Introduction To Management Science A Modeling and Case Studies Approach With Spreadsheets 5th Edition Hillier Test Bank

Introduction to Management Science A
Modeling and Case Studies Approach

with Spreadsheets 5th Edition Hillier
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Chapter 10 - Forecasting
CHAPTER 10
FORECASTING
True-False Questions
10-1 Forecasts are rarely perfect.
T
10-2 Once accepted by managers, forecasts should not be overridden.
F
10-3 Statistical models to forecast economic trends are called econometric models.
T
10-4 The difference between a forecast and what turns out to be the true value is called the mean
absolute deviation.
F
10-5 The mean absolute deviation is the sum of the absolute value of forecasting errors divided by the
number of forecasts.
T
10-6 The mean square error is the square of the mean of the absolute deviations.
F
10-7 The mean absolute deviation is more sensitive to large deviations than the mean square error.
F
10-8 The seasonal factor for any period of a year measures how that period compares to the same
period last year.
F
10-9 Removing the seasonal component from a time-series can be accomplished by dividing each value
by its appropriate seasonal factor.
T
10-10 The last-value forecasting method requires a linear trend line.
F
10-11 The last-value forecasting method is most useful when conditions are stable over time.
F
10-1
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10-12 The averaging method uses all the data points in the time-series.
T
10-13 A moving-average forecast tends to be more responsive to changes in the time-series data when
more values are included in the average.
F
10-14 The moving-average forecasting method assigns equal weights to each value that is represented by
the average.
T
10-15 The moving-average forecasting method is a very good one when conditions remain pretty much
the same over the time period being considered.
T
10-16 An advantage of the exponential smoothing forecasting method is that more recent experience is
given more weight than less recent experience.
T
10-17 A smoothing constant of 0.1 will cause an exponential smoothing forecast to react more quickly to
a sudden change than a value of 0.3 will.
F
10-18 If significant changes in conditions are occurring relatively frequently, then a smaller smoothing
constant is needed.
F
10-19 Exponential smoothing with trend requires selection of two smoothing constants.
T
10-20 Exponential smoothing with trend was designed for time-series that have great variability both up
and down.
F
10-21 Forecasting techniques such as moving-average, exponential smoothing, and the last-value
method all represent averaged values of time-series data.
F
10-22 In exponential smoothing, an  of 0.3 will cause a forecast to react more quickly to a large error
than will an  of 0.2.
T
10-2
10-23 The goal of time-series forecasting methods is to estimate the mean of the underlying probability
distribution of the next value of the time-series as closely as possible.
T
10-24 If a time-series has exactly the same distribution for each and every time period, then the
averaging forecasting method provides the best estimate of the mean.
T
10-25 A time-series is said to be smooth if its underlying probability distribution usually remains the
same from one period to the next.
F
10-26 Causal forecasting obtains a forecast for a dependent variable by relating it directly to one or more
independent variables.
T
10-27 Linear regression can be used to approximate the relationship between independent and
dependent variables.
T
10-28 Judgmental forecasting methods have been developed to interpret statistical data.
F
10-29 The sales force composite method is a top-down approach to forecasting.
F
10-30 The Delphi method involves the use of a series of questionnaires to achieve a consensus forecast.
T
10-31 When statistical forecasting methods are used, it is no longer necessary to use judgmental
methods as well.
F
10-3
Multiple-Choice Questions
10-32 Forecasts can help a manager to:
a. anticipate the future.
b. develop strategies.
c. make staffing decisions.
*d. All of the above.
e. None of the above.
10-33 In business, forecasts are the basis for:
a. sales planning.
b. inventory planning.
c. production planning.
d. budgeting.
*e. All of the above.
10-34 Which of the following are costs of an inaccurate forecast?
a. Lost sales.
b. Inventory.
c. An understaffed office.
d. Lower profits.
10-35 Time-series data may exhibit which of the following behaviors?
a. Trend.
b. Seasonality.
c. Cycles.
d. Irregularities.
10-4
10-36 Gradual, long-term movement in time-series values is called:

a. seasonal variation.
*b. trend.
c. cycles.
d. irregular variation.
e. random variation.
10-37 The last-value forecasting method:
a. is quick and easy to prepare.
b. is easy for users to understand.
c. ignores all values except one.
*d. All of the above.
10-38 Using the latest value in a sequence of data to forecast the next period is:
a. a moving-average forecast.
*b. a last-value forecast.
c. an exponentially smoothed forecast.
d. a causal forecast.
Questions 10-39 and 10-40 refer to the following data:
Period Demand
1 58
2 59
3 60
4 61
10-39 What is the last-value forecast for the next period?
a. 58.
b. 62.
c. 60.
*d. 61.
10-5
10-40 What is the moving-average forecast for the next period based on the last three periods.
a. 58.
b. 62.
*c. 60.
d. 61.
10-41 In order to increase the responsiveness of a forecast made using the moving-average method, the
number of values in the average should be:
*a. decreased.
b. increased.
c. multiplied by a larger .
d. multiplied by a smaller .
10-42 Which of the following smoothing constants would make an exponential smoothing forecast
equivalent to a last-value forecast?
a. 0.
b. 0.01.
c. 0.1.
d. 0.5.
*e. 1.
10-43 Given an actual latest demand of 59, a previous forecast of 64, and  = 0.3, what would be the
forecast for the next period using the exponential smoothing method?
a. 36.9.
b. 57.5.
c. 60.5.
*d. 62.5.
e. 65.5.
10-44 Given an actual latest demand of 105, a previous forecast of 97, and  = 0.4, what would be the
forecast for the next period using the exponential smoothing method?
a. 80.8.
b. 93.8.
*c. 100.2.
d. 101.8.
e. 108.2.
10-6
10-45 Which of the following possible values of  would cause exponential smoothing to respond the
most quickly to forecast errors?
a. 0.
b. 0.01.
c. 0.05.
d. 0.1.
*e. 0.15.
10-46 In exponential smoothing with trend, the forecast consists of:
*a. an exponentially smoothed forecast and a smoothed trend factor.
b. the old forecast adjusted by a trend factor.
c. the old forecast and a smoothed trend factor.
d. a moving-average and a trend factor.
10-47 The mean absolute deviation is used to:
a. estimate the trend line.
b. eliminate forecast errors.
*c. measure forecast accuracy.
d. seasonally adjust the forecast.
e. All of the above.
10-48 Given forecast errors of 4, 8, and –3, what is the mean absolute deviation?
a. 3.
b. 4.
*c. 5.
d. 6.
e. 9.
10-49 Given forecast errors of 4, 8, and –3, what is the mean square error?
a. 5
b. 9
c. 25
*d. 29.67
e. 89
10-7
10-50 Given forecast errors of 5, 0, -4, and 3, what is the mean absolute deviation?
a. 1.
b. 2.
c. 2.5.
*d. 3.
e. 12.
10-51 Given forecast errors of 5, 0, -4, and 3, what is the mean square error?
a. 3.
b. 4.
c. 12.
*d. 12.5.
e. 50.
10-52 Given the following historical data, what is the moving-average forecast for period 6 based on the
last three periods?
Period Value
1 73
2 68
3 65
4 72
5 67
a. 67.
*b. 68.
c. 69.
d. 100.
e. 115.
10-8
10-53 Given the following historical data, what is the moving-average forecast for period 6 based on the
last three periods?
Period Value
1 19
2 20
3 18
4 19
5 17
a. 17.
*b. 18.
c. 19.
d. 20.
e. 18.5.
10-54 Given forecast errors of -5, -10, and 15, what is the mean absolute deviation?
a. 0.
b. 5.
*c. 10.
d. 30.
10-9
Questions 10-55 through 10-58 refer to the following:

The president of State University wants to forecast student enrollment for this academic year
based on the following historical data:
Year Enrollments
5 years ago 15,000
4 years ago 16,000
3 years ago 18,000
2 years ago 20,000
Last year 21,000
10-55 What is the forecast for this year using the last-value forecasting method?
a. 18,750.
b. 19,500.
*c. 21,000.
d. 22,650.
e. 22,800.
10-56 What is the forecast for this year using a moving-average forecast based on the last four years?
*a. 18,750.
b. 19,500.
c. 21,000.
d. 22,650.
e. 22,800.
10-57 What is the forecast for this year using exponential smoothing with  = 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.
10-10
10-58 What is the forecast for this year using exponential smoothing with trend if  = 0.5 and  = 0.3?
Assume the forecast for last year was 21,000 and the forecast for two years ago was 19,000, and
that the trend estimate for last years forecast was 1,500.
a. 18,750.
b. 19,500.
c. 21,000.
*d. 22,650.
e. 22,800.
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
a. 163.
b. 180.
*c. 300.
d. 467.
e. 510.
10-60 What is the forecast for this year using a moving-average forecast based on the last three years?
a. 163.
b. 180.
c. 300.
*d. 467.
e. 510.
10-11
years ago was 750?
a. 163.
b. 180.
c. 300.
d. 467.
*e. 510.

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:
Week # of students
6 weeks ago 83
5 weeks ago 110
4 weeks ago 95
3 weeks ago 80
2 weeks ago 65
Last week 50
a. 49.
*b. 50.
c. 52.
d. 65.
e. 78.
10-63 What is the forecast for this year using a moving-average forecast based on the last three weeks?
a. 49.
b. 50.
c. 52.
*d. 65.
e. 78.
10-12
weeks ago was 90?
a. 49.
b. 50.
c. 52.
d. 65.
*e. 78.
10-65 What is the forecast for this year using exponential smoothing with trend if  = 0.5 and  = 0.1?
Assume the forecast for last week was 65 and the forecast for two weeks ago was 75 , and that the
trend estimate for last years forecast was -5.
a. 49.
b. 50.
*c. 52.
d. 65.
e. 78.
An operation analyst is forecasting this year’s demand for one of his company’s products based on
the following historical data:
Year # sold
4 years ago 10,000
3 years ago 12,000
2 years ago 18,000
Last year 20,000
a. 22,000.
*b. 20,000.
c. 18,000.
d. 15,000.
e. 12,000.
10-13
10-67 What is the forecast for this year using a moving-average forecast based on the last four years?
a. 22,000.
b. 20,000.
c. 18,000.
*d. 15,000.
e. 12,000.
10-68 What is the forecast for this year using exponential smoothing with  = 0.2, if the forecast for last
year was 15,000?
a. 20,000.
b. 19,000.
c. 17,500.
*d. 16,000.
e. 15,000.
10-69 The previous trend line has predicted 18,500 for two years ago, and 19,700 for last year. What was
the mean absolute deviation for these forecasts?
a. 100.
b. 200.
*c. 400.
d. 500.
e. 800.
10-14
10-70 A manager uses the equation y = 40,000 + 150x to predict monthly receipts. What is the forecast
for July if x = 0 in April?
*a. 40,450.
b. 40,600.
c. 42,100.
d. 42,250.
e. 42,400.
10-71 The equation y = 350 – 2.5x is used to predict quarterly demand where x = 0 in the second quarter
of last year. Quarterly seasonal factors 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. 199.5.
*b. 201.
c. 266.
d. 268.
e. 335.
10-72 The primary method for causal forecasting is:
a. sensitivity analysis.
*b. linear regression.
c. moving-average.
d. exponential smoothing.
e. the Delphi method.
10-73 Which of the following is not a type of judgmental forecasting?
a. Managerial opinion.
b. Sales force composite.
*c. Time-series analysis.
d. The Delphi method.
e. Consumer market survey.
10-74 Which of the following would be considered a possible drawback of using executive opinions to
develop a forecast?
a. It is difficult to interpret the results.
*b. Responsibility is diffused for the forecast.
c. Extensive use of computers is needed.
d. It brings together the knowledge of top managers.
e. Forecasters are sometimes overly influenced by recent events.
10-15
10-75 Which of the following would be an advantage of using a sales force composite 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 customer’s future plans.
d. Salespeople are least likely to be biased by sales quotas.
10-76 The forecasting method which uses anonymous questionnaires to achieve a consensus forecast is:
a. sales force composites.
b. consumer surveys.
*c. the Delphi method.
d. time-series analysis.
e. executive opinions.
10-16

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Introduction to Management Science A

Modeling and Case Studies Approach

10-36 Gradual, long-term movement in time-series values is called:

Questions 10-55 through 10-58 refer to the following:

Time Period Demand

Questions 10-62 through 10-65 refer to the following:

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