Practice Questions for Session 7

Question 1:
Sunrise Baking Company markets doughnuts through a chain of food stores. It has been
experiencing over- and under-production because of forecasting errors. The following data
are its demand in dozens of doughnuts for the past four weeks. Doughnuts are made for the
following day; for example, Sunday’s doughnut production is for Monday’s sales, Monday’s
production is for Tuesday’s sales, and so forth. The bakery is closed Saturday, so Friday’s
production must satisfy demand for both Saturday and Sunday.

4 weeks ago 3 weeks ago 2 weeks ago last week

Monday 2200 2400 2300 2400
Tuesday 2000 2100 2200 2200
Wednesday 2300 2400 2300 2500
Thursday 1800 1900 1800 2000
Friday 1900 1800 2100 2000
Saturday
Sunday 2800 2700 3000 2900

Make a forecast for this week on the following basis:

A. Daily, using a simple four-week moving average and accounting for the weekly pattern.
B. Daily, using a weighted average of 0.4, 0.3, 0.2, 0.1 for the past four weeks.
C. Sunrise is also planning its purchases of ingredients for bread production. If bread
demand had been forecasted for last week at 22000 loaves and only 21000 loaves were
actually demanded, what would Sunrise’s forecast be for this week using exponential
smoothing with alpha = 0.1?
D. Suppose, with the forecast made in c, this week’s demand actually turns out to be 22500.
What would the new forecast be for the next week?

Question 2:
Here are quarterly data for the past two years. From these data, prepare a forecast for the
upcoming year using time series decomposition method.

Period Actual demand

1 300
2 540
3 885
4 580
5 416
6 760
7 1191
8 760
 Answer Key
Question 1:
A. Identifying the weekly pattern.
Monday: (2200+2400+2300+2400)/4 = 2325 doz
Tue: 2125
Wed: 2375
Thu: 1875
Fri: 1950
Sat & Sun: 2850
B. Monday: (0.1*2200+0.2*2400+0.3*2300+0.4*2400) = 2350 doz
Tue: 2160
Wed: 2400
Thu: 1900
Fri: 1980
Sat & Sun: 2880
C. Ft = Ft-1 + α (At-1 – Ft-1) = 22000+0.1*(21000-22000) = 21900
D. Ft+1 = 21900 + 0.1*(22500-21900) = 21960

Question 2:
Actual deseasonalized
Period period avg seasonal factor
demand demand
1 300 (300+416)/2=358 358/679=0.527 300/0.527=569.25
2 540 (540+760)/2=650 650/679=0.957 540/0.957=564.26
3 885 (885+1191)/2=1038 1038/679=1.529 885/1.529=578.8
4 580 (580+760)/2=670 670/679=0.987 580/0.987=587.63
5 416 0.527 416/0.527=789.37
6 760 0.957 760/0.957=794.14
7 1191 1.529 1191/1.529=778.94
8 760 0.987 760/0.987=770.01
Avg 679

Run a regression (either using the method used in the class or in Excel) using deseasonalized
demand, we obtain the parameter values: a = 500.6, b=39.64.

Therefore, we have:
period trend forecast seasonal factor final forecast
9 39.64*9+500.6 = 857.4 0.527 857.4*0.527 = 452.0
10 39.64*10+500.6 = 897.0 0.957 897*0.957 = 858.7
11 39.64*11+500.6 = 936.6 1.529 936.6 * 1.529 = 1431.9
12 39.64*12+500.6 = 976.3 0.987 976.3*0.987 = 963.3