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Question. 1.

a. The sales of Diesel Generating sets for M/S Bright Generators Ltd. are given in the

following table for the last 12 years. The figures are in thousand numbers.

YEAR

1995

1996

1997

1998

1999

2000

SALES

2000

2200

2100

2300

2500

3000

YEAR

2001

2002

2003

2004

2005

2006

SALES

3200

3500

4000

3500

4500

5000

**Use the least square regression analysis to forecast the sales of generating sets for the
**

years 2007 and 2008.

b. For the above data assume that the forecast for the year 1995 was 2100. If the

smoothing factor is 0.4 project the forecasts for the years 1996 to 2006 using exponential

smoothing method.

c. Using Simple Moving Average of three years, project the sales of Generating sets for

the years 1998 to 2006 for the above example.

Question 2.

The actual sales figures of air conditioners manufactured by M/S Cool Safe Ltd. are

given for the past 10 years in the following Table. The sales figures are in thousand

numbers. As a marketing Consultant for the company, you have to forecast the sales for

the year 1911 using two years and three years simple moving average method.

YR

1901

1902

1903

1904

1905

ACTUAL

SALES

230

220

200

240

230

YR

1906

1907

1908

1909

1910

ACTUAL

SALES

260

300

240

280

320

Which of these forecasts would be more reliable based on “Mean Squared Error” basis?

000 22.200 2.SOLUTION 1: We have to estimate the parameters a and b in the linear relationship Yt = a + bT using the least squares method.500 18.000 36.000 3.400 28.4 a = Y – bT = 3.100 2.12 .23 (6.000 2.300 – 12 x 6.000 49.200 3.800 Y = 3.300 ∑ T 2 = 650 T 1 (1995) 2 3 4 5 6 7 8 9 10 11 12 (2006) ∑ T = 73 T = 6.000 T2 1 4 9 16 25 36 49 64 81 100 121 144 ∑ Y = 37.08) = 1756.08 x 3. According to the least squares method the parameters would be: ∑TY–nTY b= ∑T2–nT2 a= Y – bT The parameters are calculated as follows: Y 2.500 4.300 9.500 4.150 = ∑T2–nT2 650 – 12 x 6.300 2.150 ∑ TY = 283.500 3.23 206.000 35.08 x 6.150 – 259.500 5.000 3.000 TY 2.400 6.08 53506 = = 259.08 ∑TY–nTY b= 283.200 12.500 60.000 4.

8 3456.300 2.4(485.11 or say 5126 Since the numbers are in thousands.000 3.1 3708.4 (-100) = 2060 F3 = 2060 + 0.72 2574.385.8 709.12 + 259.80 F10 = 3094.000 3.1 485.126.100 2.500 4. the sales forecast for the year 2008 will be 5.5 -16 248 348.66 F9 = 2824.8) = 2290.4 The forecasts for periods 2 (1996) to 12 (2006) can be then calculated as follows: Period t Data (St) Forecast (Ft) Error (St -Ft) 1 2 (1996) 3 4 5 6 7 8 9 10 11 12 (2006) 2.500 2116 2052 2151.28 625.2 2290.9 3514.000 Generating sets.43 F8 = 2574.23 X 14 = 5385.66 3094.34 or say 5385 Since the numbers are in thousands.12 + 259.200 3.2) = 3456.1 + 0.5 + 0.Thus linear regression will be Y = 1756.4(348.4(625.1 F12 = 3514.66 + 0.9 F11 = 3456.9 291. the forecast for the year 2008 (14th year) will be = 1756.4(709.8 + 0.23 X 13 = 5126.9) = 3708.23 T Hence the forecast for the year 2007 (13th year) will be = 1756.28) = 2574.43 2824.43 + 0.500 4. According to the simple moving average method .4(140) = 2116 F4 = 2116 + 0.5) = 3825.200 2100.2 143.34 905. b.4(675.57 675. Similarly.9 + 0.57) = 2797.2 F6 = 2151.4(291.0 2060 -100 140 2.5 F13 = 3708. the forecast for t + 1 is Ft + 1 = Ft + α et Where Ft + 1 = forecast for year ) α = smoothing factor et = error in the forecast for year t = St = Ft F1 is given to be 2100 and α is given to be 0. the sales forecast for the year 2007 will be 5.34) = 3094.4(905.4(143.000 Generating sets.72 + 0.2 + 0. in exponential smoothing method.000 4.12 + 259.4(248) = 2151.500 3.4 (-16) = 2052 F5 = 2052 + 0.1) = 3514.1 C. In general.72 F7 = 2290.5 Forecast for t + 1 (Ft + 1 = Ft + α et) F2 = 2100 + 0.000 2.

500 3.000 3500 4500 5. the forecasts for the period 4 to 14 can be calculated as follows: Period t Data (St) 1 2 3 4 5 6 7 8 9 10 11 12 13 2.200 2.100 2.300 2.000 - Forecast (Ft) 2100 2200 2300 2600 2900 3233 3567 3667 4000 4333 Forecast for t + 1 Ft + 1 = (St+ S t – 1 + S t – 2)/ 3 F4 = (2000 + 2200 + 2100)/3 = 2100 F5 =(2200 + 2100 + 2300)/3= 2200 F6 = (2100 + 2300 + 2500)/3 = 2300 F7 = (2300 + 2500 + 3000)/3= 2600 F8 = (2500 + 3000 + 3200)/3 = 2900 F9 = (3000 + 3200 + 3500)/3 = 3233 F10 = (3200 + 3500 + 4000)/3 = 3567 F11 = (3500 + 4000 + 3500)/3 =3667 F12 =(4000 + 3500 + 4500)/3 = 4000 F13 = (3500 + 4500 + 5000)/3 = 4333 .200 3.000 2.500 4.000 3.St + S t – 1 +…+ S t – n +1 Ft + 1 = n where Ft + 1 = forecast for the next period St = sales for the current period n = period over which averaging is done Given n = 3.

A.A.S.89 7471.------625 ------90 216.89 176.3 100 266. (Note: Marks could be deducted if the units are not mentioned in the answer ) . forecast with two year moving average is more reliable.3 100 263.E.125 ------------------23.89 2180.3 10 26.7 1600 273.000 2) Forecast of sales in the year 1911 based on 3 years moving average = 280.7 100 220 625 223.32 Answers: 1) Forecast of sales in the year 1911 based on 2 years moving average = 300.7 ERROR SQUARE ------------------542. ERROR SQUARE 3 YRS M.7 -23.89 100 712.000 3) Mean Squared Error being less for the two year moving average.------------. YR ACTUAL SALES 2 YRS M. ERROR (Act – For) 1 2 3 4 5 6 7 8 9 10 11 230 220 200 240 230 260 300 240 280 320 Forecast ------------225 210 220 235 245 230 270 260 300 -------------25 30 10 25 55 10 10 40 M.SOLUTION 2.7 56. ERROR (Act – For) ------.3 3025 243.3 6265 280 783.3 46.34 1067.3 13.89 3214.89 542.

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