Practice Problems: Chapter 4, Forecasting

Problem 1: Auto sales at Carmens Chevrolet are shown below. Develop a 3-week moving average. Week Auto Sales 8 10 9 11 10 13 -

1 2 3 4 5 6 7

Problem 2: Carmens decides to forecast auto sales by weighting the three weeks as follows: Weights Applied 3 2 Period

Last week Twoweeks ago Three weeks ago Total

6 Problem 3:

A firm uses simple exponential smoothing with

to forecast demand. The forecast

= 0.1 for the week of January 1 was 500 units whereas the actual demand turned out to be 450 units. Calculate the demand forecast for the week of January 8.
Problem 4: Exponential smoothing is used to forecast automobile battery sales. Two value of examined, and are Evaluate the accuracy of each smoothing constant. Which

= 0.8 = 0.5. is preferable? (Assume the forecast for January was 22 batteries.) Actual sales are given below:
Month Actual Forecas Batter t y Sales 20 21 22

January Februar y March April May June

15 14 13 16

Problem 5: Use the sales data given below to determine: (a) the least squares trend line, and (b) the predicted value for 2008 sales. Year Sales (Units) 2001 100 2002 110 2003 122 2004 130 2005 139 2006 152 2007 164 To minimize computations, transform the value of x (time) to simpler numbers. In this case, designate year 2001 as year 1, 2002 as year 2, etc.

Problem 6: Given the forecast demand and actual demand for 10-foot fishing boats, compute the tracking signal and MAD. Yea Foreca Actual r st Deman Deman d d 1 2 3 4 5 6 78 75 83 84 88 85 71 80 101 84 60 73

Problem: 7 Over the past year Meredith and Smunt Manufacturing had annual sales of 10,000 portable water pumps. The average quarterly sales for the past 5 years have averaged: spring 4,000, summer 3,000, fall 2,000 and winter 1,000. Compute the quarterly index. Problem: 8 Using the data in Problem 7, Meredith and Smunt Manufacturing expects sales of pumps to grow by 10% next year. Compute next years sales and the sales for each quarter.

ANSWERS: Problem 1: Moving average =

demand in previous n periods

n Three-Week Average Moving

Week

Auto Sales 8 10 9 11 10 13 -

1 2 3 4 5 6 7

(8 + 9 + 10) / 3 = 9 (10 + 9 + 11) / 3 = 10 (9 + 11 + 10) / 3 = 10 (11 + 10 + 13) / 3 = 11 1/3

Problem 2: Weighted moving average =

(weight for period n)(demand in period n) weights

Week

Auto Sales 8 10 9 11 10 13 -

Three-Week Moving Average

1 2 3 4 5 6 7

[(3*9) + (2*10) + (1*8)] / 6 = 9 1/6 [(3*11) + (2*9) + (1*10)] / 6 = 10 1/6 [(3*10) + (2*11) + (1*9)] / 6 = 10 1/6 [(3*13) + (2*10) + (1*11)] / 6 = 11 2/3

Problem 3: Ft = Ft 1 + ( A t 1 Ft 1 ) = 500 + 0.1( 450 500) = 495 units

Problem 4: Month Actual Rounded Battery Sales Forecast with a =0.8 20 21 15 14 13 16 22 20 21 16 14 13 Absolute Deviation with a =0.8 2 1 6 2 1 3 Rounded Forecast with a =0.5 22 21 21 18 16 15 Absolute Deviation with a =0.5 2 0 6 4 3 1

January February March April May June

Sum =

15 2.5

16 2.75

SE

3.7

4.1

On the basis of this analysis, a smoothing constant of a = 0.8 is preferred to that of a = 0.5 because it has a smaller MAD.

Problem 5: Year Time Sales X2 Period (Units) (X) (Y) 1 2 3 4 5 6 7 100 110 122 130 139 152 164 1 4 9 16 25 36 49 XY

2001 2002 2003 2004 2005 2006 2007

100 220 366 520 695 912 1148

S X = S Y S S XY 28 =917 X2=140 = 3961

x=

x = 28 = 4
n 7

y=

y = 917 = 131
n 7

b=

xy nxy = 3961 (7)(4)(131) = 293 = 10.46 140 ( 7)( 4 ) 28 x nx

2 2 2

a = y bx = 131 (10.46 4) = 89.16

Therefore, the least squares trend equation is:

y = a + bx = 8916 + 10.46 x .

To project demand in 2008, we denote the year 2008 as

x = 8,

and:

Sales in 2008 = 89.16 + 10.46 * 8 = 172.84 Problem 6: Yea Forecas Actual Erro RSF r t Deman r E Deman d d 1 2 3 4 5 6 78 75 83 84 88 85 71 80 101 84 60 73 -7 5 18 0 -28 -12 -7 -2 16 16 -12 -24

MAD =

Forecast errors
n

70 = 11.7 6

Yea Foreca Actual r st Dema Deman nd d 1 2 3 4 78 75 83 84 71 80 101 84

| Cumulati MA Tracki Foreca ve Error D ng st Signal Error| 7 5 18 0 7 12 30 30 7.0 6.0 -1.0 -0.3

10.0 +1.6 7.5 +2.1

5 6

88 85

60 73

28 12

58 70

11.6 -1.0 11.7 -2.1

Tracking Signal =

RFSE 24 = = 2.1 MADs MAD 11.7

Problem 7: Sales of 10,000 units annually divided equally over the 4 seasons is
10,000 / 4 = 2,500

and the seasonal index for each quarter is: spring

4,000 / 2,500 = 1.6;

summer

fall
3,000 / 2,500 = 1.2; 2,000 / 2,500 =.8;

winter
1,000 / 2,500 =.4.

Problem 8: Next years sales should be 11,000 pumps Sales for each quarter

(10,000 * 110 = 11,000). .

should be 1/4 of the annual sales the quarterly index.

Spring = (11,000 / 4)*1.6 = 4,400;

Summer = (11,000 / 4)*1.2 = 3,300;

Fall = (11,000 / 4)*.8 = 2,200;

Winter = (11,000 / 4)*.4.= 1,100.

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