84

few years to help decide whether to add new productioncapacity. The company's sales history (in thousands of units) is shown in
the table below. Useexponential smoothing with trend adjustment, to forecast demand for period 6. The

initial forecastfor period 1 was 11 units; the initial estimate of trend was 0. The smoothing constants areα
= .3andβ

= . 3
Period

Actual
1

12
2

15
3

16
4

16
5

18
6

20
Period

Actual
Forecast Trend

FIT
1

12
11.00

0.00
2

15
11.30

0.09
11.39

3
16

12.47
0.41

12.89
4

16
13.82

0.69
14.52

5
18

14.96
0.83

15.79
6

20
16.45

1.03
17.48

(Time-series forecasting, moderate) {AACSB: Analytic Skills}

136. The quarterly sales for specific educational software over the past three years are given in the

following table. Compute the four seasonal factors.

YEAR 1

YEAR 2
YEAR 3

Quarter 1
1710

1820
1830

Quarter 2
960

910
1090

Quarter 3
2720

2840
2900

Quarter 4
2430

2200
2590

Avg.
Sea. Fact.

Quarter 1
1786.67

0.8933
Quarter 2

986.67
0.4933

Quarter 3
2820.00

1.4100
Quarter 4

2406.67
1.2033

Grand Average
2000.00

(Time-series forecasting, moderate) {AACSB: Analytic Skills}

85
137.An innovative restaurateur owns and operates a dozen "Ultimate Low-Carb" restaurants in northern

Arkansas. His signature item is a cheese-encrusted beef medallion wrapped in lettuce. Sales (X, in millions
of dollars) is related to Profits (Y, in hundreds of thousands of dollars) by the regression equation Y = 8.21

+ 0.76 X. What is your forecast of profit for a store with sales of $40 million? $50 million?
Students must recognize that sales is the independent variable and profits is dependent; the problem

is not a time series. A store with $40 million in sales: 40 x 0.76 = 30.4; 30.4 + 8.21 = 38.61, or
$3,861,000 in profit; $50 million in sales is estimated to profit 46.21 or $4,621,000. (Associative

forecasting methods: Regression and correlation, moderate) {AACSB: Analytic Skills}

fits for the stores are in the table below. Sales are given in millions of dollars; profits are in hundreds of thousands of dollars.

Calculate a regression line for the data. What is your forecast of profit for a store with sales of $24 million?
$30 million?

Store
Profits

Sales
1

14
6

2
11

3
3

15
5

4
16

5
5

24
15

6
28

18
7

22
17

8
21

12
9

26
15

10
43

20
11

34
14

12
9

5
Students must recognize that "sales" is the independent variable and profits is dependent.Store

number is not a variable, and the problem is not a time series. The regression equationis Y = 5.936 +
1.421 X (Y = profit, X = sales). A store with $24 million in sales is estimated toprofit 40.04 or

$4,004,000; $30 million in sales should yield 48.566 or $4,856,600 in profit.(Associative forecasting
methods: Regression and correlation, moderate)
 86

D for the manager's forecast. Compare the manager's forecastagainst a naive forecast. Which is better?
Month

Unit Sales
Manager's Forecast

January
52

February
61

March
73

April
79

May
66

June
51

July
47

50
August

44
55

September
30

52
October

55
42

November
74

60
December

125
75

Month
Actual

Manager's Abs. Error

Naive

Abs. Error
January

52
February

61
March

73
April

79
May

66
June

51
July

47
50

3
51

4
August

44
55

11
47

3
September

30
52

22
44

14
October

55
42

13
30

25
November

74
60

14
55

19
December

125
75

50
74

51
MAD

18.83
19.33The manager's forecast has a MAD of 18.83, while the naive is 19.33. Therefore, themanager's
forecast is slightly better than the naive.(Monitoring and controlling forecasts, moderate) {AACSB:
Analytic Skills}