Chapter 4: Forecasting

Problem 1: Auto sales at Carmen’s Chevrolet are shown below. Find a Naive forecast
for week 7. Compute the MAD, MAPE and MSE values.
Auto Forecast
t Sales (At) (Ft) Error (Et) = At – Ft |Et| |Et|/At Et2

1 8

2 10

3 9

4 11

5 10

6 13

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Problem 2: Auto sales at Carmen’s Chevrolet are shown below. Find a 2 and 3-week and
moving average forecasts for week 7. Compute the MAD and MAPE values.
t Sales Forecast 2-MA Error (Et) |Et| |Et|/At

1 8

2 10

3 9

4 11

5 10

6 13

t Sales Forecast 3-MA Error (Et) |Et| |Et|/At

1 8

2 10

3 9

4 11

5 10

6 13

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Problem 3: Carmen’s decides to forecast auto sales by weighting the three weeks with a
weight of 2 for last week, and 1 for each of the two weeks prior.

t Auto Sales Forecast Error (Et) |Et|

1 8

2 10

3 9

4 11

5 10

6 13

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Problem 4: Exponential smoothing is used to forecast automobile battery sales with  =
0.8. Evaluate the accuracy of each smoothing constant. Which is preferable? (Assume
the forecast for January was 22 batteries.) Actual sales are given below.
Month Sales Forecast with  = 0.8 Error (Et)

January 20 Given: F1 = 22

Februar
21
y

March 15

April 14

May 13

June 16

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Problem 5: Use the sales data given below to determine: (a) the least squares trend line,
and (b) the predicted value for 2003 and 2004 sales. To minimize computations,
transform the value of x (time) to simpler numbers. In this case, designate year 1996 as
year 1, 1997 as year 2, etc.
Year t Demand X2 XY

1996 100

1997 110

1998 122

1999 130

2000 139

2001 152

2002 164

Sum =

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Problem 6: The following table shows sales data for water pumps sold by Meredith and
Smunt Manufacturing. Compute the quarterly index.

Quarter Year 1 Year 2 Year 3 Year 4

Spring 3750 3890 4150 4210

Summer 2850 2990 3060 3100

Fall 1820 1970 2020 2190

Winter 950 990 1010 1050

Quarter Average Index

Spring

Summer

Fall

Winter

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Problem 7: Using the data in Problem #6, Meredith and Smunt Manufacturing expects
annual sales of pumps to grow by 10% next year. Compute next year’s sales and the sales
for each quarter.

Problem 8: A large metropolitan county developed a forecasting model for the number
of daily arrests for public drunkenness for use in scheduling officers. The arrest trend line
is given by 50 + 0.2t, where t = 1 for day 1 of week 1 of the fiscal year. In addition, the
multiplicative seasonal factors for the seven weekdays are as follows:
Monday Tuesday Wednesday Thursday Friday Saturday Sunday
0.9 0.8 0.6 0.9 1.3 1.4 1.1

The supervising officer is developing schedule for week 25 and wishes to develop
forecast for the expected number of arrests for the seven days of week 25. Find these
forecasts.
  t Trend Factor Forecast

Monday

Tuesday

Wednesday

Thursday

Friday

Saturday

Sunday

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 Problem 9: Given the forecast demand and demand for fishing boats, compute the
tracking signal.

No. of Tracking Signal =

Week Demand Forecast Error (Et) CFEt |Et| CAEt Error MADt CFEt/MADt

1 71 78

2 80 75

3 101 101

4 60 88

Et = Error = Demand - Forecast

|Et| = Absolute error = |Demand – Forecast|
CFEt = Running Sum of Et
CAEt = Running Sum of |Et|
MADt = Running MAD for period t = CAEt/ No. of error

Tracking Signal = CFEt/MADt

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Problem 10: Regional Foods, Inc. sells organic soap products. A random sample of
advertising expense in thousand dollars for eight randomly selected months and
corresponding sales in million dollars is given below.

Sales Advertising
Month ($Million) expense (000 $) XY X2 Y2
1 2.56 25.0

2 1.74 17.0

3 2.11 21.0

4 1.37 15.0

5 1.42 13.0

6 1.66 14.0

7 1.01 10.0

8 2.26 20.0

a. Develop a linear regression equation for predicting sales using the amount spent on
advertising.

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b. Determine the coefficient of correlation and the standard error of the estimate.

c. Find a forecast for the sales next month if the company is considering spending
$15,000 on advertising. If the company spends $22,500 on advertising what will be
the expected sales?

d. Find a forecast for the sales next month if the company spends $22,500 on
advertising.

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Problem #11: The multiple regression equation Ŷ = 16.4 – 4.2X1 + 1.5X2 was developed
to forecast daily milk sales in 1,000 gallons with X1 = Price per gallon and X2 =
Advertising expense in $1,000. Calculate the estimated weekly milk sales milk in gallons
if (a) the price per gallon is set at $4.50 and $3000 was spent on advertising, and (b) the
price per gallon is set at $5.00 and $4400 was spent on advertising. Which of the two
alternative strategies will generate more revenue net of the advertising expense?

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