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Chapter 03 - Forecasting

Chapter 03
Forecasting
True / False Questions

1. Forecasting techniques generally assume an existing causal system that will continue to
exist in the future.
True False

2. For new products in a strong growth mode, a low alpha will minimize forecast errors when
using exponential smoothing techniques.
True False

3. Once accepted by managers, forecasts should be held firm regardless of new input since
many plans have been made using the original forecast.
True False

4. Forecasts for groups of items tend to be less accurate than forecasts for individual items
because forecasts for individual items don't include as many influencing factors.
True False

5. Forecasts help managers plan both the system itself and provide valuable information for
using the system.
True False

6. Organizations that are capable of responding quickly to changing requirements can use a
shorter forecast horizon and therefore benefit from more accurate forecasts.
True False

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7. When new products or services are introduced, focus forecasting models are an attractive
option.
True False

8. The purpose of the forecast should be established first so that the level of detail, amount of
resources, and accuracy level can be understood.
True False

9. Forecasts based on time series (historical) data are referred to as associative forecasts.
True False

10. Time series techniques involve identification of explanatory variables that can be used to
predict future demand.
True False

11. A consumer survey is an easy and sure way to obtain accurate input from future customers
since most people enjoy participating in surveys.
True False

12. The Delphi approach involves the use of a series of questionnaires to achieve a consensus
forecast.
True False

13. Exponential smoothing adds a percentage (called alpha) of last period's forecast to
estimate next period's demand.
True False

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14. The shorter the forecast period, the more accurately the forecasts tend to track what
actually happens.
True False

15. Forecasting techniques that are based on time series data assume that future values of the
series will duplicate past values.
True False

16. Trend adjusted exponential smoothing uses double smoothing to add twice the forecast
error to last period's actual demand.
True False

17. Forecasts based on an average tend to exhibit less variability than the original data.
True False

18. The naive approach to forecasting requires a linear trend line.


True False

19. The naive forecast is limited in its application to series that reflect no trend or seasonality.
True False

20. The naive forecast can serve as a quick and easy standard of comparison against which to
judge the cost and accuracy of other techniques.
True False

21. A moving average forecast tends to be more responsive to changes in the data series when
more data points are included in the average.
True False

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22. In order to update a moving average forecast, the values of each data point in the average
must be known.
True False

23. Forecasts of future demand are used by operations people to plan capacity.
True False

24. An advantage of a weighted moving average is that recent actual results can be given
more importance than what occurred a while ago.
True False

25. Exponential smoothing is a form of weighted averaging.


True False

26. A smoothing constant of .1 will cause an exponential smoothing forecast to react more
quickly to a sudden change than a smoothing constant value of .3.
True False

27. The T in the model TAF = S+T represents the time dimension (which is usually expressed
in weeks or months).
True False

28. Trend adjusted exponential smoothing requires selection of two smoothing constants.
True False

29. An advantage of "trend adjusted exponential smoothing" over the "linear trend equation"
is its ability to adjust over time to changes in the trend.
True False

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30. A seasonal relative (or seasonal indexes) is expressed as a percentage of average or trend.
True False

31. In order to compute seasonal relatives, the trend of past data must be computed or known
which means that for brand new products this approach can't be used.
True False

32. Removing the seasonal component from a data series (de-seasonalizing) can be
accomplished by dividing each data point by its appropriate seasonal relative.
True False

33. If a pattern appears when a dependent variable is plotted against time, one should use time
series analysis instead of regression analysis.
True False

34. Curvilinear and multiple regression procedures permit us to extend associative models to
relationships that are non-linear or involve more than one predictor variable.
True False

35. The sample standard deviation of forecast error is equal to the square root of MSE.
True False

36. Correlation measures the strength and direction of a relationship between variables.
True False

37. MAD is equal to the square root of MSE which is why we calculate the easier MSE and
then calculate the more difficult MAD.
True False

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38. In exponential smoothing, an alpha of 1.0 will generate the same forecast that a nave
forecast would yield.
True False

39. A forecast method is generally deemed to perform adequately when the errors exhibit an
identifiable pattern.
True False

40. A control chart involves setting action limits for cumulative forecast error.
True False

41. A tracking signal focuses on the ratio of cumulative forecast error to the corresponding
value of MAD.
True False

42. The use of a control chart assumes that errors are normally distributed about a mean of
zero.
True False

43. Bias exists when forecasts tend to be greater or less than the actual values of time series.
True False

44. Bias is measured by the cumulative sum of forecast errors.


True False

45. Seasonal relatives can be used to de-seasonalize data or incorporate seasonality in a


forecast.
True False

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46. The best forecast is not necessarily the most accurate.


True False

47. A proactive approach to forecasting views forecasts as probable descriptions of future


demand, and requires action to be taken to meet that demand.
True False

48. Simple linear regression applies to linear relationships with no more than three
independent variables.
True False

49. An important goal of forecasting is to minimize the average forecast error.


True False

50. Forecasting techniques such as moving averages, exponential smoothing, and the naive
approach all represent smoothed (averaged) values of time series data.
True False

51. In exponential smoothing, an alpha of .30 will cause a forecast to react more quickly to a
large error than will an alpha of .20.
True False

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Multiple Choice Questions

52. Forecasts based on judgment and opinion don't include


A. executive opinion
B. salesperson opinion
C. second opinions
D. customer surveys
E. Delphi methods

53. In business, forecasts are the basis for:


A. capacity planning
B. budgeting
C. sales planning
D. production planning
E. all of the above

54. Which of the following features would not generally be considered common to all
forecasts?
A. Assumption of a stable underlying causal system.
B. Actual results will differ somewhat from predicted values.
C. Historical data is available on which to base the forecast.
D. Forecasts for groups of items tend to be more accurate than forecasts for individual items.
E. Accuracy decreases as the time horizon increases.

55. Which of the following is not a step in the forecasting process?


A. determine the purpose and level of detail required
B. eliminate all assumptions
C. establish a time horizon
D. select a forecasting model
E. monitor the forecast

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56. Minimizing the sum of the squared deviations around the line is called:
A. mean squared error technique
B. mean absolute deviation
C. double smoothing
D. least squares estimation
E. predictor regression

57. The two general approaches to forecasting are:


A. mathematical and statistical
B. qualitative and quantitative
C. judgmental and qualitative
D. historical and associative
E. precise and approximation

58. Which of the following is not a type of judgmental forecasting?


A. executive opinions
B. sales force opinions
C. consumer surveys
D. the Delphi method
E. time series analysis

59. Accuracy in forecasting can be measured by:


A. MSE
B. MRP
C. MAPE
D. MTM
E. A & C

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60. Which of the following would be an advantage of using a sales force composite to develop
a demand forecast?
A. The sales staff is least affected by changing customer needs.
B. The sales force can easily distinguish between customer desires and probable actions.
C. The sales staff is often aware of customers' future plans.
D. Salespeople are least likely to be influenced by recent events.
E. Salespeople are least likely to be biased by sales quotas.

61. Which phrase most closely describes the Delphi technique?


A. associative forecast
B. consumer survey
C. series of questionnaires
D. developed in India
E. historical data

62. The forecasting method which uses anonymous questionnaires to achieve a consensus
forecast is:
A. sales force opinions
B. consumer surveys
C. the Delphi method
D. time series analysis
E. executive opinions

63. One reason for using the Delphi method in forecasting is to:
A. avoid premature consensus (bandwagon effect)
B. achieve a high degree of accuracy
C. maintain accountability and responsibility
D. be able to replicate results
E. prevent hurt feelings

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64. Detecting non-randomness in errors can be done using:


A. MSEs
B. MAPs
C. Control Charts
D. Correlation Coefficients
E. Strategies

65. Gradual, long-term movement in time series data is called:


A. seasonal variation
B. cycles
C. irregular variation
D. trend
E. random variation

66. The primary difference between seasonality and cycles is:


A. the duration of the repeating patterns
B. the magnitude of the variation
C. the ability to attribute the pattern to a cause
D. the direction of the movement
E. there are only 4 seasons but 30 cycles

67. Averaging techniques are useful for:


A. distinguishing between random and non-random variations
B. smoothing out fluctuations in time series
C. eliminating historical data
D. providing accuracy in forecasts
E. average people

68. Putting forecast errors into perspective is best done using


A. Exponential smoothing
B. MAPE
C. Linear decision rules
D. MAD
E. Hindsight

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69. Using the latest observation in a sequence of data to forecast the next period is:
A. a moving average forecast
B. a naive forecast
C. an exponentially smoothed forecast
D. an associative forecast
E. regression analysis

70. For the data given below, what would the naive forecast be for the next period (period
#5)?

A. 58
B. 62
C. 59.5
D. 61
E. cannot tell from the data given

71. Moving average forecasting techniques do the following:


A. immediately reflect changing patterns in the data
B. lead changes in the data
C. smooth variations in the data
D. operate independently of recent data
E. assist when organizations are relocating

72. Which is not a characteristic of simple moving averages applied to time series data?
A. smoothes random variations in the data
B. weights each historical value equally
C. lags changes in the data
D. requires only last period's forecast and actual data
E. smoothes real variations in the data

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73. In order to increase the responsiveness of a forecast made using the moving average
technique, the number of data points in the average should be:
A. decreased
B. increased
C. multiplied by a larger alpha
D. multiplied by a smaller alpha
E. eliminated if the MAD is greater than the MSE

74. A forecast based on the previous forecast plus a percentage of the forecast error is:
A. a naive forecast
B. a simple moving average forecast
C. a centered moving average forecast
D. an exponentially smoothed forecast
E. an associative forecast

75. Which is not a characteristic of exponential smoothing?


A. smoothes random variations in the data
B. weights each historical value equally
C. has an easily altered weighting scheme
D. has minimal data storage requirements
E. smoothes real variations in the data

76. Which of the following smoothing constants would make an exponential smoothing
forecast equivalent to a naive forecast?
A. 0
B. .01
C. .1
D. .5
E. 1.0

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77. Simple exponential smoothing is being used to forecast demand. The previous forecast of
66 turned out to be four units less than actual demand. The next forecast is 66.6, implying a
smoothing constant, alpha, equal to:
A. .01
B. .10
C. .15
D. .20
E. .60

78. Given an actual demand of 59, a previous forecast of 64, and an alpha of .3, what would
the forecast for the next period be using simple exponential smoothing?
A. 36.9
B. 57.5
C. 60.5
D. 62.5
E. 65.5

79. Given an actual demand of 105, a forecasted value of 97, and an alpha of .4, the simple
exponential smoothing forecast for the next period would be:
A. 80.8
B. 93.8
C. 100.2
D. 101.8
E. 108.2

80. Which of the following possible values of alpha would cause exponential smoothing to
respond the most quickly to forecast errors?
A. 0
B. .01
C. .05
D. .10
E. .15

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81. A manager uses the following equation to predict monthly receipts: Yt = 40,000 + 150t.
What is the forecast for July if t = 0 in April of this year?
A. 40,450
B. 40,600
C. 42,100
D. 42,250
E. 42,400

82. In trend-adjusted exponential smoothing, the trend adjusted forecast (TAF) consists of:
A. an exponentially smoothed forecast and a smoothed trend factor
B. an exponentially smoothed forecast and an estimated trend value
C. the old forecast adjusted by a trend factor
D. the old forecast and a smoothed trend factor
E. a moving average and a trend factor

83. In the "additive" model for seasonality, seasonality is expressed as a ______________


adjustment to the average; in the multiplicative model, seasonality is expressed as a
__________ adjustment to the average.
A. quantity, percentage
B. percentage, quantity
C. quantity, quantity
D. percentage, percentage
E. qualitative, quantitative

84. Which technique is used in computing seasonal relatives?


A. double smoothing
B. Delphi
C. Mean Squared Error (MSE)
D. centered moving average
E. exponential smoothing

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85. A persistent tendency for forecasts to be greater than or less than the actual values is
called:
A. bias
B. tracking
C. control charting
D. positive correlation
E. linear regression

86. Which of the following might be used to indicate the cyclical component of a forecast?
A. leading variable
B. Mean Squared Error (MSE)
C. Delphi technique
D. exponential smoothing
E. Mean Absolute Deviation (MAD)

87. The primary method for associative forecasting is:


A. sensitivity analysis
B. regression analysis
C. simple moving averages
D. centered moving averages
E. exponential smoothing

88. Which term most closely relates to associative forecasting techniques?


A. time series data
B. expert opinions
C. Delphi technique
D. consumer survey
E. predictor variables

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89. Which of the following corresponds to the predictor variable in simple linear regression?
A. regression coefficient
B. dependent variable
C. independent variable
D. predicted variable
E. demand coefficient

90. The mean absolute deviation (MAD) is used to:


A. estimate the trend line
B. eliminate forecast errors
C. measure forecast accuracy
D. seasonally adjust the forecast
E. all of the above

91. Given forecast errors of 4, 8, and - 3, what is the mean absolute deviation?
A. 4
B. 3
C. 5
D. 6
E. 12

92. Given forecast errors of 5, 0, - 4, and 3, what is the mean absolute deviation?
A. 4
B. 3
C. 2.5
D. 2
E. 1

93. Given forecast errors of 5, 0, - 4, and 3, what is the bias?


A. - 4
B. 4
C. 5
D. 12
E. 6

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94. Which of the following is used for constructing a control chart?


A. mean absolute deviation (MAD)
B. mean squared error (MSE)
C. tracking signal (TS)
D. bias
E. none of the above

95. The two most important factors in choosing a forecasting technique are:
A. cost and time horizon
B. accuracy and time horizon
C. cost and accuracy
D. quantity and quality
E. objective and subjective components

96. The degree of management involvement in short range forecasts is:


A. none
B. low
C. moderate
D. high
E. total

97. Which of the following is not necessarily an element of a good forecast?


A. estimate of accuracy
B. timeliness
C. meaningful units
D. low cost
E. written

98. Current information on _________ can have a significant impact on forecast accuracy:
A. prices
B. promotion
C. inventory
D. competition
E. all of the above

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99. A managerial approach toward forecasting which seeks to actively influence demand is:
A. reactive
B. proactive
C. influential
D. protracted
E. retroactive

100. Customer service levels can be improved by better:


A. mission statements
B. control charting
C. short term forecast accuracy
D. exponential smoothing
E. customer selection

101. Given the following historical data, what is the simple three-period moving average
forecast for period 6?

A. 67
B. 115
C. 69
D. 68
E. 68.67

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102. Given the following historical data and weights of .5, .3, and .2, what is the three-period
moving average forecast for period 5?

A. 144.20
B. 144.80
C. 144.67
D. 143.00
E. 144.00

103. Use of simple linear regression analysis assumes that:


A. Variations around the line are random.
B. Deviations around the line are normally distributed.
C. Predictions are to be made only within the range of observed values of the predictor
variable.
D. all of the above
E. none of the above

104. Given forecast errors of - 5, - 10, and +15, the MAD is:
A. 0
B. 10
C. 30
D. 175
E. none of these

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Essay Questions

105. Develop a forecast for the next period, given the data below, using a 3-period moving
average.

106. Consider the data below:

Using exponential smoothing with alpha = .2, and assuming the forecast for period 11 was 80,
what would the forecast for period 14 be?

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107. A manager is using exponential smoothing to predict merchandise returns at a suburban


branch of a department store chain. Given a previous forecast of 140 items, an actual number
of returns of 148 items, and a smoothing constant equal to .15, what is the forecast for the
next period?

108. A manager is using the equation below to forecast quarterly demand for a product:
Yt = 6,000 + 80t where t = 0 at Q2 of last year
Quarter relatives are Q1 = .6, Q2 = .9, Q3 = 1.3, and Q4 = 1.2.
What forecasts are appropriate for the last quarter of this year and the first quarter of next
year?

109. Over the past five years, a firm's sales have averaged 250 units in the first quarter of each
year, 100 units in the second quarter, 150 units in the third quarter, and 300 units in the fourth
quarter. What are appropriate quarter relatives for this firm's sales? Hint: Only minimal
computations are necessary.

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110. A manager has been using a certain technique to forecast demand for gallons of ice
cream for the past six periods. Actual and predicted amounts are shown below. Would a naive
forecast have produced better results?

111. A new car dealer has been using exponential smoothing with an alpha of .2 to forecast
weekly new car sales. Given the data below, would a naive forecast have provided greater
accuracy? Explain. Assume an initial exponential forecast of 60 units in period 2 (i.e., no
forecast for period 1).

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112. A CPA firm has been using the following equation to predict annual demand for tax
audits: Yt = 55 + 4t Demand for the past few years is shown below. Is the forecast performing
as well as it might? Explain.

113. Given the data below, develop a forecast for period 6 using a four-period weighted
moving average and weights of .4, .3, .2 and .1

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114. Use linear regression to develop a predictive model for demand for burial vaults based on
sales of caskets.

A) Develop the regression equation.

115. Given the following data, develop a linear regression model for y as a function of x.

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116. Given the following data, develop a linear regression model for y as a function of x.

117. Develop a linear trend equation for the data on bread deliveries shown below. Forecast
deliveries for period 11 through 14.

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Multiple Choice Questions

118. The president of State University wants to forecast student enrollments for this academic
year based on the following historical data:

What is the forecast for this year using the naive approach?
A. 18,750
B. 19,500
C. 21,000
D. 22,000
E. 22,800

Essay Questions

119. Demand for the last four months was:

A) Predict demand for July using each of these methods:


1) a 3-period moving average
2) exponential smoothing with alpha equal to .20 (use a nave forecast for April for your first
forecast)
B) If the naive approach had been used to predict demand for April through June, what would
MAD have been for those months?

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120. A manager wants to choose one of two forecasting alternatives. Each alternative was
tested using historical data. The resulting forecast errors for the two are shown in the table.
Analyze the data and recommend a course of action to the manager.

121. A manager uses this equation to predict demand: Yt = 20 + 4t. Over the past 8 periods,
demand has been as follows. Are the results acceptable? Explain.

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Multiple Choice Questions

The president of State University wants to forecast student enrollments for this academic year
based on the following historical data:

122. What is the forecast for this year using a four-year simple moving average?
A. 18,750
B. 19,500
C. 21,000
D. 22,650
E. 22,800

123. What is the forecast for this year using exponential smoothing with alpha = 0.5, if the
forecast for two years ago was 16,000?
A. 18,750
B. 19,500
C. 21,000
D. 22,650
E. 22,800

124. What is the forecast for this year using the least squares trend line for these data?
A. 18,750
B. 19,500
C. 21,000
D. 22,650
E. 22,800

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125. What is the forecast for this year using trend adjusted (double) smoothing with alpha = .
05 and beta = 0.3, if the forecast for last year was 21,000, the forecast for two years ago was
19,000, and the trend estimate for last year's forecast was 1,500?
A. 18,750
B. 19,500
C. 21,000
D. 22,650
E. 22,800

The business analyst for Video Sales, Inc. wants to forecast this year's demand for DVD
decoders based on the following historical data:

126. What is the forecast for this year using the naive approach?
A. 163
B. 180
C. 300
D. 420
E. 510

127. What is the forecast for this year using a three-year weighted moving average with
weights of .5, .3, and .2?
A. 163
B. 180
C. 300
D. 420
E. 510

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128. What is the forecast for this year using exponential smoothing with alpha = .4, if the
forecast for two years ago was 750?
A. 163
B. 180
C. 300
D. 420
E. 510

129. What is the forecast for this year using the least squares trend line for these data?
A. 163
B. 180
C. 300
D. 420
E. 510

130. What is the forecast for this year using trend adjusted (double) smoothing with alpha =
0.3 and beta = 0.2, if the forecast for last year was 310, the forecast for two years ago was
430, and the trend estimate for last year's forecast was -150?
A. 162.4
B. 180.3
C. 301.4
D. 403.2
E. 510.0

Professor Very Busy needs to allocate time next week to include time for office hours. He
needs to forecast the number of students who will seek appointments. He has gathered the
following data:

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131. What is this week's forecast using the naive approach?


A. 45
B. 50
C. 52
D. 65
E. 78

132. What is this week's forecast using a three-week simple moving average?
A. 49
B. 50
C. 52
D. 65
E. 78

133. What is this week's forecast using exponential smoothing with alpha = .2, if the forecast
for two weeks ago was 90?
A. 49
B. 50
C. 52
D. 65
E. 77

134. What is this week's forecast using the least squares trend line for these data?
A. 49
B. 50
C. 52
D. 65
E. 78

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135. What is this week's forecast using trend adjusted (double) smoothing with alpha = 0.5
and beta = 0.1, if the forecast for last week was 65, the forecast for two weeks ago was 75,
and the trend estimate for last week's forecast was -5?
A. 49.3
B. 50.6
C. 51.3
D. 65.4
E. 78.7

A concert promoter is forecasting this year's attendance for one of his concerts based on the
following historical data:

136. What is this year's forecast using the naive approach?


A. 22,000
B. 20,000
C. 18,000
D. 15,000
E. 12,000

137. What is this year's forecast using a two-year weighted moving average with weights of .7
and .3?
A. 19,400
B. 18,600
C. 19,000
D. 11,400
E. 10,600

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138. What is this year's forecast using exponential smoothing with alpha = .2, if last year's
smoothed forecast was 15,000?
A. 20,000
B. 19,000
C. 17,500
D. 16,000
E. 15,000

139. What is this year's forecast using the least squares trend line for these data?
A. 20,000
B. 21,000
C. 22,000
D. 23,000
E. 24,000

140. The previous trend line had predicted 18,500 for two years ago, and 19,700 for last year.
What was the mean absolute deviation (MAD) for these forecasts?
A. 100
B. 200
C. 400
D. 500
E. 800

The dean of a school of business is forecasting total student enrollment for this year's summer
session classes based on the following historical data:

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141. What is this year's forecast using the naive approach?


A. 2,000
B. 2,200
C. 2,800
D. 3,000
E. none of the above

142. What is this year's forecast using a three-year simple moving average?
A. 2,667
B. 2,600
C. 2,500
D. 2,400
E. 2,333

143. What is this year's forecast using exponential smoothing with alpha = .4, if last year's
smoothed forecast was 2600?
A. 2,600
B. 2,760
C. 2,800
D. 3,840
E. 3,000

144. What is the annual rate of change (slope) of the least squares trend line for these data?
A. 0
B. 200
C. 400
D. 180
E. 360

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145. What is this year's forecast using the least squares trend line for these data?
A. 3,600
B. 3,500
C. 3,400
D. 3,300
E. 3,200

The owner of Darkest Tans Unlimited in a local mall is forecasting this month's (October's)
demand for the one new tanning booth based on the following historical data:

146. What is this month's forecast using the naive approach?


A. 100
B. 160
C. 130
D. 140
E. 120

147. What is this month's forecast using a four-month weighted moving average with weights
of .4, .3, .2, and .1?
A. 120
B. 129
C. 141
D. 135
E. 140

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148. What is this month's forecast using exponential smoothing with alpha = .2, if August's
forecast was 145?
A. 144
B. 140
C. 142
D. 148
E. 163

149. What is the monthly rate of change (slope) of the least squares trend line for these data?
A. 320
B. 102
C. 8
D. -0.4
E. -8

150. What is this month's forecast using the least squares trend line for these data?
A. 1,250
B. 128.6
C. 102
D. 158
E. 164

151. Which of the following mechanisms for enhancing profitability is most likely to result
from improving short term forecast performance?
A. increased inventory
B. reduced flexibility
C. higher-quality products
D. greater customer satisfaction
E. greater seasonality

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152. Which of the following changes would tend to shorten the time frame for short term
forecasting?
A. bringing greater variety into the product mix
B. increasing the flexibility of the production system
C. ordering fewer weather-sensitive items
D. adding more special-purpose equipment
E. none of the above

153. Which of the following helps improve supply chain forecasting performance?
A. contracts that require supply chain members to formulate long term forecasts
B. penalties for supply chain members that adjust forecasts
C. sharing forecasts or demand data across the supply chain
D. increasing lead times for critical supply chain members
E. increasing the number of suppliers at critical junctures in the supply chain

154. Inaccuracies in forecasts along the supply chain lead to:


A. shortages or excesses of materials
B. reduced customer service
C. excess capacity
D. missed deliveries
E. all of the above

155. Which of the following is the most valuable piece of information the sales force can
bring into forecasting situations?
A. what customers are most likely to do in the future
B. what customers most want to do in the future
C. what customers' future plans are
D. whether customers are satisfied or dissatisfied with their performance in the past
E. what the salesperson's appropriate sales quota should be

3-38

Chapter 03 - Forecasting

Essay Questions

156. What is this year's forecast using the naive approach?

157. What is this year's forecast using a four-year simple moving average?

158. What is this year's forecast using exponential smoothing with alpha = .25, if last year's
smoothed forecast was 45?

3-39

Chapter 03 - Forecasting

159. What are this and next year's forecasts using the least squares trend line for these data?

160. What is this year's forecast using trend adjusted (double) smoothing with alpha = 0.2 and
beta = 0.1, if the forecast for last year was 56, the forecast for two years ago was 46, and the
trend estimate for last year's forecast was 7?

161. What is the centered moving average for spring two years ago?

3-40

Chapter 03 - Forecasting

162. What is the spring's seasonal relative?

163. What is the linear regression trend line for these data (t = 0 for spring, three years ago)?

164. What is this year's seasonally adjusted forecast for each season?

3-41

Chapter 03 - Forecasting

Chapter 03 Forecasting Answer Key

True / False Questions

1. Forecasting techniques generally assume an existing causal system that will continue to
exist in the future.
TRUE
Forecasts depend on the rules of the game remaining reasonably constant.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Medium
Learning Objective: 03-03 Evaluate at least three qualitative forecasting techniques and the advantages and disadvantages of each.
Topic Area: Features Common to All Forecasts

2. For new products in a strong growth mode, a low alpha will minimize forecast errors when
using exponential smoothing techniques.
FALSE
If growth is strong, alpha should be large so that the model will catch up more quickly.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3. Once accepted by managers, forecasts should be held firm regardless of new input since
many plans have been made using the original forecast.
FALSE
Flexibility to accommodate major changes is important to good forecasting.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Easy
Learning Objective: 03-02 Outline the steps in the forecasting process.
Topic Area: Steps in the Forecasting Process

3-42

Chapter 03 - Forecasting

4. Forecasts for groups of items tend to be less accurate than forecasts for individual items
because forecasts for individual items don't include as many influencing factors.
FALSE
Forecasting for an individual item is more difficult than forecasting for a number of items.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Medium
Learning Objective: 03-02 Outline the steps in the forecasting process.
Topic Area: Features Common to All Forecasts

5. Forecasts help managers plan both the system itself and provide valuable information for
using the system.
TRUE
Both planning and use are shaped by forecasts.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Easy
Learning Objective: 03-01 List the elements of a good forecast.
Topic Area: Introduction

6. Organizations that are capable of responding quickly to changing requirements can use a
shorter forecast horizon and therefore benefit from more accurate forecasts.
TRUE
If an organization can react quicker, its forecasts need not be so long term.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Medium
Learning Objective: 03-02 Outline the steps in the forecasting process.
Topic Area: Elements of a Good Forecast

3-43

Chapter 03 - Forecasting

7. When new products or services are introduced, focus forecasting models are an attractive
option.
FALSE
Because focus forecasting models depend on historical data, they're not so attractive for newly
introduced products or services.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Easy
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

8. The purpose of the forecast should be established first so that the level of detail, amount of
resources, and accuracy level can be understood.
TRUE
All of these considerations are shaped by what the forecast will be used for.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Medium
Learning Objective: 03-02 Outline the steps in the forecasting process.
Topic Area: Steps in the Forecasting Process

9. Forecasts based on time series (historical) data are referred to as associative forecasts.
FALSE
Forecasts based on time series data are referred to as time-series forecasts.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Easy
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Associative Forecasting Techniques

3-44

Chapter 03 - Forecasting

10. Time series techniques involve identification of explanatory variables that can be used to
predict future demand.
FALSE
Associate forecasts involve identifying explanatory variables.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Hard
Learning Objective: 03-04 Compare and contrast qualitative and quantitative approaches to forecasting.
Topic Area: Forecasts Based on Time-Series Data

11. A consumer survey is an easy and sure way to obtain accurate input from future customers
since most people enjoy participating in surveys.
FALSE
Most people do not enjoy participating in surveys.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Easy
Learning Objective: 03-03 Evaluate at least three qualitative forecasting techniques and the advantages and disadvantages of each.
Topic Area: Qualitative Forecasts

12. The Delphi approach involves the use of a series of questionnaires to achieve a consensus
forecast.
TRUE
A consensus among divergent perspectives is developed using questionnaires.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Easy
Learning Objective: 03-03 Evaluate at least three qualitative forecasting techniques and the advantages and disadvantages of each.
Topic Area: Qualitative Forecasts

3-45

Chapter 03 - Forecasting

13. Exponential smoothing adds a percentage (called alpha) of last period's forecast to
estimate next period's demand.
FALSE
Exponential smoothing adds a percentage to the last period's forecast error.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

14. The shorter the forecast period, the more accurately the forecasts tend to track what
actually happens.
TRUE
Long-term forecasting is much more difficult to do accurately.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Easy
Learning Objective: 03-07 Compare two ways of evaluating and controlling forecasts.
Topic Area: Monitoring the Forecast

15. Forecasting techniques that are based on time series data assume that future values of the
series will duplicate past values.
FALSE
Time-series forecast assume that future patterns in the series will mimic past patterns in the
series.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-46

Chapter 03 - Forecasting

16. Trend adjusted exponential smoothing uses double smoothing to add twice the forecast
error to last period's actual demand.
FALSE
Trend adjusted smoothing smoothes both random and trend-related variation.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

17. Forecasts based on an average tend to exhibit less variability than the original data.
TRUE
Averaging is a way of smoothing out random variability.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

18. The naive approach to forecasting requires a linear trend line.


FALSE
The nave approach is useful in a wider variety of settings.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Easy
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-47

Chapter 03 - Forecasting

19. The naive forecast is limited in its application to series that reflect no trend or seasonality.
FALSE
When a trend or seasonality is present, the nave forecast is more limited in its application.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Easy
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

20. The naive forecast can serve as a quick and easy standard of comparison against which to
judge the cost and accuracy of other techniques.
TRUE
Often the nave forecast performs reasonably well when compared to more complex
techniques.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Easy
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

21. A moving average forecast tends to be more responsive to changes in the data series when
more data points are included in the average.
FALSE
More data points reduce a moving average forecast's responsiveness.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-48

Chapter 03 - Forecasting

22. In order to update a moving average forecast, the values of each data point in the average
must be known.
TRUE
The moving average cannot be updated until the most recent value is known.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Hard
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

23. Forecasts of future demand are used by operations people to plan capacity.
TRUE
Capacity decisions are made for the future and therefore depend on forecasts.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Easy
Learning Objective: 03-01 List the elements of a good forecast.
Topic Area: Introduction

24. An advantage of a weighted moving average is that recent actual results can be given
more importance than what occurred a while ago.
TRUE
Weighted moving averages can be adjusted to make more recent data more important in
setting the forecast.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-49

Chapter 03 - Forecasting

25. Exponential smoothing is a form of weighted averaging.


TRUE
The most recent period is given the most weight, but prior periods also factor in.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

26. A smoothing constant of .1 will cause an exponential smoothing forecast to react more
quickly to a sudden change than a smoothing constant value of .3.
FALSE
Smaller smoothing constants result in less reactive forecast models.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Hard
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

27. The T in the model TAF = S+T represents the time dimension (which is usually expressed
in weeks or months).
FALSE
The T represents the trend dimension.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-50

Chapter 03 - Forecasting

28. Trend adjusted exponential smoothing requires selection of two smoothing constants.
TRUE
One is for the trend and one is for the random error.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Easy
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

29. An advantage of "trend adjusted exponential smoothing" over the "linear trend equation"
is its ability to adjust over time to changes in the trend.
TRUE
A linear trend equation assumes a constant trend; trend adjusted smoothing allows for changes
in the underlying trend.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

30. A seasonal relative (or seasonal indexes) is expressed as a percentage of average or trend.
TRUE
Seasonal relatives are used when the seasonal effect is multiplicative rather than additive.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-51

Chapter 03 - Forecasting

31. In order to compute seasonal relatives, the trend of past data must be computed or known
which means that for brand new products this approach can't be used.
TRUE
Computing seasonal relatives depends on past data being available.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

32. Removing the seasonal component from a data series (de-seasonalizing) can be
accomplished by dividing each data point by its appropriate seasonal relative.
TRUE
Deseasonalized data points have been adjusted for seasonal influences.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Hard
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

33. If a pattern appears when a dependent variable is plotted against time, one should use time
series analysis instead of regression analysis.
TRUE
Patterns reflect influences such as trends or seasonality that go against regression analysis
assumptions.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Hard
Learning Objective: 03-08 Assess the major factors and trade-offs to consider when choosing a forecasting technique.
Topic Area: Associative Forecasting Techniques

3-52

Chapter 03 - Forecasting

34. Curvilinear and multiple regression procedures permit us to extend associative models to
relationships that are non-linear or involve more than one predictor variable.
TRUE
Regression analysis can be used in a variety of settings.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Medium
Learning Objective: 03-08 Assess the major factors and trade-offs to consider when choosing a forecasting technique.
Topic Area: Associative Forecasting Techniques

35. The sample standard deviation of forecast error is equal to the square root of MSE.
TRUE
The MSE is equal to the sample variance of the forecast error.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Easy
Learning Objective: 03-07 Compare two ways of evaluating and controlling forecasts.
Topic Area: Forecast Accuracy

36. Correlation measures the strength and direction of a relationship between variables.
TRUE
The association between two variations is summarized in the correlation coefficient.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Associative Forecasting Techniques

3-53

Chapter 03 - Forecasting

37. MAD is equal to the square root of MSE which is why we calculate the easier MSE and
then calculate the more difficult MAD.
FALSE
MAD is the mean absolute deviation.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Medium
Learning Objective: 03-06 Explain three measures of forecast accuracy.
Topic Area: Forecast Accuracy

38. In exponential smoothing, an alpha of 1.0 will generate the same forecast that a nave
forecast would yield.
TRUE
With alpha equal to 1 we are using a nave forecasting method.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

39. A forecast method is generally deemed to perform adequately when the errors exhibit an
identifiable pattern.
FALSE
Forecast methods are generally considered to be performing adequately when the errors
appear to be randomly distributed.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Medium
Learning Objective: 03-07 Compare two ways of evaluating and controlling forecasts.
Topic Area: Forecast Accuracy

3-54

Chapter 03 - Forecasting

40. A control chart involves setting action limits for cumulative forecast error.
FALSE
Control charts set action limits for the tracking signal.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Medium
Learning Objective: 03-07 Compare two ways of evaluating and controlling forecasts.
Topic Area: Monitoring the Forecast

41. A tracking signal focuses on the ratio of cumulative forecast error to the corresponding
value of MAD.
TRUE
Large absolute values of the tracking signal suggest a fundamental change in the forecast
model's performance.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Medium
Learning Objective: 03-07 Compare two ways of evaluating and controlling forecasts.
Topic Area: Monitoring the Forecast

42. The use of a control chart assumes that errors are normally distributed about a mean of
zero.
TRUE
Over time, a forecast model's tracking signal should fluctuate randomly about a mean of zero.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Hard
Learning Objective: 03-07 Compare two ways of evaluating and controlling forecasts.
Topic Area: Monitoring the Forecast

3-55

Chapter 03 - Forecasting

43. Bias exists when forecasts tend to be greater or less than the actual values of time series.
TRUE
A tendency in one direction is defined as bias.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Easy
Learning Objective: 03-07 Compare two ways of evaluating and controlling forecasts.
Topic Area: Monitoring the Forecast

44. Bias is measured by the cumulative sum of forecast errors.


TRUE
Bias would result in the cumulative sum of forecast errors being large in absolute value.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Medium
Learning Objective: 03-07 Compare two ways of evaluating and controlling forecasts.
Topic Area: Monitoring the Forecast

45. Seasonal relatives can be used to de-seasonalize data or incorporate seasonality in a


forecast.
TRUE
Seasonal relatives are used to de-seasonalize data to forecast future values of the underlying
trend, and they are also used to re-seasonalize de-seasonalized forecasts.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-56

Chapter 03 - Forecasting

46. The best forecast is not necessarily the most accurate.


TRUE
More accuracy often comes at too high a cost to be worthwhile.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Medium
Learning Objective: 03-08 Assess the major factors and trade-offs to consider when choosing a forecasting technique.
Topic Area: Elements of a Good Forecast

47. A proactive approach to forecasting views forecasts as probable descriptions of future


demand, and requires action to be taken to meet that demand.
FALSE
Proactive approaches involve taking action to influence demand.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Hard
Learning Objective: 03-02 Outline the steps in the forecasting process.
Topic Area: Using Forecast Information

48. Simple linear regression applies to linear relationships with no more than three
independent variables.
FALSE
Simple linear regression involves only one independent variable.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Associative Forecasting Techniques

3-57

Chapter 03 - Forecasting

49. An important goal of forecasting is to minimize the average forecast error.


FALSE
Regardless of the model chosen, so long as there is no fundamental bias average forecast error
will be zero.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Medium
Learning Objective: 03-07 Compare two ways of evaluating and controlling forecasts.
Topic Area: Forecast Accuracy

50. Forecasting techniques such as moving averages, exponential smoothing, and the naive
approach all represent smoothed (averaged) values of time series data.
FALSE
The nave approach involves no smoothing.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

51. In exponential smoothing, an alpha of .30 will cause a forecast to react more quickly to a
large error than will an alpha of .20.
TRUE
Larger values for alpha result in more responsive models.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-58

Chapter 03 - Forecasting

Multiple Choice Questions

52. Forecasts based on judgment and opinion don't include


A. executive opinion
B. salesperson opinion
C. second opinions
D. customer surveys
E. Delphi methods
Second opinions generally refer to medical diagnoses, not demand forecasting.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Medium
Learning Objective: 03-03 Evaluate at least three qualitative forecasting techniques and the advantages and disadvantages of each.
Topic Area: Qualitative Forecasts

53. In business, forecasts are the basis for:


A. capacity planning
B. budgeting
C. sales planning
D. production planning
E. all of the above
A wide variety of areas depend on forecasting.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Easy
Learning Objective: 03-02 Outline the steps in the forecasting process.
Topic Area: Features Common to All Forecasts

3-59

Chapter 03 - Forecasting

54. Which of the following features would not generally be considered common to all
forecasts?
A. Assumption of a stable underlying causal system.
B. Actual results will differ somewhat from predicted values.
C. Historical data is available on which to base the forecast.
D. Forecasts for groups of items tend to be more accurate than forecasts for individual items.
E. Accuracy decreases as the time horizon increases.
In some forecasting situations historical data are not available.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Hard
Learning Objective: 03-08 Assess the major factors and trade-offs to consider when choosing a forecasting technique.
Topic Area: Features Common to All Forecasts

55. Which of the following is not a step in the forecasting process?


A. determine the purpose and level of detail required
B. eliminate all assumptions
C. establish a time horizon
D. select a forecasting model
E. monitor the forecast
We cannot eliminate all assumptions.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Medium
Learning Objective: 03-02 Outline the steps in the forecasting process.
Topic Area: Features Common to All Forecasts

3-60

Chapter 03 - Forecasting

56. Minimizing the sum of the squared deviations around the line is called:
A. mean squared error technique
B. mean absolute deviation
C. double smoothing
D. least squares estimation
E. predictor regression
Least squares estimations minimizes the sum of squared deviations around the estimated
regression function.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Associative Forecasting Techniques

57. The two general approaches to forecasting are:


A. mathematical and statistical
B. qualitative and quantitative
C. judgmental and qualitative
D. historical and associative
E. precise and approximation
Forecast approaches are either quantitative or qualitative.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Easy
Learning Objective: 03-04 Compare and contrast qualitative and quantitative approaches to forecasting.
Topic Area: Approaches to Forecasting

3-61

Chapter 03 - Forecasting

58. Which of the following is not a type of judgmental forecasting?


A. executive opinions
B. sales force opinions
C. consumer surveys
D. the Delphi method
E. time series analysis
Time series analysis is a quantitative approach.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Easy
Learning Objective: 03-03 Evaluate at least three qualitative forecasting techniques and the advantages and disadvantages of each.
Topic Area: Qualitative Forecasts

59. Accuracy in forecasting can be measured by:


A. MSE
B. MRP
C. MAPE
D. MTM
E. A & C
MSE is mean squared error; MAPE is mean absolute percent error.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Hard
Learning Objective: 03-06 Explain three measures of forecast accuracy.
Topic Area: Forecast Accuracy

3-62

Chapter 03 - Forecasting

60. Which of the following would be an advantage of using a sales force composite to develop
a demand forecast?
A. The sales staff is least affected by changing customer needs.
B. The sales force can easily distinguish between customer desires and probable actions.
C. The sales staff is often aware of customers' future plans.
D. Salespeople are least likely to be influenced by recent events.
E. Salespeople are least likely to be biased by sales quotas.
Members of the sales force should be the organization's tightest link with its customers.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Hard
Learning Objective: 03-03 Evaluate at least three qualitative forecasting techniques and the advantages and disadvantages of each.
Topic Area: Qualitative Forecasts

61. Which phrase most closely describes the Delphi technique?


A. associative forecast
B. consumer survey
C. series of questionnaires
D. developed in India
E. historical data
The questionnaires are a way of fostering a consensus among divergent perspectives.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Easy
Learning Objective: 03-03 Evaluate at least three qualitative forecasting techniques and the advantages and disadvantages of each.
Topic Area: Qualitative Forecasts

3-63

Chapter 03 - Forecasting

62. The forecasting method which uses anonymous questionnaires to achieve a consensus
forecast is:
A. sales force opinions
B. consumer surveys
C. the Delphi method
D. time series analysis
E. executive opinions
Anonymity is important in Delphi efforts.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Easy
Learning Objective: 03-03 Evaluate at least three qualitative forecasting techniques and the advantages and disadvantages of each.
Topic Area: Qualitative Forecasts

63. One reason for using the Delphi method in forecasting is to:
A. avoid premature consensus (bandwagon effect)
B. achieve a high degree of accuracy
C. maintain accountability and responsibility
D. be able to replicate results
E. prevent hurt feelings
A bandwagon can lead to popular but potentially inaccurate viewpoints to drown up other
important considerations.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Medium
Learning Objective: 03-03 Evaluate at least three qualitative forecasting techniques and the advantages and disadvantages of each.
Topic Area: Qualitative Forecasts

3-64

Chapter 03 - Forecasting

64. Detecting non-randomness in errors can be done using:


A. MSEs
B. MAPs
C. Control Charts
D. Correlation Coefficients
E. Strategies
Control charts graphically depict the statistical behavior of forecast errors.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Medium
Learning Objective: 03-07 Compare two ways of evaluating and controlling forecasts.
Topic Area: Approaches to Forecasting

65. Gradual, long-term movement in time series data is called:


A. seasonal variation
B. cycles
C. irregular variation
D. trend
E. random variation
Trends move the time series in a long-term direction.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Easy
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-65

Chapter 03 - Forecasting

66. The primary difference between seasonality and cycles is:


A. the duration of the repeating patterns
B. the magnitude of the variation
C. the ability to attribute the pattern to a cause
D. the direction of the movement
E. there are only 4 seasons but 30 cycles
Seasons happen within time periods; cycles happen across multiple time periods.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Hard
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

67. Averaging techniques are useful for:


A. distinguishing between random and non-random variations
B. smoothing out fluctuations in time series
C. eliminating historical data
D. providing accuracy in forecasts
E. average people
Smoothing helps forecasters see past random error.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Hard
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-66

Chapter 03 - Forecasting

68. Putting forecast errors into perspective is best done using


A. Exponential smoothing
B. MAPE
C. Linear decision rules
D. MAD
E. Hindsight
MAPE depicts the forecast error relative to what was being forecast.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Medium
Learning Objective: 03-06 Explain three measures of forecast accuracy.
Topic Area: Monitoring the Forecast

69. Using the latest observation in a sequence of data to forecast the next period is:
A. a moving average forecast
B. a naive forecast
C. an exponentially smoothed forecast
D. an associative forecast
E. regression analysis
Only one piece of information is needed for a nave forecast.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Easy
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-67

Chapter 03 - Forecasting

70. For the data given below, what would the naive forecast be for the next period (period
#5)?

A. 58
B. 62
C. 59.5
D. 61
E. cannot tell from the data given
Period 5's forecast would be period 4's demand.

AACSB: Analytic
Bloom's: Apply
Difficulty: Easy
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

71. Moving average forecasting techniques do the following:


A. immediately reflect changing patterns in the data
B. lead changes in the data
C. smooth variations in the data
D. operate independently of recent data
E. assist when organizations are relocating
Variation is smoothed out in moving average forecasts.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Hard
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-68

Chapter 03 - Forecasting

72. Which is not a characteristic of simple moving averages applied to time series data?
A. smoothes random variations in the data
B. weights each historical value equally
C. lags changes in the data
D. requires only last period's forecast and actual data
E. smoothes real variations in the data
Simple moving averages can require several periods of data.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

73. In order to increase the responsiveness of a forecast made using the moving average
technique, the number of data points in the average should be:
A. decreased
B. increased
C. multiplied by a larger alpha
D. multiplied by a smaller alpha
E. eliminated if the MAD is greater than the MSE
Fewer data points result in more responsive moving averages.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Hard
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-69

Chapter 03 - Forecasting

74. A forecast based on the previous forecast plus a percentage of the forecast error is:
A. a naive forecast
B. a simple moving average forecast
C. a centered moving average forecast
D. an exponentially smoothed forecast
E. an associative forecast
Exponential smoothing uses the previous forecast error to shape the next forecast.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Hard
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

75. Which is not a characteristic of exponential smoothing?


A. smoothes random variations in the data
B. weights each historical value equally
C. has an easily altered weighting scheme
D. has minimal data storage requirements
E. smoothes real variations in the data
The most recent period of demand is given the most weight in exponential smoothing.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Hard
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-70

Chapter 03 - Forecasting

76. Which of the following smoothing constants would make an exponential smoothing
forecast equivalent to a naive forecast?
A. 0
B. .01
C. .1
D. .5
E. 1.0
An alpha of 1.0 leads to a nave forecast.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

77. Simple exponential smoothing is being used to forecast demand. The previous forecast of
66 turned out to be four units less than actual demand. The next forecast is 66.6, implying a
smoothing constant, alpha, equal to:
A. .01
B. .10
C. .15
D. .20
E. .60
A previous period's forecast error of 4 units would lead to a change in the forecast of 0.6 if
alpha equals 0.15.

AACSB: Analytic
Bloom's: Apply
Difficulty: Hard
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-71

Chapter 03 - Forecasting

78. Given an actual demand of 59, a previous forecast of 64, and an alpha of .3, what would
the forecast for the next period be using simple exponential smoothing?
A. 36.9
B. 57.5
C. 60.5
D. 62.5
E. 65.5
Multiply the previous period's forecast error (-5) by alpha and then add to the previous
period's forecast.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

79. Given an actual demand of 105, a forecasted value of 97, and an alpha of .4, the simple
exponential smoothing forecast for the next period would be:
A. 80.8
B. 93.8
C. 100.2
D. 101.8
E. 108.2
Multiply the previous period's forecast error (8) by alpha and then add to the previous period's
forecast.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-72

Chapter 03 - Forecasting

80. Which of the following possible values of alpha would cause exponential smoothing to
respond the most quickly to forecast errors?
A. 0
B. .01
C. .05
D. .10
E. .15
Larger values for alpha correspond with greater responsiveness.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

81. A manager uses the following equation to predict monthly receipts: Yt = 40,000 + 150t.
What is the forecast for July if t = 0 in April of this year?
A. 40,450
B. 40,600
C. 42,100
D. 42,250
E. 42,400
July would be period 3, so the forecast would be 40,000 + 150(3).

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-73

Chapter 03 - Forecasting

82. In trend-adjusted exponential smoothing, the trend adjusted forecast (TAF) consists of:
A. an exponentially smoothed forecast and a smoothed trend factor
B. an exponentially smoothed forecast and an estimated trend value
C. the old forecast adjusted by a trend factor
D. the old forecast and a smoothed trend factor
E. a moving average and a trend factor
Both random variation and the trend are smoothed in TAF models.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Hard
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

83. In the "additive" model for seasonality, seasonality is expressed as a ______________


adjustment to the average; in the multiplicative model, seasonality is expressed as a
__________ adjustment to the average.
A. quantity, percentage
B. percentage, quantity
C. quantity, quantity
D. percentage, percentage
E. qualitative, quantitative
The additive model simply adds a seasonal adjustment to the de-seasonalized forecast. The
multiplicative model adjusts the de-seasonalized forecast by multiplying it by a season
relative or index.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Hard
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-74

Chapter 03 - Forecasting

84. Which technique is used in computing seasonal relatives?


A. double smoothing
B. Delphi
C. Mean Squared Error (MSE)
D. centered moving average
E. exponential smoothing
The centered moving average serves as the basis point for computing seasonal relatives.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

85. A persistent tendency for forecasts to be greater than or less than the actual values is
called:
A. bias
B. tracking
C. control charting
D. positive correlation
E. linear regression
Bias is a tendency for a forecast to be above (or below) the actual value.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Medium
Learning Objective: 03-07 Compare two ways of evaluating and controlling forecasts.
Topic Area: Forecast Accuracy

3-75

Chapter 03 - Forecasting

86. Which of the following might be used to indicate the cyclical component of a forecast?
A. leading variable
B. Mean Squared Error (MSE)
C. Delphi technique
D. exponential smoothing
E. Mean Absolute Deviation (MAD)
Leading variables, such as births in a given year, can correlate strongly with long-term
phenomena such as cycles.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Medium
Learning Objective: 03-06 Explain three measures of forecast accuracy.
Topic Area: Forecasts Based on Time-Series Data

87. The primary method for associative forecasting is:


A. sensitivity analysis
B. regression analysis
C. simple moving averages
D. centered moving averages
E. exponential smoothing
Regression analysis is an associative forecasting technique.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Associative Forecasting Techniques

3-76

Chapter 03 - Forecasting

88. Which term most closely relates to associative forecasting techniques?


A. time series data
B. expert opinions
C. Delphi technique
D. consumer survey
E. predictor variables
Associate techniques use predictor variables.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Associative Forecasting Techniques

89. Which of the following corresponds to the predictor variable in simple linear regression?
A. regression coefficient
B. dependent variable
C. independent variable
D. predicted variable
E. demand coefficient
Demand is the typical dependent variable when forecasting with simple linear regression.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Associative Forecasting Techniques

3-77

Chapter 03 - Forecasting

90. The mean absolute deviation (MAD) is used to:


A. estimate the trend line
B. eliminate forecast errors
C. measure forecast accuracy
D. seasonally adjust the forecast
E. all of the above
MAD is one way of evaluating forecast performance.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Medium
Learning Objective: 03-06 Explain three measures of forecast accuracy.
Topic Area: Forecast Accuracy

91. Given forecast errors of 4, 8, and - 3, what is the mean absolute deviation?
A. 4
B. 3
C. 5
D. 6
E. 12
Convert each error into an absolute value and then average.

AACSB: Analytic
Bloom's: Apply
Difficulty: Easy
Learning Objective: 03-06 Explain three measures of forecast accuracy.
Topic Area: Forecast Accuracy

3-78

Chapter 03 - Forecasting

92. Given forecast errors of 5, 0, - 4, and 3, what is the mean absolute deviation?
A. 4
B. 3
C. 2.5
D. 2
E. 1
Convert each error into an absolute value and then average.

AACSB: Analytic
Bloom's: Apply
Difficulty: Easy
Learning Objective: 03-06 Explain three measures of forecast accuracy.
Topic Area: Forecast Accuracy

93. Given forecast errors of 5, 0, - 4, and 3, what is the bias?


A. - 4
B. 4
C. 5
D. 12
E. 6
Sum the forecast errors.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-07 Compare two ways of evaluating and controlling forecasts.
Topic Area: Forecast Accuracy

3-79

Chapter 03 - Forecasting

94. Which of the following is used for constructing a control chart?


A. mean absolute deviation (MAD)
B. mean squared error (MSE)
C. tracking signal (TS)
D. bias
E. none of the above
The mean squared error leads to an estimate for the sample forecast standard deviation.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Medium
Learning Objective: 03-07 Compare two ways of evaluating and controlling forecasts.
Topic Area: Approaches to Forecasting

95. The two most important factors in choosing a forecasting technique are:
A. cost and time horizon
B. accuracy and time horizon
C. cost and accuracy
D. quantity and quality
E. objective and subjective components
More accurate forecasts cost more but may not be worth the additional cost.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Medium
Learning Objective: 03-08 Assess the major factors and trade-offs to consider when choosing a forecasting technique.
Topic Area: Choosing a Forecasting Techniques

3-80

Chapter 03 - Forecasting

96. The degree of management involvement in short range forecasts is:


A. none
B. low
C. moderate
D. high
E. total
Short range forecasting tends to be fairly routine.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Easy
Learning Objective: 03-08 Assess the major factors and trade-offs to consider when choosing a forecasting technique.
Topic Area: Choosing a Forecasting Techniques

97. Which of the following is not necessarily an element of a good forecast?


A. estimate of accuracy
B. timeliness
C. meaningful units
D. low cost
E. written
A good forecast can be quite costly if necessary.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Medium
Learning Objective: 03-01 List the elements of a good forecast.
Topic Area: Elements of a Good Forecast

3-81

Chapter 03 - Forecasting

98. Current information on _________ can have a significant impact on forecast accuracy:
A. prices
B. promotion
C. inventory
D. competition
E. all of the above
Demand in the future could be subject to decision-making prompted by prices, promotions,
inventory or competition. Accuracy will be affected if these are (or are not) taken into
consideration.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Easy
Learning Objective: 03-06 Explain three measures of forecast accuracy.
Topic Area: Forecast Accuracy

99. A managerial approach toward forecasting which seeks to actively influence demand is:
A. reactive
B. proactive
C. influential
D. protracted
E. retroactive
Simply responding to demand is a reactive approach.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Easy
Learning Objective: 03-02 Outline the steps in the forecasting process.
Topic Area: Using Forecast Information

3-82

Chapter 03 - Forecasting

100. Customer service levels can be improved by better:


A. mission statements
B. control charting
C. short term forecast accuracy
D. exponential smoothing
E. customer selection
More accurate short-term forecasts enable organization's to better accommodate customer
requests.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Hard
Learning Objective: 03-08 Assess the major factors and trade-offs to consider when choosing a forecasting technique.
Topic Area: Operations Strategy

101. Given the following historical data, what is the simple three-period moving average
forecast for period 6?

A. 67
B. 115
C. 69
D. 68
E. 68.67
Average demand from periods 3 through 5.

AACSB: Analytic
Bloom's: Apply
Difficulty: Easy
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-83

Chapter 03 - Forecasting

102. Given the following historical data and weights of .5, .3, and .2, what is the three-period
moving average forecast for period 5?

A. 144.20
B. 144.80
C. 144.67
D. 143.00
E. 144.00
Multiply period 4 (144) by .5, period 3 (148) by .3 and period 2 (142) by .2, then sum these
products.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

103. Use of simple linear regression analysis assumes that:


A. Variations around the line are random.
B. Deviations around the line are normally distributed.
C. Predictions are to be made only within the range of observed values of the predictor
variable.
D. all of the above
E. none of the above
A through C are important assumptions underpinning simple linear regression.

AACSB: Reflective Thinking


Bloom's: Remember
Difficulty: Hard
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Associative Forecasting Techniques

3-84

Chapter 03 - Forecasting

104. Given forecast errors of - 5, - 10, and +15, the MAD is:
A. 0
B. 10
C. 30
D. 175
E. none of these
Convert these errors into absolute value, then average.

AACSB: Analytic
Bloom's: Apply
Difficulty: Easy
Learning Objective: 03-06 Explain three measures of forecast accuracy.
Topic Area: Forecast Accuracy

Essay Questions

105. Develop a forecast for the next period, given the data below, using a 3-period moving
average.

Feedback: Average demand from periods 3 through 5.

AACSB: Analytic
Bloom's: Apply
Difficulty: Easy
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-85

Chapter 03 - Forecasting

106. Consider the data below:

Using exponential smoothing with alpha = .2, and assuming the forecast for period 11 was 80,
what would the forecast for period 14 be?

Feedback: The forecast error in period 13 (2.84) is multiplied by the smoothing constant. This
is then added to the period 13 forecast to get the period 14 forecast.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

107. A manager is using exponential smoothing to predict merchandise returns at a suburban


branch of a department store chain. Given a previous forecast of 140 items, an actual number
of returns of 148 items, and a smoothing constant equal to .15, what is the forecast for the
next period?

Feedback: The forecast error in the previous period is multiplied by the smoothing constant.
This is then added to the previous period's forecast to get the upcoming period's forecast.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-86

Chapter 03 - Forecasting

108. A manager is using the equation below to forecast quarterly demand for a product:
Yt = 6,000 + 80t where t = 0 at Q2 of last year
Quarter relatives are Q1 = .6, Q2 = .9, Q3 = 1.3, and Q4 = 1.2.
What forecasts are appropriate for the last quarter of this year and the first quarter of next
year?
For Q4 of this year t = 6
For Q1 of next year t = 7

Feedback: Adjust de-seasonalized forecasts by the quarterly seasonal relatives.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

109. Over the past five years, a firm's sales have averaged 250 units in the first quarter of each
year, 100 units in the second quarter, 150 units in the third quarter, and 300 units in the fourth
quarter. What are appropriate quarter relatives for this firm's sales? Hint: Only minimal
computations are necessary.

Feedback: Since a trend is not present, quarter relatives are simply a percentage of average,
which is 200 units.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-87

Chapter 03 - Forecasting

110. A manager has been using a certain technique to forecast demand for gallons of ice
cream for the past six periods. Actual and predicted amounts are shown below. Would a naive
forecast have produced better results?

Summary:
Current method: MAD = 3.67; MSE = 16.8; 2s Control limits 8.2 (OK)
Nave method: MAD = 4.40; MSE = 30.0; 2s Control limits 11.0 (OK)
Feedback: Either MSE or MAD should be computed for both forecasts and compared. The
demand data are stable. Therefore, the most recent value of the series is a reasonable forecast
for the next period of time, justifying the nave approach. The current method is slightly
superior both in terms of MAD and MSE. Either method would be considered in control.

AACSB: Analytic
Bloom's: Apply
Difficulty: Hard
Learning Objective: 03-07 Compare two ways of evaluating and controlling forecasts.
Topic Area: Forecast Accuracy

3-88

Chapter 03 - Forecasting

111. A new car dealer has been using exponential smoothing with an alpha of .2 to forecast
weekly new car sales. Given the data below, would a naive forecast have provided greater
accuracy? Explain. Assume an initial exponential forecast of 60 units in period 2 (i.e., no
forecast for period 1).

Summary:
Exponential method: MAD = 1.70; MSE = 6.34
Nave method: MAD = 3.00; MSE = 15.25
Feedback: The exponential forecast method appears to be superior because both MAD and
MSE are lower when it is used.

AACSB: Analytic
Bloom's: Apply
Difficulty: Hard
Learning Objective: 03-07 Compare two ways of evaluating and controlling forecasts.
Topic Area: Forecast Accuracy

3-89

Chapter 03 - Forecasting

112. A CPA firm has been using the following equation to predict annual demand for tax
audits: Yt = 55 + 4t Demand for the past few years is shown below. Is the forecast performing
as well as it might? Explain.

MSE = 11/6 and s =


= 3.41. Even with 2s limits (6.82) all values are within the
limits. It seems, then, that only random variation is present, so one might say that the forecast
is working. One might also observe that the first three errors are negative and the last three are
positive. Although six observations constitute a relatively small sample, it may be that the
errors are cycling, and this would be a matter to investigate with additional data.
Feedback: Either a tracking signal or a control chart is called for. To conduct these
assessments, it is necessary to generate the forecasts so that errors can be determined.

AACSB: Analytic
Bloom's: Apply
Difficulty: Hard
Learning Objective: 03-07 Compare two ways of evaluating and controlling forecasts.
Topic Area: Forecasts Based on Time-Series Data

3-90

Chapter 03 - Forecasting

113. Given the data below, develop a forecast for period 6 using a four-period weighted
moving average and weights of .4, .3, .2 and .1

.4(17) + .3(19) + .2(18) + .1(20) = 18.1


Feedback: Multiply demand observed in periods 2 through 5 by the appropriate weight, then
sum these products.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-91

Chapter 03 - Forecasting

114. Use linear regression to develop a predictive model for demand for burial vaults based on
sales of caskets.

A) Develop the regression equation.

Feedback: Least-squares estimation leads to this regression equation.

AACSB: Analytic
Bloom's: Apply
Difficulty: Hard
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Associative Forecasting Techniques

3-92

Chapter 03 - Forecasting

115. Given the following data, develop a linear regression model for y as a function of x.

Feedback: Least-squares estimation leads to this regression equation.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Associative Forecasting Techniques

3-93

Chapter 03 - Forecasting

116. Given the following data, develop a linear regression model for y as a function of x.

Feedback: Least-squares estimation leads to this regression equation.

AACSB: Analytic
Bloom's: Apply
Difficulty: Hard
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Associative Forecasting Techniques

3-94

Chapter 03 - Forecasting

117. Develop a linear trend equation for the data on bread deliveries shown below. Forecast
deliveries for period 11 through 14.

Yt = 518.2 + 52.164t r = +.935

Feedback: Formulate the regression equation using least squares estimation, then apply the
result to periods 11 through 14.

AACSB: Analytic
Bloom's: Apply
Difficulty: Hard
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-95

Chapter 03 - Forecasting

Multiple Choice Questions

118. The president of State University wants to forecast student enrollments for this academic
year based on the following historical data:

What is the forecast for this year using the naive approach?
A. 18,750
B. 19,500
C. 21,000
D. 22,000
E. 22,800
This year's forecast would be last year's enrollment.

AACSB: Analytic
Bloom's: Apply
Difficulty: Easy
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-96

Chapter 03 - Forecasting

Essay Questions

119. Demand for the last four months was:

A) Predict demand for July using each of these methods:


1) a 3-period moving average
2) exponential smoothing with alpha equal to .20 (use a nave forecast for April for your first
forecast)
B) If the naive approach had been used to predict demand for April through June, what would
MAD have been for those months?

Feedback: The nave approach leads to absolute forecast errors of 2 units in each period.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-06 Explain three measures of forecast accuracy.
Topic Area: Forecasts Based on Time-Series Data

3-97

Chapter 03 - Forecasting

120. A manager wants to choose one of two forecasting alternatives. Each alternative was
tested using historical data. The resulting forecast errors for the two are shown in the table.
Analyze the data and recommend a course of action to the manager.

Feedback: Although Alternative #1 has the smaller MSE, it appears to be cycling and steady;
Alternative #2 errors after the first three periods are small or zero. For the last six periods,
Alternative #2 was much better, suggesting that approach would be better.

AACSB: Analytic
Bloom's: Apply
Difficulty: Hard
Learning Objective: 03-07 Compare two ways of evaluating and controlling forecasts.
Topic Area: Forecast Accuracy

121. A manager uses this equation to predict demand: Yt = 20 + 4t. Over the past 8 periods,
demand has been as follows. Are the results acceptable? Explain.

Feedback: s = 2.10; 2s control limits are 4.20. Although all values are within control limits,
the errors may be exhibiting cyclical patterns, which would suggest nonrandomness.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-07 Compare two ways of evaluating and controlling forecasts.
Topic Area: Approaches to Forecasting

3-98

Chapter 03 - Forecasting

Multiple Choice Questions

The president of State University wants to forecast student enrollments for this academic year
based on the following historical data:

122. What is the forecast for this year using a four-year simple moving average?
A. 18,750
B. 19,500
C. 21,000
D. 22,650
E. 22,800
Average enrollment from the last four years.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-99

Chapter 03 - Forecasting

123. What is the forecast for this year using exponential smoothing with alpha = 0.5, if the
forecast for two years ago was 16,000?
A. 18,750
B. 19,500
C. 21,000
D. 22,650
E. 22,800
Multiply last year's forecast error by the smoothing constant, then add that adjusted error to
last year's forecast to get this year's forecast.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

124. What is the forecast for this year using the least squares trend line for these data?
A. 18,750
B. 19,500
C. 21,000
D. 22,650
E. 22,800
Treat 5 years ago as period 0.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-100

Chapter 03 - Forecasting

125. What is the forecast for this year using trend adjusted (double) smoothing with alpha = .
05 and beta = 0.3, if the forecast for last year was 21,000, the forecast for two years ago was
19,000, and the trend estimate for last year's forecast was 1,500?
A. 18,750
B. 19,500
C. 21,000
D. 22,650
E. 22,800
Smooth both the trend and the forecast to get this year's forecast.

AACSB: Analytic
Bloom's: Apply
Difficulty: Hard
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

The business analyst for Video Sales, Inc. wants to forecast this year's demand for DVD
decoders based on the following historical data:

126. What is the forecast for this year using the naive approach?
A. 163
B. 180
C. 300
D. 420
E. 510
This year's forecast is last year's demand.

AACSB: Analytic
Bloom's: Apply
Difficulty: Easy
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-101

Chapter 03 - Forecasting

127. What is the forecast for this year using a three-year weighted moving average with
weights of .5, .3, and .2?
A. 163
B. 180
C. 300
D. 420
E. 510
Multiply the last three periods of demand by the appropriate weights, then sum the resulting
products.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

128. What is the forecast for this year using exponential smoothing with alpha = .4, if the
forecast for two years ago was 750?
A. 163
B. 180
C. 300
D. 420
E. 510
First formulate last year's exponentially smoothed forecast, then proceed.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-102

Chapter 03 - Forecasting

129. What is the forecast for this year using the least squares trend line for these data?
A. 163
B. 180
C. 300
D. 420
E. 510
Treat the earliest period of demand as period 0, then formulate least squares estimates and
proceed.

AACSB: Analytic
Bloom's: Apply
Difficulty: Hard
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

130. What is the forecast for this year using trend adjusted (double) smoothing with alpha =
0.3 and beta = 0.2, if the forecast for last year was 310, the forecast for two years ago was
430, and the trend estimate for last year's forecast was -150?
A. 162.4
B. 180.3
C. 301.4
D. 403.2
E. 510.0
Smooth both the trend and the forecast to get this year's forecast.

AACSB: Analytic
Bloom's: Apply
Difficulty: Hard
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-103

Chapter 03 - Forecasting

Professor Very Busy needs to allocate time next week to include time for office hours. He
needs to forecast the number of students who will seek appointments. He has gathered the
following data:

131. What is this week's forecast using the naive approach?


A. 45
B. 50
C. 52
D. 65
E. 78
This week's forecast is last week's demand.

AACSB: Analytic
Bloom's: Apply
Difficulty: Easy
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

132. What is this week's forecast using a three-week simple moving average?
A. 49
B. 50
C. 52
D. 65
E. 78
Average the three most recent weeks of deamdn.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-104

Chapter 03 - Forecasting

133. What is this week's forecast using exponential smoothing with alpha = .2, if the forecast
for two weeks ago was 90?
A. 49
B. 50
C. 52
D. 65
E. 77
Formulate the forecast for last week, then use that to get this week's forecast.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

134. What is this week's forecast using the least squares trend line for these data?
A. 49
B. 50
C. 52
D. 65
E. 78
Treat the earliest period as period 0, then formulate least squares coefficients and proceed.

AACSB: Analytic
Bloom's: Apply
Difficulty: Hard
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-105

Chapter 03 - Forecasting

135. What is this week's forecast using trend adjusted (double) smoothing with alpha = 0.5
and beta = 0.1, if the forecast for last week was 65, the forecast for two weeks ago was 75,
and the trend estimate for last week's forecast was -5?
A. 49.3
B. 50.6
C. 51.3
D. 65.4
E. 78.7
Smooth both the trend and the forecast to get this year's forecast.

AACSB: Analytic
Bloom's: Apply
Difficulty: Hard
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

A concert promoter is forecasting this year's attendance for one of his concerts based on the
following historical data:

136. What is this year's forecast using the naive approach?


A. 22,000
B. 20,000
C. 18,000
D. 15,000
E. 12,000
This year's forecast is last year's attendance.

AACSB: Analytic
Bloom's: Apply
Difficulty: Easy
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-106

Chapter 03 - Forecasting

137. What is this year's forecast using a two-year weighted moving average with weights of .7
and .3?
A. 19,400
B. 18,600
C. 19,000
D. 11,400
E. 10,600
Multiply the two most recent periods by the appropriate weights, then sum the resulting
products.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

138. What is this year's forecast using exponential smoothing with alpha = .2, if last year's
smoothed forecast was 15,000?
A. 20,000
B. 19,000
C. 17,500
D. 16,000
E. 15,000
Multiply last year's forecast error by the smoothing constant, then add that product to last
year's forecast to get this year's forecast.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-107

Chapter 03 - Forecasting

139. What is this year's forecast using the least squares trend line for these data?
A. 20,000
B. 21,000
C. 22,000
D. 23,000
E. 24,000
Treat the earliest year as period zero in formulating least squares coefficients.

AACSB: Analytic
Bloom's: Apply
Difficulty: Hard
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

140. The previous trend line had predicted 18,500 for two years ago, and 19,700 for last year.
What was the mean absolute deviation (MAD) for these forecasts?
A. 100
B. 200
C. 400
D. 500
E. 800
Convert each period's forecast error into absolute value, then average.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-06 Explain three measures of forecast accuracy.
Topic Area: Forecast Accuracy

The dean of a school of business is forecasting total student enrollment for this year's summer
session classes based on the following historical data:

3-108

Chapter 03 - Forecasting

141. What is this year's forecast using the naive approach?


A. 2,000
B. 2,200
C. 2,800
D. 3,000
E. none of the above
This year's forecast would be last year's enrollment.

AACSB: Analytic
Bloom's: Apply
Difficulty: Easy
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

142. What is this year's forecast using a three-year simple moving average?
A. 2,667
B. 2,600
C. 2,500
D. 2,400
E. 2,333
Average the most recent periods of enrollment.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-109

Chapter 03 - Forecasting

143. What is this year's forecast using exponential smoothing with alpha = .4, if last year's
smoothed forecast was 2600?
A. 2,600
B. 2,760
C. 2,800
D. 3,840
E. 3,000
Multiply last year's forecast error by the smoothing constant. Add the product to last year's
forecast to get this year's forecast.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

144. What is the annual rate of change (slope) of the least squares trend line for these data?
A. 0
B. 200
C. 400
D. 180
E. 360
Treat the earliest period as period 0, then formulate the least squares slope.

AACSB: Analytic
Bloom's: Apply
Difficulty: Hard
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-110

Chapter 03 - Forecasting

145. What is this year's forecast using the least squares trend line for these data?
A. 3,600
B. 3,500
C. 3,400
D. 3,300
E. 3,200
Treat the earliest period as period 0, then formulate the least squares coefficients and proceed.

AACSB: Analytic
Bloom's: Apply
Difficulty: Hard
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

The owner of Darkest Tans Unlimited in a local mall is forecasting this month's (October's)
demand for the one new tanning booth based on the following historical data:

146. What is this month's forecast using the naive approach?


A. 100
B. 160
C. 130
D. 140
E. 120
This month's forecast is last month's demand.

AACSB: Analytic
Bloom's: Apply
Difficulty: Easy
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-111

Chapter 03 - Forecasting

147. What is this month's forecast using a four-month weighted moving average with weights
of .4, .3, .2, and .1?
A. 120
B. 129
C. 141
D. 135
E. 140
Multiply the four most recent periods of demand by the appropriate weights, then sum the
resulting products.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

148. What is this month's forecast using exponential smoothing with alpha = .2, if August's
forecast was 145?
A. 144
B. 140
C. 142
D. 148
E. 163
First calculate September's forecast, then use that to calculate this month's forecast.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-112

Chapter 03 - Forecasting

149. What is the monthly rate of change (slope) of the least squares trend line for these data?
A. 320
B. 102
C. 8
D. -0.4
E. -8
Treat the earliest period as period 0, then formulate the least squares slope.

AACSB: Analytic
Bloom's: Apply
Difficulty: Hard
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

150. What is this month's forecast using the least squares trend line for these data?
A. 1,250
B. 128.6
C. 102
D. 158
E. 164
Treat the earliest period as period 0, then formulate the least squares coefficients and proceed.

AACSB: Analytic
Bloom's: Apply
Difficulty: Hard
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-113

Chapter 03 - Forecasting

151. Which of the following mechanisms for enhancing profitability is most likely to result
from improving short term forecast performance?
A. increased inventory
B. reduced flexibility
C. higher-quality products
D. greater customer satisfaction
E. greater seasonality
Short term forecast performance won't necessarily improve product quality, but it does allow
firms to better satisfy their customers.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Medium
Learning Objective: 03-02 Outline the steps in the forecasting process.
Topic Area: Operations Strategy

152. Which of the following changes would tend to shorten the time frame for short term
forecasting?
A. bringing greater variety into the product mix
B. increasing the flexibility of the production system
C. ordering fewer weather-sensitive items
D. adding more special-purpose equipment
E. none of the above
An increasingly flexible system permits more rapid responses to changing conditions, which
allows firms to reduce their forecast time horizon.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Medium
Learning Objective: 03-02 Outline the steps in the forecasting process.
Topic Area: Operations Strategy

3-114

Chapter 03 - Forecasting

153. Which of the following helps improve supply chain forecasting performance?
A. contracts that require supply chain members to formulate long term forecasts
B. penalties for supply chain members that adjust forecasts
C. sharing forecasts or demand data across the supply chain
D. increasing lead times for critical supply chain members
E. increasing the number of suppliers at critical junctures in the supply chain
Sharing forecasts and/or demand data is a means of ensuring that the supply chain's overall
forecast is as accurate as it can be.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Easy
Learning Objective: 03-02 Outline the steps in the forecasting process.
Topic Area: Forecasting and the Supply Chain

154. Inaccuracies in forecasts along the supply chain lead to:


A. shortages or excesses of materials
B. reduced customer service
C. excess capacity
D. missed deliveries
E. all of the above
Firms often react to poor forecasts by building safety capacity into their systems.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Medium
Learning Objective: 03-02 Outline the steps in the forecasting process.
Topic Area: Forecasting and the Supply Chain

3-115

Chapter 03 - Forecasting

155. Which of the following is the most valuable piece of information the sales force can
bring into forecasting situations?
A. what customers are most likely to do in the future
B. what customers most want to do in the future
C. what customers' future plans are
D. whether customers are satisfied or dissatisfied with their performance in the past
E. what the salesperson's appropriate sales quota should be
Knowledge about what customers are likely to do is much more valuable than information
regarding what customers plan or want to do.

AACSB: Reflective Thinking


Bloom's: Understand
Difficulty: Medium
Learning Objective: 03-02 Outline the steps in the forecasting process.
Topic Area: Qualitative Forecasts

Essay Questions

156. What is this year's forecast using the naive approach?


49
Feedback: This year's forecast would be last year's demand.

AACSB: Analytic
Bloom's: Apply
Difficulty: Easy
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-116

Chapter 03 - Forecasting

157. What is this year's forecast using a four-year simple moving average?
(45.5)
Feedback: Average the four most recent periods of demand.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

158. What is this year's forecast using exponential smoothing with alpha = .25, if last year's
smoothed forecast was 45?
(45.8)
Feedback: Multiply last year's forecast error by the smoothing constant. Add the resulting
product to last year's forecast to get this year's forecast.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

159. What are this and next year's forecasts using the least squares trend line for these data?
(62; 69)
Feedback: Treat the earliest period as period 0 in formulating least squares coefficients, then
proceed.

AACSB: Analytic
Bloom's: Apply
Difficulty: Hard
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-117

Chapter 03 - Forecasting

160. What is this year's forecast using trend adjusted (double) smoothing with alpha = 0.2 and
beta = 0.1, if the forecast for last year was 56, the forecast for two years ago was 46, and the
trend estimate for last year's forecast was 7?
(61.76)
Feedback: Smooth both the trend and the forecasts using the appropriate smoothing
coefficients.

AACSB: Analytic
Bloom's: Apply
Difficulty: Hard
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

161. What is the centered moving average for spring two years ago?
29
Feedback: First average the four periods beginning fall three years ago. Then average the four
periods beginning spring two years ago. Then average these two averages.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-118

Chapter 03 - Forecasting

162. What is the spring's seasonal relative?


(Spring 0.91) (Summer 0.63) (Fall 1.03) (Winter 1.43)
Feedback: Divide data points by centered moving averages where moving averages are
available. Average the resulting values across the seasons to get the seasonal relatives.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

163. What is the linear regression trend line for these data (t = 0 for spring, three years ago)?
(y=17 + 2.33t)
Feedback: Used de-seasonalized data points to formulate least squares coefficients.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

164. What is this year's seasonally adjusted forecast for each season?
(Spring 40.93) (Summer 29.81) (Fall 51.14) (Winter 74.37)
Feedback: First forecast each period's de-seasonalized value (e.g., Spring is period 12). Then
multiply the de-seasonalized forecast by the appropriate seasonal relative.

AACSB: Analytic
Bloom's: Apply
Difficulty: Medium
Learning Objective: 03-05 Describe averaging techniques; trend and seasonal techniques; and regression analysis; and solve typical
problems.
Topic Area: Forecasts Based on Time-Series Data

3-119