Suppose that you are using the simple mean to make a forecast. This period's forecast was equal to 1000 units, and it was based on 99 periods of demand. This period's actual demand was 0 units. What is your forecast for next period?

Next period forecast units = 990 units

Explanation:

Simple Mean formula:

⇒ Mean = Sum of observations

No. of observations

⇒ 1000 = Sum of observations

99

⇒ Sum of observations = 1000 x 99

⇒ Sum of observations = 99,000

The next period actual demand was 0 units. Now,

⇒ Sum of observations = 99,000 + 0

⇒ Sum of observations = 99,000

Forecast next period units using simple mean:

⇒ Mean = 99,000

100

⇒ Mean = 990 units

Next period forecast is 990 units

Explanation:

The next period forecast van be computed thus:

this period forecast based on 99 periods

this period forecast figure was 1000 units

This period actual demand was 0 units

note the that the next period forecast would be based on 100 periods (current forecast periods plus 1)

100 periods * next period forecast=this period forecast*99 periods+actual demand this period

100 * next period forecast=1000*99+0

next period forecast = (1000*99+0) / 100

next period forecast = 990 units

This fact that this period actual demand was zero has made the next forecast to reduce viz-a-viz this period forecast of 1000 units