MGT 2070 Assignment #2 – Solutions 4.

1 Registration numbers for an accounting seminar over the past 10 weeks are shown below: a) Starting with week 2 and ending with week 11, forecast registrations using the naïve forecasting method. Naïve Forecast Ft = At-1 ie F2 = A1 = 22. Carrying this down the table through to week 11 gives: Week Registrations Forecast (3 marks) b) Starting with week 3 and ending with week 11, forecast registration using a two-week moving average. Moving Average Forecast Ft = 1 22 2 21 22 3 25 21 4 27 25 5 35 27 6 29 35 7 33 29 8 37 33 9 41 37 10 37 41 11 37

n A1 + A2 22 + 21 ie F3 = = = 21.5. Carrying this down the table through to week 11 gives: 2 2 Week Registrations Forecast (3 marks) c) Starting with week 5 and ending with week 11, forecast registrations using a four-week moving average. Moving Average Forecast Ft = 1 22 2 21 3 25 21.5 4 27 23 5 35 26 6 29 31 7 33 32 8 37 31 9 41 35 10 37 39 11 39

∑ previous n registrations

n A + A2 + A3 + A4 22 + 21 + 25 + 27 ie F5 = 1 = = 23.75. Carrying this down the table through to 4 4 week 11 gives: Week Registrations Forecast 1 22 2 21 3 25 4 27 5 35 23.75 6 29 27 7 33 29 8 37 31 9 41 33.5 10 37 35 11 37

∑ previous n registrations

4 5. use exponential smoothing (α = 0.2) to develop a demand forecast.86 Registrations .82) = 7.2 (8 – 7. while the naïve forecast responds to change the best.(3 marks) d) Plot the original data and the three forecasts on the same graph.52) = 7.52 6.82 + 0.12 + 0.2 (5 – 6. Exponential Smoothing Forecast Ft = Ft-1 + α(At-1 – Ft-1) ie F2 = F1 + α(A1 – F1) = 5 + 0.90 + 0.2 (7 – 5) = 5.90 5. Assume the forecast for the initial period is 5.12 6. (1 mark) 4.52 + 0.12) = 5.4 + 0.82 7.2 (9 – 5. Which forecast smoothes the data the most? Which forecast responds to change the best? 45 40 35 30 25 20 15 10 5 0 1 3 5 7 9 11 Week Registration Naïve 2-Week Moving 4-Week Moving We see from the graph that the four-week moving average forecast smoothes the data the most.90) = 6.2 (13 – 6.2 (7 – 5) = 5.2 (9 – 5.4.4) = 6.5 Given the following data. Carrying this through to week 7 gives: Period Demand 1 7 2 9 3 5 4 9 5 13 6 8 7 (10 marks) Exponentially Smoothed Forecast 5 5 + 0.

06) = 66.2(65.89-65.9(65.05 65.9(67.89 0.8)0. Assume that the initial forecast for February is $65.87 67.33=67.13 = 0.16=66. Jones Associates for the period February to July has been as follows.2(65.62+0. Forecast Ft = α(At-1) + (1 .16 0.2(68.13=66.16 Trend 0 0.1(64.16+0.5)+0.8)+0.62 0.8)0.25 0.19 Consulting income at Dr.33 = 0.8)0.0 0.8 Forecast 65.1(71.60 (10 marks) .3 72. Trend Tt = β(Ft – Ft-1) + (1 .8)0.β)T t-1 Month Feb Mar Apr May Jun Jul Aug Inc 70.16-67.5 64.33 0.1 and β = .92-65.31 0.6 65.87) = 67.05) = 65.89+0.2(66.9(66.64 68.5 (5 marks) b) MSE = ∑ ( forecast errors) n 2 Actual 95 108 123 130 Forecast 100 110 120 130 Error -5 -2 3 0 Error2 25 4 9 0 Σ = 38 MSE = 38 / 4 = 9.93 0.8)+0.43 FIT 65+0 = 65 65.3)+0.9(66.43=68.1=65.31+0. Use trend-adjusted exponential smoothing to forecast August’s income.62-65.1(70)+0.7 Calculate (a) MAD and (b) MSE for the following forecast versus actual sales figures: a) MAD = ∑ forecast errors n Forecast 100 110 120 130 Error -5 -2 3 0 | Error | 5 2 3 0 Σ = 10 Actual 95 108 123 130 MAD = 10 / 4 = 2.7)+0.5)+(0.13 0.2.5 0.8 71.2(67.89)+(0.6) = 65.1(72.93)+(0.1(68.5 (5 marks) 4.000 and the initial trend adjustment is 0.8)0 = 0.1(71.1 = 0.α)(Ft-1 + Tt-1).64) = 68.5–65)+(0.7 71.31)+(0.16 = 0.5+0.93+0.62)+(0. The smoothing constants selected are α = .9(65) = 65.0 68.9(66. Thomas W.31-66.2(65.06 66.8)0.4.1 0.25=66.25 = 0.

18(28) = 206.1 / 6 = 204 Seasonal Index = Average Demand / Average Daily Demand Seasonal Index for Monday Seasonal Index for Tuesday Seasonal Index for Wednesday Seasonal Index for Thursday Seasonal Index for Friday Seasonal Index for Saturday (5 marks) b) If the trend equation for this problem is y = 201. Below are the data for the past 4 weeks: a) Calculate a seasonal index for each day of the week.78 (1.5 / 204 = 178 / 204 = 255 / 204 = 218. Day Monday Tuesday Wednesday Thursday Friday x 2 5 2 6 2 7 2 8 2 9 y 201.066) = 220 206.96 (0. Kansas.78 201.74 + 0.07 = 0.873 = 1. So in week five.96 Seasonal Index 1.29 The director of the Riley County.24 (1.24 201.74 + 0.18x.42 (0.25) = 258 206. Day Monday Tuesday Wednesday Thursday Friday Saturday Week 1 210 178 250 215 160 180 Week 2 215 180 250 213 165 185 Week 3 220 176 260 220 175 190 Week 4 225 178 260 225 176 190 Avg 217.74 + 0.25 = 1.18(27) = 206.5 178 255 218.828) = 171 = 217.74 + 0. Monday is x = 25.25 1. Tuesday is x = 26.913 .1 Average Daily Demand = Σ Average Demand / 6 Days = 1224.42 201.18(26) = 206.74 + 0.066 0.3 169 186. library system would like to forecast evening patron usage for next week.873) = 180 206.74 + 0.18(29) = 206.828 = 0. Note that each day is one period along the x-axis.3 Σ = 1224. what is the forecast for each day of week 5? Round your forecast to the nearest whole number. etc.07 0.07) = 221 206.3 / 204 = 169 / 204 = 186.066 = 0.4.18(25) = 206.6 201.828 Forecast (Rounded) 206.3 / 204 = 1.873 1.6 (1.

(1 mark) b) Develop a regression relationship.18(30) = 207.56 2.9 .29 5.4 1.69 2.0 51.8 88.0 7.4 24.5 2 1.5 Ridership 3 2.25 6.5 2.00 7.76 4.0 2.14 0.913) = 189 4.Saturday (5 marks) 3 0 201.25 7.0 1.5 0 0 10 Tourists 20 30 As the number of tourists (x-axis) increases.5 1.7 2. Year 1 2 3 4 5 6 7 8 9 10 11 12 Tourists (x) 7 2 6 4 14 15 16 12 14 20 15 7 Ridership (y) 1.00 1.8 6.4 3. During the past 12 years.4 2.7 4.5 38.5 4 3. the following data have been obtained: a) Plot these data and decide if a linear model is reasonable.0 37. 5 4.29 19.41 Summer-month bus and subway ridership in Washington.14 (0.89 xy 10.36 11.25 1.3 1. is believed to be tied heavily to the number of tourists visiting the city.7 x2 49 4 36 16 196 225 256 144 196 400 225 49 y2 2. the ridership appears to increase: a linear model is reasonable.0 40.5 2.5 2.0 35.913 207.74 + 0.5 1 0.0 11. DC.

917 514637.1 / 12 = 2.159(352.9) − (132)(27.511 + 0. because the number of tourists is outside the range of data used to develop the model.1) 657. however. a large wing could return $150.101. a small wing.159x (2 marks) c) What is expected ridership if 10 million tourists visit the city in a year? Y = 0.6 657.1 Σx2 = 1796 Σy2 = 71.x = ∑y 2 − a ∑ y .58 = 0.1) − 0.159 1796 − 12(11) 344 ∑ x − nx 2 2 2 a = y .0.76 717. the model predicts a ridership of 0.bx = 2.000 persons.9 − 12(11)(2.000 to the hospital each year. or no wing at all.9172 = 0. One would not place much confidence in this forecast.511 ∴ the relationship is y = 0.9 ∑ xy .1) ] 2 2 = 12(352.26 .59 − 0.840 (2 marks) A.511(27.Σx = 132 x = Σx / n = 132 / 12 = 11 y = Σy / n = 27.26 b= Σy = 27.101 or 2.nxy = 352. (1 mark) e) What is the standard error of the estimate? S y.59 Σxy = 352. If a small wing .9) 1.159(11) = 0.404 12 − 2 10 (2 marks) f) What is the model’s correlation coefficient and coefficient of determination? r= = [n ∑ x n∑ xy − ∑ x ∑ y 2 2 − ( ∑ x ) n∑ y 2 − ( ∑ y ) ][ 2 ] [12(1796) − (132) ][12(71.6 = = 0. She is trying to determine whether to build a large wing on the existing hospital.38 r2 = 0.163 = 0.511 or 511. (2 marks) d) Explain the predicted ridership if there are no tourists at all.17 Chris Suit is administrator for Lowell Hospital.26) = 54.000 persons.511 + 0. If there are no tourists at all.b∑ xy n−2 = 71. If the population of Lowell continues to grow.63 = = 0.59) − (27.159(10) = 2.

5 EMV 150(0. Build Large Wing Build Small Wing Do Not Build Grow 150 60 0 P 0.5) = $32.4) = $56 60(0. which decision should Suit make? Build Large Wing Build Small Wing Do Not Build Grow 150 60 0 P 0. determine the best alternative.4 0.5) = $7.5 $0 We would make the decision which results in the largest EMV – in this case. a) Construct a decision tree.6) – 45(0. If the population of Lowell remains the same.000 with a large wing and a loss of $45.5) – 45(0.6) – 85(0.000 to the hospital each year of the population continues to grow.6 Stable -85 -45 0 P 0.5 0.000 with a small wing. it would return $60. Suit does not have any information about the future population of Lowell. the hospital would encounter a loss of $85.6 0.5) – 85(0. we would build the large wing.4 and the decision criterion is expected monetary value. Build Large Wing Build Small Wing Do Not Build Grow 150 60 0 Stable -85 -45 0 c) Assuming that each state of nature has the same likelihood. Grow 150 Build Large Build Small Do Not Build Stable -85 Grow 60 Stable -45 Grow 0 Stable 0 b) Construct a decision table.6 0. d) If the likelihood of growth is 0.were built.4 0.5 0.5 60(0.6 and that of remaining the same is 0.5 0. Unfortunately.5 Stable -85 -45 0 P 0.4 EMV 150(0.4) = $18 $0 .5 0.

.We would make the decision which results in the largest EMV – in this case. we would build the large wing.

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