B

Summary Introduction

To calculate: The adjustment required for next year’s forecast

Introduction: Forecasting is the main function of predicting the future using the information available for decision making. It is a mechanism for planning decisions based on the predicted information.

Answer to Problem 47AP

The exponential smoothing forecasting, there should be a decrease of 16.384

Explanation of Solution

Considering exponential smoothing constant, $\alpha =0.2$ , the forecast is shown below:

  $\begin{array}{c}\alpha {\left(1-\alpha \right)}^n=\left(0.2\right){\left(0.8\right)}^4\\ =\boxed{0.08192}\end{array}$

Adjustment forecast =

  $\begin{array}{l}200\left(0.08192\right)\\ =\boxed{16.384}\end{array}$