Practice Problems: Chapter 4, Forecasting

Problem 1:
Auto sales at Carmen’s Chevrolet are shown below. Develop a 3-week moving average.

Week Auto
Sales

1 8

2 10

3 9

4 11

5 10

6 13

7 -

Problem 2:
Carmen’s decides to forecast auto sales by weighting the three weeks as follows:

Weights Period
Applied

3 Last week

2 Twoweeks
ago

1 Three weeks
ago

6 Total

1
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

2
Problem 5:
Use the sales data given below to determine: (a) the least squares trend line, and (b) the predicted value for
2003 sales.

Year Sales
(Units)

1996 100

1997 110

1998 122

1999 130

2000 139

2001 152

2002 164

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

case, designate year 1996 as year 1, 1997 as year 2, etc.

3
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

2 75 80

3 83 101

4 84 84

5 88 60

6 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, Meredith and Smunt Manufacturing expects sales of pumps to
grow by 10% next year. Compute next year’s sales and the sales for each quarter.

4
 ANSWERS:

Problem 1:

Moving average =
 demand in previous n periods
n

Week Auto Three-Week Moving

Sales Average

 
1 8

 
2 10

 
3 9

4 11 (8 + 9 + 10) / 3 = 9

5 10 (10 + 9 + 11) / 3 = 10

6 13 (9 + 11 + 10) / 3 = 10

7 - (11 + 10 + 13) / 3 = 11
1/3

5
Problem 2:

Weighted moving average =

 (weight for period n)(demand in period n)
 weights
Week Auto Three-Week Moving Average
Sales

 
1 8

 
2 10

 
3 9

4 11 [(3*9) + (2*10) + (1*8)] / 6 = 9 1/6

5 10 [(3*11) + (2*9) + (1*10)] / 6 = 10 1/6

6 13 [(3*10) + (2*11) + (1*9)] / 6 = 10 1/6

7 - [(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

6
Problem 4:

Month Actual Rounded Absolute Rounded Absolute

Battery Sales Forecast Deviation Forecast Deviation
with a =0.8 with a =0.8 with a =0.5 with a =0.5

January 20 22 2 22 2

February 21 20 1 21 0

March 15 21 6 21 6

April 14 16 2 18 4

May 13 14 1 16 3

June 16 13 3 14.5 1.5

           

      S = 15   S = 16

2.56   2.95

SE 3.5   3.9

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.

7
Problem 5:

Year Time Sales X2 XY

Period (Units)
(X) (Y)

1996 1 100 1 100

1997 2 110 4 220

1998 3 122 9 366

1999 4 130 16 520

2000 5 139 25 695

2001 6 152 36 912

2002 7 164 49 1148

 
S X = S Y S S XY
2
28 =917 X =140 =
3961

x
 x  28  4
n 7

y
 y  917  131
n 7

b
 xy  nxy  3961  (7)(4)(131)  293  10.46
 x  nx
2 2
140  (7)( 4 )
2
28
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 2003, we denote the year 2003 as x = 8, and:
Sales in 2003  89.16  10.46 * 8  172.84

8
Problem 6:

Year Forecast Actual Error RSFE

Demand Demand

1 78 71 -7 -7

2 75 80 5 -2

3 83 101 18 16

4 84 84 0 16

5 88 60 -28 -12

6 85 73 -12 -24

MAD =
 Forecast errors 
70
 11.7
n 6

Year Forecast Actual |Forecast Cumulative MAD Tracking

Demand Demand Error| Error Signal

1 78 71 7 7 7.0 -1.0

2 75 80 5 12 6.0 -0.3

3 83 101 18 30 10.0 +1.6

4 84 84 0 30 7.5 +2.1

5 88 60 28 58 11.6 -1.0

6 85 73 12 70 11.7 -2.1

RFSE 24
Tracking Signal =   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:
Next years sales should be 11,000 pumps (10,000 * 110.  11,000). Sales for each quarter
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