Practice Problems: Chapter 4, Forecasting: Problem 1

Practice Problems: Chapter 4, Forecasting
Problem 1:
Auto sales at Carmens Chevrolet are shown below. Develop a 3-week moving average.
Week
Auto
Sales
10
11
10
13
Problem 2:
Carmens decides to forecast auto sales by weighting the three weeks as follows:
Weights
Applied
Period
Last week
Twoweeks
ago
Three weeks
ago
Total
Problem 3:
A firm uses simple exponential smoothing with 0.1 to forecast demand. The forecast
for the week of January 1 was 500 units whereas the actual demand turned out to be 450
units. Calculate the demand forecast for the week of January 8.
Problem 4:
Exponential smoothing is used to forecast automobile battery sales. Two value of are
examined, 0.8 and 0.5. Evaluate the accuracy of each smoothing constant. Which
is preferable? (Assume the forecast for January was 22 batteries.) Actual sales are given
below:
Month
Actual Forecast
Battery
Sales
January
20
22
February 21
March
15
April
14
May
13
June
16
Problem 5:
Use the sales data given below to determine: (a) the least squares trend line, and (b) the
predicted value for 2008 sales.
Year Sales
(Units)
2001 100
2002 110
2003 122
2004 130
2005 139
2006 152
2007 164
To minimize computations, transform the value of x (time) to simpler numbers. In this

case, designate year 2001 as year 1, 2002 as year 2, etc.
Problem 6:
Given the forecast demand and actual demand for 10-foot fishing boats, compute the
tracking signal and MAD.
Year Forecast Actual
Demand Demand
1
78
71
75
80
83
101
84
84
88
60
85
73
Problem: 7
Over the past year Meredith and Smunt Manufacturing had annual sales of 10,000
portable water pumps. The average quarterly sales for the past 5 years have averaged:
spring 4,000, summer 3,000, fall 2,000 and winter 1,000. Compute the quarterly index.
Problem: 8
Using the data in Problem 7, Meredith and Smunt Manufacturing expects sales of pumps
to grow by 10% next year. Compute next years sales and the sales for each quarter.
ANSWERS:
Problem 1:
Moving average =
demand in previous n periods
Three-Week
Average
Week
Auto
Sales
Moving
10
11
(8 + 9 + 10) / 3 = 9
10
(10 + 9 + 11) / 3 = 10
13
(9 + 11 + 10) / 3 = 10
(11 + 10 + 13) / 3 = 11
1/3
Problem 2:
Weighted moving average =
(weight for period n)(demand in period n)

weights
Week
Auto
Sales
Three-Week Moving Average
10
11
[(3*9) + (2*10) + (1*8)] / 6 = 9 1/6
10
[(3*11) + (2*9) + (1*10)] / 6 = 10 1/6
13
[(3*10) + (2*11) + (1*9)] / 6 = 10 1/6
[(3*13) + (2*10) + (1*11)] / 6 = 11 2/3
Problem 3:
Ft Ft 1 ( A t 1 Ft 1 ) 500 0.1( 450 500) 495 units
Problem 4:
Month
Actual
Rounded
Battery Sales Forecast
with a =0.8
Absolute
Deviation
with a =0.8
Rounded
Forecast
with a =0.5
Absolute
Deviation
with a =0.5
January
20
22
22
February
21
20
21
March
15
21
21
April
14
16
18
May
13
14
16
June
16
13
15
Sum =
15
16
2.5
2.75
3.7
4.1
SE
On the basis of this analysis, a smoothing constant of a = 0.8 is preferred to that of a

= 0.5 because it has a smaller MAD.
Problem 5:
Year
Time Sales
X2
Period (Units)
(X)
(Y)
XY
2001
100
100
2002
110
220
2003
122
366
2004
130
16
520
2005
139
25
695
2006
152
36
912
2007
164
49
1148
S X = S
Y S
S XY
2
28
=917
X =140 =
3961
x 28 4
y 917 131
xy nxy 3961 (7)(4)(131) 293 10.46

140 (7)( 4 )
28
x nx
2
a y bx 131 (10.46 4) 89.16

Therefore, the least squares trend equation is:
y a bx 89.16 10.46 x
To project demand in 2008, we denote the year 2008 as x = 8, and:
Sales in 2008 = 89.16 + 10.46 * 8 = 172.84
Problem 6:
Error RSFE
Demand Demand
1
78
71
-7
-7
75
80
-2
83
101
18
16
84
84
16
88
60
-28
-12
85
73
-12
-24
MAD =
Forecast errors
n
70
11.7
6

|Forecast Cumulative MAD Tracking
Demand Demand Error|
Error
Signal
1
78
71
7.0
-1.0
75
80
12
6.0
-0.3
83
101
18
30
10.0
+1.6
84
84
30
7.5
+2.1
88
60
28
58
11.6
-1.0
85
73
12
70
11.7
-2.1
Tracking Signal =
RFSE 24
2.1 MADs
MAD 11.7
9
Problem 7:
Sales of 10,000 units annually divided equally over the 4 seasons is 10,000 / 4 2,500
and the seasonal index for each quarter is: spring 4,000 / 2,500 1.6; summer
3,000 / 2,500 1.2; fall 2,000 / 2,500 .8; winter 1,000 / 2,500 .4.
Problem 8:
. 11,000). Sales for each quarter
Next years sales should be 11,000 pumps (10,000 * 110
should be 1/4 of the annual sales * the quarterly index.
Spring = (11,000 / 4) *1.6 = 4,400;
Summer = (11,000 / 4) *1.2 = 3,300;

Fall = (11,000 / 4) *.8 = 2,200;
Winter = (11,000 / 4) *.4.= 1,100.
10

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Practice Problems: Chapter 4, Forecasting

To minimize computations, transform the value of x (time) to simpler numbers. In this

demand in previous n periods

(weight for period n)(demand in period n)

Three-Week Moving Average

[(39) + (210) + (1*8)] / 6 = 9 1/6

[(311) + (29) + (1*10)] / 6 = 10 1/6

[(310) + (211) + (1*9)] / 6 = 10 1/6

[(313) + (210) + (1*11)] / 6 = 11 2/3

On the basis of this analysis, a smoothing constant of a = 0.8 is preferred to that of a

xy nxy 3961 (7)(4)(131) 293 10.46

a y bx 131 (10.46 4) 89.16

Year Forecast Actual

Summer = (11,000 / 4) *1.2 = 3,300;

Winter = (11,000 / 4) *.4.= 1,100.

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