Ch 03 - Demand Forecasting

Chapter 03 - Demand Forecasting
Chapter 03
Demand Forecasting
True / False Questions
1. Since a primary goal of operations management is to match supply to demand, forecasts

become a basic input to the decision process because they provide information on past
demand.
FALSE
Accessibility: Keyboard Navigation

Difficulty: Medium
Learning Objective: 03-01 Introduced forecasting; identify uses of demand forecastes; distinguish between forecasting time frames; describe
common features of forecasts; list the elements of good forecast and steps of the forecasting process; and contrast different forecasting
methods.
Topic: 03-01 Introduction
2. Forecasting techniques generally assume that the same causal system that existed in the
past will continue to exist in the future.
TRUE

Difficulty: Medium
methods.
Topic: 03-02 Features Common to All Forecasts
3. Forecasts are rarely perfect.

TRUE

Difficulty: Easy
methods.
3-1
4. Generally the responsibility for preparing demand forecasts for finished goods or services
lies with operations rather than marketing or sales departments.
FALSE

Difficulty: Easy
methods.
5. Forecasts for groups of items tend to be less accurate than forecasts for individual items
because forecasts for individual items are not subject to as many influencing factors.
FALSE

Difficulty: Medium
methods.
6. Organizations that are capable of responding quickly to changing requirements can use a
shorter forecast horizon and therefore benefit from more accurate forecasts.
TRUE

Difficulty: Medium
methods.
7. Forecast accuracy tends to increase as the time horizon increases.

FALSE

Difficulty: Easy
methods.
3-2
8. The purpose of the forecast should be established first so that the level of detail, amount of
resources, and accuracy level can be indicated.
TRUE

Difficulty: Medium
methods.
Topic: 03-04 Steps in the Forecasting Process
9. Time series techniques involve identification of explanatory variables that can be used to
predict future demand.
FALSE

Difficulty: Hard
methods.
Topic: 03-05 Approaches to Forecasting
10. A consumer survey is an easy and sure way to obtain direct input from existing
customers.
FALSE

Difficulty: Medium
Learning Objective: 03-02 Describe at least three judgmental forecasting methods.
Topic: 03-06 Judgmental Methods
11. The Delphi approach involves the use of a series of questionnaires to achieve a consensus
forecast.
TRUE

Difficulty: Easy
Topic: 03-11 Expert Opinions
3-3
12. Forecasts based on time series (historical) data are referred to as associative forecasts.
FALSE

Difficulty: Medium
Learning Objective: 03-03 Describe the components of a time series model; explain averaging techniques; and solve typical problems.
13. As a forecasting technique, the Delphi technique is useful for technological forecasting.
TRUE

Difficulty: Medium
14. One weakness of the Delphi method is that there is a high risk that one person's opinion
will prevail.
FALSE

Difficulty: Medium
15. Forecasting techniques that are based on time series data assume that future values of the
series will duplicate past values.
FALSE

Difficulty: Medium
3-4
16. The primary difference between irregular and random variations is the ability to attribute
variations to a specific cause.
TRUE

Difficulty: Medium
17. Increasing the number of data points included in a moving average will result in a forecast
that is smoother but less responsive to changes.
TRUE

Difficulty: Medium
Topic: 03-15 Averaging Methods
18. The naive approach to forecasting requires a linear trend line.

FALSE

Difficulty: Easy
Topic: 03-14 Naïve Methods
19. The naive forecast is limited in its application to series that reflect no trend or seasonality.
FALSE

Difficulty: Easy
3-5
20. The naive forecast can serve as a standard of comparison against which to judge the cost
and accuracy of other techniques.
TRUE

Difficulty: Easy
21. A moving average forecast tends to be more responsive to changes in the data series when
more data points are included in the average.
FALSE

Difficulty: Medium
22. In order to update a moving average forecast, the values of each data point in the average
must be known.
TRUE

Difficulty: Hard
23. A simple moving average assigns equal weight to each data point that is represented by
the average.
TRUE

Difficulty: Easy
3-6
24. An advantage of a weighted moving average is that more recent experience is given more
weight than less recent experience.
TRUE

Difficulty: Medium
25. Exponential smoothing is a form of weighted averaging.

TRUE

Difficulty: Medium
26. A smoothing constant of .1 will cause an exponential smoothing forecast to react more
quickly to a sudden change than a value of .3 will.
FALSE

Difficulty: Hard
27. In exponential smoothing, an alpha of .30 will cause a forecast to react more quickly to a
large error than will an alpha of .20.
TRUE

Difficulty: Hard
3-7
28. Trend-Adjusted Exponential Smoothing is also called double exponential smoothing.

TRUE

Difficulty: Medium
Learning Objective: 03-04 Describe trend forecasting and solve typical problems.
Topic: 03-18 Trend-Adjusted Exponential Smoothing
29. Trend adjusted exponential smoothing requires selection of two smoothing constants.
TRUE

Difficulty: Easy
30. An advantage of "trend adjusted exponential smoothing" over the "linear trend equation"
is its ability to adjust over time to changes in the trend.
TRUE

Difficulty: Medium
31. A seasonal relative (or seasonal indexes) is expressed as a percentage of the average or
trend in a time series.
TRUE

Difficulty: Medium
Learning Objective: 03-05 Describe seasonality forecasting and solve typical problems using both the centred moving average and annual
average methods.
Topic: 03-19 Techniques for Seasonality
3-8
32. In order to compute seasonal relatives, the trend of past data must be computed or known.
TRUE

Difficulty: Medium
average methods.
33. Removing the seasonal component from a data series (deseasonalizing) can be
accomplished by dividing each data point by its appropriate seasonal relative.
TRUE

Difficulty: Hard
average methods.
34. Centred moving averages (CMA) is a better way to compute seasonal relatives than using
a simple moving average if there is a linear trend in a time series.
TRUE

Difficulty: Hard
average methods.
35. Correlation measures the strength and direction of a relationship between variables.
TRUE

Difficulty: Medium
Learning Objective: 03-06 Describe associated models (regression) and solve typical problems.
Topic: 03-23 Correlation Coefficient
3-9
36. Multiple regression procedures permit us to extend associative models to relationships that
involve more than one predictor variable.
TRUE

Difficulty: Medium
Topic: 03-24 Multiple Regression
37. The forecast error is the difference between the actual value and the forecast value for a
given period.
TRUE

Difficulty: Medium
Learning Objective: 03-07 Describe three measures of forecast accuracy and two ways of controlling forecastes; and solve typical problems.
Topic: 03-25 Accuracy and Control of Forecasting Process
38. Positive forecast errors, the case when the forecast is low relative to the actual value, are
preferable to negative forecast errors, the case when the forecast is higher than the actual
value
FALSE

Difficulty: Medium
39. MAD is equal to the square root of MSE.

FALSE

Difficulty: Medium
Topic: 03-26 Accuracy of the Forecasting Process
3-10
40. The MSE is the best measure to use in a control chart to monitor if forecast error is
randomly distributed around a mean value of 0.
FALSE

Difficulty: Medium
41. The square root of MSE is used to estimate the sample standard deviation of forecast
errors.
TRUE

Difficulty: Medium
Topic: 03-27 Controlling the Forecasting Process
42. A control chart involves setting control limits to monitor cumulative forecast error.
FALSE

Difficulty: Medium
43. The use of a control chart assumes that errors are normally distributed about a mean of
zero.
TRUE

Difficulty: Hard
3-11
44. When error values fall outside the limits of a control chart, this signals a need for
corrective action
TRUE

Difficulty: Easy
45. Using control charts to monitor forecast error are best suited for forecasting applications
involving a single forecast rather than applications involving a series of forecasts (e.g.
monthly sales).
FALSE

Difficulty: Medium
46. A random pattern of errors within the limits of a control chart signals a need for corrective
action.
FALSE

Difficulty: Medium
47. When all the forecast errors plotted on a control chart are either all positive, or all
negative, this shows that the forecasting technique is performing adequately.
FALSE

Difficulty: Medium
3-12
48. The best forecast is always the one that is the most accurate.
FALSE

Difficulty: Medium
Learning Objective: 03-08 Identify the major factors to consider when choosing a forecasting technique.
Topic: 03-28 Choosing a Forecasting Technique
49. Moving average and exponential smoothing forecasting techniques are used for long range
forecasts.
FALSE

Difficulty: Hard
50. A proactive approach to forecasting views forecasts as probable descriptions of future

demand, assuming actions can be taken to meet that demand.
FALSE

Difficulty: Hard
Topic: 03-29 Using Forecast Information
51. A proactive approach to forecasts might involve advertising or other attempts to influence
the demand level.
TRUE

Difficulty: Easy
Multiple Choice Questions
3-13
52. Forecasts can help a manager to do all of the following EXCEPT:

A. reduce uncertainty in planning.
B. design the system.
C. plan the medium-term use of the system.
D. schedule the short-term use of the system.
E. predict the future precisely.

Difficulty: Easy
methods.
53. In operations, forecasts are the basis for all of the following EXCEPT:
A. capacity planning
B. project management
C. inventory planning
D. work assignments and workloads
E. pricing and promotion
Forecasts are used for all of the responses, however, specific to operations answer E does not
apply. E relates to marketing use of forecasts.

Difficulty: Medium
methods.
3-14
54. All of the following are true about forecasts EXCEPT:

A. become less accurate with longer time horizons.
B. are less accurate for individual items than for groups of items.
C. are always perfect.
D. are usually the responsibility of operating managers to prepare.
E. assume the same underlying causal system in the future as the past.

Difficulty: Easy
methods.
55. Which would not generally be considered a feature common to all forecasts?
A. An assumption of a stable underlying causal system.
B. Actual results will differ somewhat from predicted values.
C. Historical data is available on which to base the forecast.
D. Forecasts for groups of items tend to be more accurate than forecasts for individual items.
E. Accuracy decreases as the time horizon increases.

Difficulty: Hard
methods.
56. Which of the following is not a step in the forecasting process?

A. Determine the purpose of the purpose.
B. Eliminate any assumptions and rely solely on verifiable factual data.
C. Establish a forecasting horizon.
D. Select a forecasting technique.
E. Monitor the forecast.

Difficulty: Medium
methods.
3-15
57. Which of the following is not part of determining the purpose of the forecast?
A. The level of detail required in the forecast
B. The amount of personnel that can be justified
C. The level of accuracy required
D. The forecasting time interval
E. The amount of dollars that can be justified

Difficulty: Hard
methods.
58. The two general approaches to forecasting are:

A. mathematical and statistical.
B. qualitative and quantitative.
C. judgmental and quantitative.
D. historical and associative.
E. judgmental and associative.

Difficulty: Easy
methods.
59. Which of the following is not necessarily an element of a good forecast?

A. The degree of accuracy is stated.
B. Time horizon long enough so forecast results can be used.
C. Expressed in meaningful units.
D. Low cost to complete.
E. Technique is simple to understand and use.

Difficulty: Medium
methods.
Topic: 03-03 Elements of a Good Forecast
3-16
60. Which of the following is not a requirement of a properly prepared forecast?

A. Timely
B. Accurate
C. Reliable
D. Simple to understand and use
E. Inexpensive

Difficulty: Medium
methods.
Topic: 03-03 Elements of a Good Forecast
61. Which of the following is not a type of judgmental forecasting?

A. Executive opinions
B. Sales force opinions
C. Consumer surveys
D. Expert opinions
E. Time series analysis

Difficulty: Easy
62. Which of the following steps is considered the last step in the forecasting process?
A. Gather and analyze relevant historical data.
B. Determine the purpose of the forecast.
C. Monitor the forecast.
D. Prepare the forecast.
E. Establish a time horizon.

Difficulty: Easy
methods.
3-17
63. Which of the following would be an advantage of using opinions of a sales force to
develop a demand forecast?
A. The sales staff is least affected by changing customer needs.
B. The sales force can easily distinguish between customer desires and probable actions.
C. The sales staff is often aware of customers' future plans.
D. Salespeople are least likely to be influenced by recent events.
E. Salespeople are least likely to be biased by sales quotas.

Difficulty: Medium
Topic: 03-08 Sales Force Opinions
64. Which phrase most closely describes the Delphi technique?

A. Associative forecast
B. Consumer survey
C. Series of questionnaires
D. Double smoothing
E. Historical data

Difficulty: Easy
65. A network security company is securing input from information technology managers
trying to anticipate when Wi Fi networks might be available in at least half of their client's
businesses. Which method are they most likely to use?
A. The Delphi method
B. Consumer surveys
C. Regression models
D. Naive method
E. Trend models

Difficulty: Medium
3-18
66. The forecasting method which uses anonymous questionnaires to achieve a consensus
forecast is:
A. sales force opinions.
B. consumer surveys.
C. the Delphi method.
D. time series analysis.
E. executive opinions.

Difficulty: Easy
67. One reason for using the Delphi method in forecasting is:
A. responses are anonymous.
B. to achieve a high degree of accuracy.
C. to maintain accountability and responsibility.
D. to be able to replicate results.
E. the ability to directly meet with customers

Difficulty: Medium
68. Time series data may exhibit all but which of the following behaviours?
A. Trend
B. Seasonality
C. Cycles
D. Irregularities
E. Identification of variables.

Difficulty: Easy
3-19
69. Persistent upward or downward movement in time series data is called:

A. seasonal variation.
B. cycles.
C. irregular variation.
D. trend.
E. random variation.

Difficulty: Easy
70. The primary difference between seasonality and cycles is:

A. the duration of the repeating patterns.
B. the magnitude of the variation.
C. the ability to attribute the pattern to a cause.
D. There is more forecasting "noise" in a cycle.
E. There is less forecasting "noise" in a cycle.

Difficulty: Hard
71. Averaging forecasting techniques are useful for:

A. distinguishing between random and non-random variations
B. forecasting cyclical time series
C. smoothing out fluctuations in data
D. forecasting seasonal indexes
E. identifying variables in the demand

Difficulty: Medium
3-20
72. Disadvantages of naive forecasts include:

A. time-consuming to prepare
B. it is expensive to use
C. the technique is difficult to understand
D. inability to provide highly accurate forecasts
E. time to develop a forecast is lengthy

Difficulty: Medium
73. Which of the following is not a characteristic of Naive forecasting methods

A. are quick and easy to prepare.
B. are easy for users to understand.
C. can serve as an accuracy standard for other techniques.
D. able to quickly identify changes in demand.
E. have virtually no cost.

Difficulty: Easy
74. Using the latest observation in a sequence of data to forecast the next period is:
A. a moving average forecast.
B. a naive forecast.
C. an exponentially smoothed forecast.
D. an associative forecast.
E. a judgmental forecast.

Difficulty: Easy
3-21
75. For the data given below, if the time series was assumed to be stable, what would the
naive forecast be for the next period?
Period Demand
1 58
2 61
3 60
4 61
A. 58
B. 62
C. 59.5
D. 61
E. 60.5
Stable series.

Difficulty: Medium
76. Given the following historical data, what is the simple three-period moving average
forecast for period 6?
Period Value Period Value

1 73 4 72
2 68 5 67
3 65
3-22
A. 67
B. 115
C. 69
D. 68
E. 68.67

Difficulty: Easy
77. Given the following historical data and weights of .5 for the most recent period, .3 for the
next most recent, and .2 for the next after that, what is the weighted three-period moving
average forecast for period 5?
Period Value Period Value

1 138 3 148
2 142 4 144
A. 144.20
B. 144.80
C. 144.67
D. 143.00
E. 144.00

Difficulty: Easy
3-23
78. Moving average forecasting techniques:

A. immediately reflect changing patterns in the time series.
B. lead changes in the time series.
C. smooth variations in the time series.
D. exhibit more variability than the original data.
E. are best used when demand shows a steady increase.

Difficulty: Hard
79. Which is not a characteristic of simple moving averages applied to time series data?
A. Smooths random variations in the data
B. Weights each historical value equally
C. Lags changes in the data
D. Has minimal reliance on historical data
E. Smooths real variations in the data

Difficulty: Medium
80. In order to increase the responsiveness of a forecast made using the moving average
technique, the number of data points in the average should be:
A. decreased.
B. increased.
C. multiplied by a larger alpha.
D. multiplied by a smaller alpha.
E. divided by alpha.

Difficulty: Hard
3-24
81. As compared to a simple moving average, the weighted moving average is:
A. easier to compute.
B. more reflective of the most recent periods.
C. smoother.
D. less reflective of the most recent periods.
E. more readily able to identify random variations.

Difficulty: Medium
82. A forecast based on the previous forecast plus a percentage of the forecast error is:
A. a naive forecast.
B. a simple moving average forecast.
C. a centred moving average forecast.
D. an exponentially smoothed forecast.
E. an associative forecast.

Difficulty: Easy
83. Which is not a characteristic of exponential smoothing?

A. Smooths random variations in the data
B. Weights each historical value equally
C. Provides an easily altered weighting scheme
D. Directly accounts for forecast error
E. Smooths real variations in the data

Difficulty: Hard
3-25
84. Which of the following smoothing constants would make an exponential smoothing
forecast equivalent to a naive forecast?
A. 0
B. .01
C. 1
D. 5
E. 1.0

Difficulty: Hard
85. Simple exponential smoothing is being used to forecast demand. The previous forecast of
66 turned out to be 3 units less than actual demand. The next forecast is 66.6, implying a
smoothing constant, alpha, equal to:
A. 01
B. 10
C. 15
D. 20
E. 60

Difficulty: Hard
86. Given an actual demand of 57, a previous forecast of 62, and an alpha of .3, what would
the forecast for the next period be using simple exponential smoothing?
A. 36.9
B. 57.5
C. 60.5
D. 62.5
E. 65.5

Difficulty: Medium
3-26
87. Given an actual demand of 105, a predicted value of 97, and an alpha of .4, the simple
exponential smoothing forecast for the next period would be:
A. 80.8
B. 93.8
C. 100.2
D. 101.8
E. 108.2

Difficulty: Medium
88. Which of the following possible values of alpha would cause exponential smoothing to
respond the most quickly to forecast errors?
A. 0
B. .01
C. .05
D. .10
E. .15

Difficulty: Medium
89. A manager uses the following equation to predict monthly receipts: Yt = 40,000 + 150t.
What is the forecast for December if t = 0 for the month of April?
A. 40,050
B. 41,050
C. 41,200
D. 41,300
E. 41,500

Difficulty: Medium
Topic: 03-16 Techniques for Trend
3-27
90. In trend-adjusted exponential smoothing, the trend adjusted forecast (TAF) consists of:
A. an exponentially smoothed forecast and a smoothed trend factor.
B. an exponentially smoothed forecast and an estimated trend value.
C. the old forecast adjusted by a trend factor.
D. the old forecast and a smoothed trend factor.
E. a moving average and a trend factor.

Difficulty: Hard
91. In the "additive" model for seasonality, seasonality is expressed as a ______________

adjustment to the average; in the multiplicative model, seasonality is expressed as a
______________ adjustment to the average.
A. quantity; proportion
B. proportion; quantity
C. quantity; quantity
D. proportion; proportion
E. index; quantity

Difficulty: Hard
average methods.
92. Which technique is useful in computing seasonal relatives?

A. Double smoothing
B. Delphi technique
C. MSE
D. Centred moving average
E. Exponential smoothing

Difficulty: Medium
average methods.
3-28
93. The following equation is used to predict quarterly demand: Yt = 350 - 2.5t, where t = 0 in
the second quarter of last year. Quarter relatives are Q1 = 1.5; Q2 = 0.8; Q3 = 1.1; and Q4 =
0.6. What is the forecast for the last quarter of this year?
A. 201
B. 335
C. 268
D. 199.5
E. 266

Difficulty: Medium
average methods.
Topic: 03-20 Techniques for Cycles
94. Which of the following might be used to forecast the cyclical component of a time series?
A. An associated leading variable
B. Centred moving average (CMA)
C. Delphi technique
D. Exponential smoothing
E. Seasonal relatives

Difficulty: Medium
average methods.
Topic: 03-20 Techniques for Cycles
95. The primary method for associative forecasting is:

A. Naïve method
B. Regression analysis
C. Simple moving averages
D. Centred moving averages
E. Exponential smoothing

Difficulty: Medium
Topic: 03-21 Associative Models
3-29
96. Which term most closely describes what associative forecasting techniques are based on?
A. Time series data
B. Linear relationships
C. The Delphi technique
D. Consumer survey
E. Predictor variables

Difficulty: Medium
Topic: 03-21 Associative Models
97. Which of the following corresponds to the predictor variable in simple linear regression?
A. Regression coefficient
B. Dependent variable
C. Independent variable
D. Predicted variable
E. Demand

Difficulty: Easy
Topic: 03-22 Simple Linear Regression
98. Use of simple linear regression analysis assumes that:

A. Variations around the line are non-random.
B. Deviations around the line are not normally distributed.
C. Predictions can be made outside the range of observed values of the predictor variable.
D. A straight line will be determined that maximizes the sum of deviations of the data points.
E. Predictions are to be made only within the range of observed values of the predictor
variable.

Difficulty: Hard
3-30
99. The mean absolute deviation (MAD) is used to:

A. estimate the trend line.
B. eliminate forecast errors.
C. measure forecast accuracy.
D. seasonally adjust the forecast.
E. measure average data.

Difficulty: Medium
100. All of the following are used to measure forecast errors EXCEPT?
A. Mean absolute difference (MAD)
B. Mean weighted moving average (MWMA)
C. Mean absolute percentage error (MAPE)
D. Mean squared error (MSE)

Difficulty: Easy
101. MAPE measures the:

A. mean actual produced error.
B. mean absolute percent error.
C. main accuracy percent evaluation.
D. mean absolute produced error.
E. mean average percent error.

Difficulty: Easy
3-31
102. Positive forecast errors mean that the forecast:

A. was too high.
B. was too low.
C. was accurate.
D. was irregular.
E. is where the predictor variable indicated.

Difficulty: Medium
103. Given forecast errors of 4, 8, and -3, what is the mean absolute deviation?
A. 4
B. 3
C. 5
D. 6
E. 12

Difficulty: Easy
104. MSE weighs errors according to ______________ and MAPE weighs according to
_______________.
A. squared values; mean absolute values
B. absolute values; absolute percentage error
C. absolute percentage error; squared values
D. squared values; absolute percentage error
E. absolute error; average error

Difficulty: Hard
3-32
105. Given forecast errors of 5, 0, -4, and 3, what is the mean absolute deviation (MAD)?
A. 4
B. 3
C. 2.5
D. 2
E. 1

Difficulty: Easy
106. Given forecast errors of -5, -10, and +15, what is the mean absolute deviation (MAD)?
A. 0
B. 10
C. 30
D. 175
E. 7.5

Difficulty: Easy
107. The actual demand and the forecasted demand for a product were as follows:
period: 1 2 3
actual: 286 255 275
forecast: 280 290 295
3-33
Compute the MAPE.

A. 0.77%
B. 7.7%
C. 0.23
D. 23
E. 6.9%

Difficulty: Easy
108. Which of the following is used for constructing a control chart?

A. Mean absolute deviation (MAD)
B. Mean absolute percentage error (MAPE)
C. Tracking signal (TS)
D. Actual - forecast
E. None of the choices are correct.

Difficulty: Medium
109. The two most important factors in choosing a forecasting technique are:
A. cost and time horizon.
B. accuracy and time horizon.
C. cost and accuracy.
D. accuracy and buy-in.
E. cost and ease of use.

Difficulty: Medium
3-34
110. Which of the following factors is generally not a consideration at the time of selecting an
appropriate forecasting method to use?
A. Amount of historical data available
B. Forecast horizon
C. Mean square error in the forecast
D. Evidence of a pattern in time series data
E. Preparation time (cost)

Difficulty: Medium
111. Sales for a product have been fairly consistent over several years, although showing a
steady upward trend. The company wants to understand what drives sales. The best
forecasting technique would be:
A. trend models.
B. judgmental methods.
C. moving averages.
D. regression models.
E. exponential smoothing techniques.

Difficulty: Medium
112. Which of the following techniques are most likely to be used for forecasting demand for
new products and services?
A. Trend models
B. Judgmental methods
C. Moving averages
D. Regression models
E. Exponential smoothing techniques

Difficulty: Medium
3-35
113. Which of the following are most likely to be used for forecasting demand for the longer
term?
A. Regression trend models
B. Judgmental methods
C. Delphi method
D. Simple exponential smoothing
E. Naïve method

Difficulty: Medium
114. An automobile company is trying to forecast demand for minivans over the next 10
years. Which method of forecasting are they most likely to use?
A. Regression trend models
B. Moving averages
C. Delphi method
E. Naïve method

Difficulty: Medium
115. A company is conducting long-term planning of which types of services they should
offer. Which of the following forecasting techniques are they most likely to use?
A. Trend models
B. Executive opinion
C. Regression models
E. Naïve method

Difficulty: Medium
3-36
116. A managerial approach toward forecasting which seeks to actively influence demand is:
A. reactive.
B. proactive.
C. reflexive.
D. protracted.
E. retroactive.

Difficulty: Easy
117. Which of the following is not an accurate statement concerning bias in forecasts?
A. Bias is calculated based on the mean absolute percent error (MAPE).
B. Persistent negative bias implies forecasting frequently overstating actual values.
C. Bias is the sum of forecast errors.
D. Persistent positive bias implies frequently underestimating actual values.
E. Bias may indicate a shift in the demand pattern.

Difficulty: Medium
118. The president of Northern University wants to forecast student enrolments for this
academic year based on the following historical data:
YEAR ENROLMENTS
5 years ago 15,000
4 years ago 16,000
3 years ago 18,000
2 years ago 20,000
Last year 21,000
3-37
What is the forecast for this year using a four-year simple moving average?
A. 18,750
B. 19,500
C. 21,000
D. 22,650
E. 22,800

Difficulty: Medium
YEAR ENROLMENTS
5 years ago 15,000
4 years ago 16,000
3 years ago 18,000
2 years ago 20,000
Last year 21,000
What is the forecast for this year using exponential smoothing with alpha = 0.5, if the forecast
for two years ago was 16,000?
A. 18,750
B. 19,500
C. 21,000
D. 22,650
E. 22,800

Difficulty: Medium
3-38
YEAR ENROLMENTS
5 years ago 15,000
4 years ago 16,000
3 years ago 18,000
2 years ago 20,000
Last year 21,000
What is the forecast for this year using trend adjusted (double) smoothing with alpha(1) = .05
and alpha(2) = 0.3, if the forecast for last year was 21,000, the forecast for two years ago was
19,000, and the trend estimate for last year's forecast was 1,500?
A. 18,750
B. 19,500
C. 21,000
D. 22,650
E. 22,800

Difficulty: Hard
YEAR ENROLMENTS
5 years ago 15,000
4 years ago 16,000
3 years ago 18,000
2 years ago 20,000
Last year 21,000
3-39
What is the forecast for this year using the least squares trend line for these data?
A. 18,750
B. 19,500
C. 21,000
D. 22,650
E. 22,800

Difficulty: Medium
122. The business analyst for Ace Business Machines, Inc. wants to forecast this year's
demand for manual typewriters based on the following historical data:
TIME PERIOD DEMAND

5 years ago 900
4 years ago 700
3 years ago 600
2 years ago 500
Last year 300
3-40
What is the forecast for this year using the naive approach?
A. 163
B. 180
C. 100
D. 420
E. 510
The series has a negative trend.

Difficulty: Hard
TIME PERIOD DEMAND

5 years ago 900
4 years ago 700
3 years ago 600
2 years ago 500
Last year 300
3-41
What is the forecast for this year using a three-year weighted moving average with weights of
.5, .3, and .2?
A. 163
B. 180
C. 300
D. 420
E. 510

Difficulty: Medium
TIME PERIOD DEMAND

5 years ago 900
4 years ago 700
3 years ago 600
2 years ago 500
Last year 300
What is the forecast for this year using exponential smoothing with alpha = .4, if the forecast
for TWO years ago was 750?
A. 16.6
B. 180
C. 300
D. 420
E. 510

Difficulty: Medium
3-42
TIME PERIOD DEMAND

5 years ago 900
4 years ago 700
3 years ago 600
2 years ago 500
Last year 300
What is the forecast for this year using trend adjusted (double) smoothing with alpha(1) =.03
and alpha(2) = 0.2, if the forecast for last year was 518.40, the forecast for two years ago was
560.00, and the trend estimate for last year’s forecast was -23.6?
A. 416.18
B. 542.00
C. 100.00
D. 200.00
E. 426.12
Difficulty: Hard
3-43
TIME PERIOD DEMAND

5 years ago 900
4 years ago 700
3 years ago 600
2 years ago 500
Last year 300
3-44
What is the forecast for this year using the least squares trend line for these data?
A. 163
B. 180
C. 300
D. 420
E. 510

Difficulty: Hard
127. Professor Z needs to allocate time among several tasks next week to include time for
students' appointments. Thus, he needs to forecast the number of students who will seek
appointments. He has gathered the following data: a trend has been identified in the data
series.
WEEK # STUDENTS
6 weeks ago 83
5 weeks ago 110
4 weeks ago 95
3 weeks ago 80
2 weeks ago 65
Last week 50
3-45
What is this week's forecast using the naive approach?

A. 35
B. 50
C. 52
D. 65
E. 78
The series has a negative trend.

Difficulty: Easy
appointments. He has gathered the following data:
WEEK # STUDENTS
6 weeks ago 83
5 weeks ago 110
4 weeks ago 95
3 weeks ago 80
2 weeks ago 65
Last week 50
3-46
What is this week's forecast using a three-week simple moving average?

A. 49
B. 50
C. 52
D. 65
E. 78

Difficulty: Medium
WEEK # STUDENTS
6 weeks ago 83
5 weeks ago 110
4 weeks ago 95
3 weeks ago 80
2 weeks ago 65
Last week 50
3-47
What is this week's forecast using exponential smoothing with alpha = .2, if the forecast for
two weeks ago was 90?
A. 49
B. 50
C. 52
D. 65
E. 78

Difficulty: Medium
WEEK # STUDENTS
6 weeks ago 83
5 weeks ago 110
4 weeks ago 95
3 weeks ago 80
2 weeks ago 65
Last week 50
3-48
What is this week's forecast using trend adjusted (double) smoothing with alpha(1) = 0.5 and
alpha(2) = 0.1, if the forecast for last week was 65, the forecast for two weeks ago was 75,
and the trend estimate for last week's forecast was -5?
A. 49
B. 50
C. 55
D. 65
E. 78

Difficulty: Hard
WEEK # STUDENTS
6 weeks ago 83
5 weeks ago 110
4 weeks ago 95
3 weeks ago 80
2 weeks ago 65
Last week 50
3-49
What is this week's forecast using the least squares trend line for these data?
A. 49
B. 50
C. 52
D. 65
E. 78

Difficulty: Hard
132. An operation analyst is forecasting this year's demand for one of his company's products
based on the following historical data:
YEAR QUANTITY SOLD

Four years ago 10,000
Three years ago 12,000
Two years ago 18,000
Last year 20,000
What is this year's forecast using the naive approach?

A. 22,000
B. 20,000
C. 18,000
D. 15,000
E. 12,000
The series displays trend.

Difficulty: Medium
3-50
YEAR QUANTITY SOLD

Last year 20,000
What is this year's forecast using a two-year weighted moving average with weights of .7 and
.3?
A. 19,400
B. 18,600
C. 19,000
D. 11,400
E. 10,600

Difficulty: Medium
YEAR QUANTITY SOLD

Last year 20,000
3-51
What is this year's forecast using exponential smoothing with alpha = .2, if last year's
smoothed forecast was 15,000?
A. 20,000
B. 19,000
C. 17,500
D. 16,000
E. 15,000

Difficulty: Medium
YEAR QUANTITY SOLD

Last year 20,000
What is this year's forecast using the least squares trend line for these data?
A. 20,000
B. 21,000
C. 22,000
D. 23,000
E. 24,000

Difficulty: Hard
3-52
YEAR QUANTITY SOLD

Last year 20,000
The previous trend line had predicted 18,500 for two years ago, and 19,700 for last year.
What was the mean absolute deviation (MAD) for these forecasts?
A. 100
B. 200
C. 400
D. 500
E. 800

Difficulty: Easy
YEAR QUANTITY SOLD

Last year 20,000
3-53
The previous trend line had predicted 18,500 for two years ago, and 19,700 for last year.
What was the mean absolute percent error (MAPE) for these forecasts?
A. 0.21
B. B.26
C. 4.28
D. 100
E. 400

Difficulty: Easy
138. The dean of a school of business is forecasting total student enrolment for this year's
summer session classes based on the following historical data:
YEAR TOTAL ENROLMENT

Two years ago 2,800
Last year 3,000
What is this year's forecast using the naive approach?

A. 2,000
B. 2,200
C. 2,800
D. 3,200
E. 3,000
There is a trend in the data set.

Difficulty: Medium
3-54

Two years ago 2,800
Last year 3,000
What is this year's forecast using a three-year simple moving average?

A. 2,667
B. 2,600
C. 2,500
D. 2,400
E. 2,333

Difficulty: Medium

Two years ago 2,800
Last year 3,000
3-55
smoothed forecast was 2600?
A. 2,600
B. 2,760
C. 2,800
D. 3,840
E. 3,000

Difficulty: Medium

Two years ago 2,800
Last year 3,000
What is the annual rate of change (slope) of the least squares trend line for these data?
A. 0
B. 200
C. 400
D. 180
E. 360

Difficulty: Hard
3-56

Two years ago 2,800
Last year 3,000
What is this year's forecast using the least squares trend line for these data?
A. 3,600
B. 3,500
C. 3,400
D. 3,300
E. 3,200

Difficulty: Hard
143. The owner of Leisure Boutique in a local mall is forecasting this month's (October's)
demand for one of her best-selling products based on the following historical data: the series
displays a trend.
MONTH QUANTITY SOLD

April 100
May 140
June 110
July 150
August 120
September 160
3-57
What is this month's forecast using the naive approach?

A. 100
B. 200
C. 130
D. 140
E. 120
The series has a trend.

Difficulty: Easy
demand for one of her best-selling products based on the following historical data:
MONTH QUANTITY SOLD

April 100
May 140
June 110
July 150
August 120
September 160
3-58
What is this month's forecast using a four-month weighted moving average with weights of .4,
.3, .2, and .1?
A. 120
B. 129
C. 141
D. 135
E. 140

Difficulty: Medium
MONTH QUANTITY SOLD

April 100
May 140
June 110
July 150
August 120
September 160
3-59
What is this month's forecast using exponential smoothing with alpha = .2, if August's
forecast was 145?
A. 144
B. 140
C. 142
D. 148
E. 163

Difficulty: Medium
MONTH QUANTITY SOLD

April 100
May 140
June 110
July 150
August 120
September 160
3-60
What is the monthly rate of change (slope) of the least squares trend line for these data?
A. 320
B. 102
C. 8
D. -0.4
E. -8

Difficulty: Hard
MONTH QUANTITY SOLD

April 100
May 140
June 110
July 150
August 120
September 160
What is this month's forecast using the least squares trend line for these data?
A. 1,250
B. 128.6
C. 102
D. 158
E. 164

Difficulty: Hard
3-61
YEAR ENROLMENTS
5 years ago 15,000
4 years ago 16,000
3 years ago 18,000
2 years ago 20,000
Last year 21,000
What is the forecast for this year using the naive approach?
A. 18,750
B. 19,500
C. 21,000
D. 22,000
E. 22,800
The series displays a trend.

Difficulty: Medium
YEAR ENROLMENTS
5 years ago 15,000
4 years ago 16,000
3 years ago 18,000
2 years ago 20,000
Last year 21,000
3-62
What is the forecast for this year using a three period moving average?
A. 16,333
B. 17,250
C. 18,000
D. 19,667
E. 21,000

Difficulty: Easy
Short Answer Questions
150. Develop a forecast for the next period, given the data below, using a 3-period moving
average.
Period Demand
1 19
2 20
3 18
4 19
5 17
MA3 = 18 + 19 + 17 = 18
3-63

Difficulty: Easy
151. Consider the data below:
Period Demand
11 81
12 75
13 82
(i) Determine a naive forecast for period 14.

(ii) Using exponential smoothing with a = .2, and F 12 = 80, what would the forecast for
period 14 be?
(i) Naive: 82 (Since the data is stable around the average.)

(ii) Exponential:
Period Demand F old Actual – F old F new

11 81 80
12 75 79 -5 79.0
13 82 +3 79.6

Difficulty: Medium
3-64
152. A company has been using exponential smoothing with an alpha of .2 to forecast weekly
truck sales. Given the data below, would a naive forecast have provided greater accuracy?
Explain. Assume an initial exponential forecast of 60 units in period 2 (i.e., no forecast for
period 1).
Period Demand
1 57
2 62
3 58
4 60
5 60
6 56
Exponential
Period Demand Forecast error [e] e2 Naive error [e] e2
1 57 ---
2 62 60 +2 2 4.00 57 +5 5 25
3 58 60.4 -2.4 2.4 5.76 62 -4 4 16
4 60 59.92 +0.08 0.08 0.0006 58 +2 2 4
5 60 59.94 +0.06 0.06 0.0004 60 0 0 0
6 56 59.95 -3.95 3.95 15.603 60 -4 4 16
8.49 25.373 61
[Use either MAD or MSE.]
Summary MAD MSE

Exponential: 1.70 6.34
Naive: 3.00 15.25
3-65
Thus, the exponential forecast appears to be more accurate.

Difficulty: Hard
153. Demand for the last four months was:
Month Mar Apr May Jun

Demand 6 8 10 8
(i) Predict demand for July using each of these methods:
(1) a 3-period moving average

(2) exponential smoothing with alpha equal to .20
(ii) If the naive approach had been used to predict demand for April through June, what would
MAD have been for those months?
(і)
1) (8 + 10 + 8)/3 = 26/3 = 8.67
2) (Use naive to begin.)
Month Demand Forecast
March 6 -
April 8 6
May 10 6 + .20(8 - 6) = 6.4
June 8 6.4 + 20(10 - 6.4) = 7.12
7.12 + .20(8 - 7.12) = 7.296
3-66
(іі)
Month March April May June
Demand 6 8 10 8
Naive - 6 8 10
Error - +2 +2 -2
MAD 6/3 = 2.0

Difficulty: Medium
154. Given the data below, develop a forecast for the following period using a three-period
weighted moving average and weights of .5, .3, and.2.
Period Demand
1 19
2 20
3 18
4 19
5 17
.5(17) + .3(19) + .2(18) = 17.8

Difficulty: Easy
3-67
155. A manager is using exponential smoothing to predict merchandise returns at a suburban

branch of a department store chain. Given a previous forecast of 140 items, an actual number
of returns of 148 items, and a smoothing constant equal to .15, what is the forecast for the
next period?
F new = Fold + a (actual - Fold)

= 140 + .15(148 - 140)
= 141.2

Difficulty: Medium
156. A manager is using the equation below to forecast quarterly demand for a product:
Yt = 6,000 + 80t where t = 0 at Q2 of last year

Quarter relatives are Q1 = .6, Q2 = .9, Q3 = 1.3, and Q4 = 1.2.
What forecasts are appropriate for the last quarter of this year and the first quarter of next
year?
t = 6 for Q4 this year, and t = 7 for Q1 next year.

t Trend [Yt] Qtr. Rel. Forecast
6 6480 1.2 7776
7 6560 .6 3936

Difficulty: Medium
average methods.
157. Develop a linear trend equation for the data on bread deliveries shown below. Forecast
deliveries for period 11 through 14.
3-68
Period Dozen deliveries

1 648
2 590
3 631
4 769
5 745
6 856
7 760
8 962
9 990
10 1100
Yt = 518.2 + 52.164t
r = + .935
y11 = 1,092.004
y12 = 1,144.168
y13 = 1,196.332
y14 = 1,248.496.

Difficulty: Hard
Topic: 03-16 Techniques for Trend
158. A manager uses this equation to predict demand: Yt = 20 + 4t. Over the past 8 periods,
demand has been as follows. Are the results acceptable? Explain.
Period, t 1 2 3 4 5 6 7 8
Demand 25 28 31 34 36 43 50 54
3-69
Period, t 1 2 3 4 5 6 7 8
Demand 25 28 31 34 36 43 50 54
yt = 20+4t 24 28 32 36 40 44 48 52
Error +1 0 -1 +2 -4 -1 +2 +2
s = 2.10; 2s control limits are +4.20. Although all values are within control limits, the errors
may be exhibiting cyclical patterns, which would suggest non-random.

Difficulty: Medium
159. Over the past five years, a firm's sales have averaged 250 units in the first quarter of each
year, 100 units in the second quarter, 150 units in the third quarter, and 300 units in the fourth
quarter. What are appropriate quarter relatives for this firm's sales? Hint: Only minimal
computations are necessary.
Since a trend is not present, quarter relatives are simply a percentage of average, which is 200
units. Thus,
Q1 = 250 = 1.25; Q2 = 100 = .50; Q3 = 150 =.75 Q4 = 300 = 1.50

200 200 200 200

Difficulty: Medium
average methods.
3-70
160. A firm has been using the following equation to predict annual demand for helix gears:
Yt = 55 + 4t
Demand for the past few years is shown below. Is the forecast performing as well as it might?
Explain.
Year 2 3 4 5 6 7 7
Demand 60 65 69 76 85 85
[The student must recognize that either a tracking signal or a control chart is called for, and
proceed on that basis. In addition, it is necessary for the student to generate the forecasts using
the equation, so that errors can be determined.]
t Demand Forecast D–F e2

0 --
1 --
2 60 63 -3 9
3 65 67 -2 4
4 69 71 -2 4
5 76 75 +1 1
6 85 79 +6 36
7 85 83 +2 4
58
MSE = 58 ÷ 6 = 9.676 and s = √9.67 = 3.11
3-71
Since limits aren't specified, assume either 2s or 3s. Even with  2s limits (6.82), all values
are within the limits. Hence, it seems that only random variation is present, so one might say
that the forecast is working. One might also observe that the first three errors are negative and
the last three positive. Although six observations constitute a relatively small sample, it may
be that the errors are cycling, and this would be a matter to investigate as additional data is
accumulated.

Difficulty: Hard
161. Use linear regression to develop a predictive model for demand for ironing board covers
based on sales of irons.
Year Sales of Irons (000) Demand for Covers (000)

1 8 5
2 7 2
3 10 6
4 6 4
(i) Develop the equation.

(ii) What is the coefficient of correlation for this data?
Computations are as follows:

y X xy y2 x2
5.000 8.000 40.00 25.00 64.0
2.000 7.000 14.00 4.00 49.0
6.000 10.000 60.00 36.00 100.0
4.000 6.000 24.00 16.00 36.0
17.000 31.000 138.00 81.00 249.0
3-72
(i) YC = -1.28571 + 0.714285x

(ii) r = +.714

Difficulty: Hard
162. Given the following data, develop a linear regression model for y as a function of x.
X Y
8 10
4 5
10 15
15 20
7 10
Computations are as follows:

y x xy y2 x2
10.000 8.000 80.00 100.00 64.0
5.000 4.000 20.00 25.00 16.0
15.000 10.000 150.00 225.00 100.0
20.000 15.000 300.00 400.00 225.0
10.000 7.000 70.00 100.00 49.0
60.000 44.000 620.00 850.00 454.0
3-73
(i) YC = -0.11976 + 1.3772x

(ii) r = +1.377

Difficulty: Medium
163. Given the following data, develop a linear regression model for y as a function of x.
X Y
2 20
4 25
6 30
6 32
8 40
x y xy x2 y2
2.000 20.000 40.00 4.00 400.0
4.000 25.000 100.00 16.00 625.0
6.000 30.000 180.00 36.00 900.00
6.000 32.000 192.00 36.00 1024.0
8.000 40.000 320.00 64.00 1600.0
26.000 147.000 832.00 156.00 4,549.0
3-74
YC = 12.5 + 3.25X
r = +3.25

Difficulty: Medium
164. A manager has been using a certain technique to forecast demand for units of web
publishing software for the past six periods. Actual and predicted amounts are shown below.
Would a naive forecast have produced better results?
Period Demand Forecast

1 90 87
2 85 88
3 91 87
4 92 89
5 95 90
6 88 92
[Essentially, the student must recognize that eight MSE or MAD should be computed for both
forecasts and compared. The demand data are stable. Therefore, the most recent value of the
series becomes the next forecast in the naive approach. Some students may also elect to
compute control limits to see if the forecasts are in control.]
3-75
Period Demand Forecast error [e] e2 Naive error [e] e2

1 90 87 +3 3 9 -
2 85 88 -3 3 9 90 -5 5 25
3 91 87 +4 4 16 85 +6 6 36
4 92 89 +3 3 9 91 +1 1 1
5 95 90 +5 5 25 92 +3 3 9
6 88 92 -4 4 16 95 -7 7 46
22 84 22 120
Summary: MAD MSE 2s Control limits
Current method: 3.67 16.8 ±8.2 [OK]
Navie method: 4.40 30.0 ±11.0 [OK]
Thus, the current method is slightly superior both in terms of MAD and MSE. Either method
would be considered to be in control.

Difficulty: Hard
165. A manager wants to choose one of two forecasting alternatives. Each alternative was
tested using historical data. The resulting forecast errors for the two are shown in the table.
Analyze the data and recommend a course of action to the manager.
Period, t 1 2 3 4 5 6 7 8 9
Alt. #1 3 -2 0 2 1 -2 2 -1 2
Alt. #2 4 3 -3 -1 1 -1 0 1 0
3-76
MSE #1 = 3.444
MSE #2 = 4.222
Although Alternative #1 has the smaller MSE, it appears to be cycling and steady; Alternative
#2 errors after the first three periods are small or zero. For the last six periods, Alternative #2
was much better, suggesting that approach would be better.

Difficulty: Hard
166.
Time Period Demand

7 years ago 7
6 years ago 28
5 years ago 21
4 years ago 42
3 years ago 35
2 years ago 56
Last year 49
What is this year's forecast using a four-year simple moving average?
45.5

Difficulty: Medium
3-77
167.
Time Period Demand

7 years ago 7
6 years ago 28
5 years ago 21
4 years ago 42
3 years ago 35
2 years ago 56
Last year 49
smoothed forecast was 45?
46

Difficulty: Medium
168.
Time Period Demand

7 years ago 7
6 years ago 28
5 years ago 21
4 years ago 42
3 years ago 35
2 years ago 56
Last year 49
3-78
What is this year's forecast using trend adjusted (double) smoothing with alpha(1) = 0.2 and
alpha(2) = 0.1, if the forecast for last year was 56, the forecast for two years ago was 46, and
the trend estimate for last year's forecast was 7?
61.9

Difficulty: Hard
169.
Time Period Demand

7 years ago 7
6 years ago 28
5 years ago 21
4 years ago 42
3 years ago 35
2 years ago 56
Last year 49
What are this and next year's forecasts using the least squares trend line for these data?
62; 69

Difficulty: Hard
3-79
170.
Season
YEAR SPRING SUMMER FALL WINTER
Three years ago 18 10 26 42
Two years ago 26 18 34 50
Last year 34 26 42 58
What is the linear regression trend line for these data (t = 1 for spring, three years ago)?
y = 14.363 + 2.713t

Difficulty: Medium
171.
Season
Last year 34 26 42 58
What is the centred moving average for each season?
Spring 26; Summer 18; Fall 34; Winter 50

Difficulty: Medium
average methods.
3-80
172.
Season
Last year 34 26 42 58
What is the seasonal relative for each season?
Spring 0.813; Summer 0.563; Fall 1.063; Winter 1.563

Difficulty: Medium
average methods.
173.
Season
Last year 34 26 42 58
What is this year's seasonally adjusted forecast for each season?
Spring 44.421; Summer 32.192; Fall 56.159; Winter 84.981

Difficulty: Medium
average methods.
3-81

Ch 03 - Demand Forecasting

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Ch 03 - Demand Forecasting

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Chapter 03 - Demand Forecasting

True / False Questions

1. Since a primary goal of operations management is to match supply to demand, forecasts

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3. Forecasts are rarely perfect.

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7. Forecast accuracy tends to increase as the time horizon increases.

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18. The naive approach to forecasting requires a linear trend line.

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25. Exponential smoothing is a form of weighted averaging.

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28. Trend-Adjusted Exponential Smoothing is also called double exponential smoothing.

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39. MAD is equal to the square root of MSE.

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50. A proactive approach to forecasting views forecasts as probable descriptions of future

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Multiple Choice Questions

52. Forecasts can help a manager to do all of the following EXCEPT: