Student name:__________

TRUE/FALSE - Write 'T' if the statement is true and 'F'

if the statement is false.
1) There are no differences in strategic and tactical
forecasting. A forecast is a mathematical projection and its
ultimate purpose should make no difference to the analyst.

⊚ true
⊚ false

2) For every forecasting problem there is one best

forecasting technique.

⊚ true
⊚ false

3) A good forecaster is one who develops special skills applying it to widely

and experience at one forecasting technique and is capable of diverse situations.

⊚ true
⊚ false

4) Continual review and updating in light of new data is a

forecasting technique called second guessing.

⊚ true
⊚ false

Version 1 1
5) Cyclical influences on demand are often expressed downward sloping.
graphically as a linear function that is either upward or

⊚ true
⊚ false

6) Cyclical influences on demand may come from

occurrences such as political elections, war, or economic
conditions.

⊚ true
⊚ false

7) Trend lines are usually the last things considered when

developing a forecast.

⊚ true
⊚ false

8) Time series forecasting models make predictions

about the future based on analysis of past data.

⊚ true
⊚ false

9) In a forecasting
model using simple

Version 1 2
exponential smoothing the data pattern should remain stationary.

⊚ true
⊚ false

10) In a forecasting model using simple moving average,

the shorter the time span used for calculating the moving
average, the closer the average follows volatile trends.

⊚ true
⊚ false

11) In the weighted moving average forecasting model,

the weights must add up to one times the number of data
points.

⊚ true
⊚ false

12) Experience, trial, and error are the simplest ways to

choose weights for the weighted moving average forecasting
model.

⊚ true
⊚ false

13) Bayesian analysis is the simplest way to choose weights for the weighted

Version 1 3
moving average forecasting model.

⊚ true
⊚ false

14) The weighted moving average forecasting model uses

a weighting scheme to modify the effects of individual data
points. This is its major advantage over the simple moving
average model.

⊚ true
⊚ false

15) A central premise of exponential smoothing is that

more recent data is less indicative of the future than data from
the distant past.

⊚ true
⊚ false

16) The equation for exponential smoothing states that the

new forecast is equal to the old forecast plus the error of the
old forecast.

⊚ true
⊚ false

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17) Exponential smoothing is always the best and most accurate of all forecasting
models.

⊚ true
⊚ false

18) In the simple exponential smoothing forecasting

model, you need at least 30 observations to set the smoothing
constant alpha.

⊚ true
⊚ false

19) In exponential smoothing, it is desirable to use a

higher smoothing constant when forecasting demand for a
product experiencing high growth.

⊚ true
⊚ false

20) The value of the smoothing constant alpha in an

exponential smoothing model is between 0 and 1.

⊚ true
⊚ false

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21) Single exponential smoothing lags changes in demand.

⊚ true
⊚ false

22) Exponential smoothing forecasts always lag behind

the actual occurrence but can be corrected somewhat with a
trend adjustment.

⊚ true
⊚ false

23) To correct the trend, we need two smoothing

constants.

⊚ true
⊚ false

24) A restriction in using linear regression is that it

assumes that past data and future projections fall on or near a
straight line.

⊚ true
⊚ false

25) Regression is a functional relationship between two or used to predict a single

more correlated variables, where one or more variables are variable of interest.

⊚ true ⊚ false

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26) Linear regression is not useful for aggregate planning.

⊚ true
⊚ false

27) The standard error of the estimate in the linear and the regression line
regression is not useful for judging the fit between the data when doing forecasts.

⊚ true
⊚ false

28) Decomposition of a time series means identifying and

separating the time series data into its components.

⊚ true
⊚ false

29) A time series is defined in the text as chronologically

ordered data that may contain one or more components of
demand variation: trend, seasonal, cyclical, autocorrelation,
and random.

⊚ true
⊚ false

Version 1 7
30) It is difficult to identify the trend in time series data.

⊚ true
⊚ false

31) In decomposition of time series, it is relatively easy to

identify cycles and autocorrelation components.

⊚ true
⊚ false

32) We usually associate the word "seasonal" with

recurrent periods of repetitive activity that happen on other
than an annual cycle.

⊚ true
⊚ false

33) Because the factors governing demand for products

are very complex, all forecasts of demand contain error.

⊚ true
⊚ false

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34) Random errors can be defined as those that cannot be explained by the forecast
model being used.
⊚ true
⊚ false

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35) Random errors in forecasting occur when an
undetected secular trend is not included in a forecasting
model.

⊚ true
⊚ false

36) The MAD is used to generate tracking signals.

⊚ true
⊚ false

37) MAD statistics can be used to generate tracking

signals.

⊚ true
⊚ false

38) RSFE in forecasting stands for "reliable safety

function error."

⊚ true
⊚ false

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39) In forecasting, RSFE stands for "running sum of forecast errors."

⊚ true
⊚ false

40) A tracking signal (TS) can be calculated using the

arithmetic sum of forecast deviations divided by the MAD.

⊚ true
⊚ false

41) A true forecast is when it is consistently low or high.

⊚ true
⊚ false

42) In causal relationship forecasting leading indicators

are used to forecast occurrences.

⊚ true
⊚ false

43) Multiple regression analysis uses several regression

models to generate a forecast.

⊚ true
⊚ false

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44) Multiple regression is the best forecasting method
when several factors influence a variable.

⊚ true
⊚ false

45) Qualitative forecasting techniques generally take

advantage of the knowledge of experts and therefore do not
require much judgment.

⊚ true
⊚ false

46) Market research is a quantitative method of

forecasting.

⊚ true
⊚ false

47) When forecasting demand for a new product, it is

typical to produce a model from historical data of similar or
competing products.

⊚ true
⊚ false

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48) Collaborative planning, forecasting, and replenishment
(CPFR) integrates all the members of the supply chain.

⊚ true
⊚ false

MULTIPLE CHOICE - Choose the one alternative that

best completes the statement or answers the question.
49) In time series data depicting demand which of the
following is not considered a component of demand
variation?

D) Variance
A) Trend E) Autocorrelation
B) Seasonal
C) Cyclical

50) Which of the following is not one of the basic

forecasting types discussed in the text?

D) Simulation
A) Qualitative E) Force field
B) Time series analysis analysis
C) Causal relationships

51) In most cases, demand for products or services can be

broken down into several components. Which of the
following is not considered as a component of demand?

B) A trend.
A) Average demand for a period. C) Seasonal

Version 1 13
elements. E) Autocorrelation.
D) Past data.

52) In most cases, demand for products or services can be

broken into several components. Which of the following is
considered as a component of demand?

D) Inconsistent
A) Cyclical elements. demand.
B) Future demand. E) Level demand.
C) Past demand.

53) In most cases, demand for products or services can be

broken into several components. Which of the following is
considered as a component of demand?

D) Consistent
A) Forecast error. demand.
B) Autocorrelation. E) Repeat demand.
C) Previous demand.

54) Which of the following forecasting methodologies is

considered as a time series forecasting technique?

D) Historical
A) Simple moving average. analogy.
B) Market research. E) Simulation.
C) Leading indicators.

55) Which of the following forecasting methodologies is

considered as a time series forecasting technique?

A) Delphi method.

Version 1 14
 E) Simulation.
B) Exponential averaging.
C) Simple movement smoothing.
D) Weighted moving average.

56) In business forecasting, what is usually considered as

a short-term time period?

D) Less than three

A) Four weeks or less. months.
B) More than three months. E) One year.
C) Six months or more.

57) In business forecasting, what is usually considered as

a medium-term period?

E) Six months to
A) Six weeks to one year. six years.
B) Three months to two years.
C) One to five years.
D) One to six months.

58) In business forecasting, what is usually considered as

a long-term time period?

E) Ten years or
A) Three months or longer. longer.
B) Six months or longer.
C) One year or longer.
D) Two years or longer.

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59) In general, which forecasting time frame compensates
most effectively for random variation and short-term
changes?

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 E) Rapid change
A) Short-term forecasts. forecasts.
B) Quick-time forecasts.
C) Long range forecasts.
D) Medium-term forecasts.

60) In general, which forecasting time frame best

identifies seasonal effects?

E) Rapid change
A) Short-term forecasts. forecasts.
B) Quick-time forecasts.
C) Long range forecasts.
D) Medium-term forecasts.

61) In general, which forecasting time frame is best to

detect general trends?

E) Rapid change
A) Short-term forecasts. forecasts.
B) Quick-time forecasts.
C) Long range forecasts.
D) Medium-term forecasts.

62) Which of the following forecasting methods can be

used for short-term forecasting?

E) Serial
A) Simple exponential smoothing. regression.
B) Delphi technique.
C) Market research.
D) Hoskins-Hamilton smoothing.

63) Which of the following considerations is not a factor in deciding which

Version 1 17
forecasting model a firm should choose?

E) Analyst
A) Time horizon to forecast. availability.
B) Product.
C) Accuracy required.
D) Data availability.

64) A company wants to forecast demand using the simple

moving average. If the company uses four prior yearly sales
values (i.e., year 2014 = 100, year 2015 = 120, year 2016 =
140, and year 2017 = 210), which of the following is the
simple moving average forecast for year 2018?

D) 145.5
A) 100.5 E) 155.0
B) 140.0
C) 142.5

65) A company wants to forecast demand using the simple

moving average. If the company uses three prior yearly sales
values (i.e., year 2015 = 130, year 2016 = 110, and year 2017
=160), which of the following is the simple moving average
forecast for year 2018?

D) 135.6
A) 100.5 E) 139.3
B) 122.5
C) 133.3

66) A company wants to forecast demand using the yearly sales values (i.e.,
weighted moving average. If the company uses two prior year 2016 = 110 and year

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2017 = 130), and we want to weight year 2016 at 10% and
year 2017 at 90%, which of the following is the weighted
moving average forecast for year 2018?

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 D) 138
A) 120 E) 142
B) 128
C) 133

67) A company wants to forecast demand using the

weighted moving average. If the company uses three prior
yearly sales values (i.e., year 2015 = 160, year 2016 = 140
and year 2017 = 170), and we want to weight year 2015 at
30%, year 2016 at 30% and year 2017 at 40%, which of the
following is the weighted moving average forecast for year
2018?

D) 152
A) 170 E) 146
B) 168
C) 158

68) Which of the following is among the major reasons

that exponential smoothing has become well accepted as a
forecasting technique?

E) Ability to
A) Accurate and easy to use. forecast lagging data
B) Sophistication of analysis. trends.
C) Predicts turning points.
D) Captures patterns in historical data.

69) The exponential smoothing method requires which of

the following data to forecast the future?

C) The value of the

A) The most recent forecast. smoothing constant delta.
B) Precise actual demand for the past several years. D) Overall industry

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demand data. E) Tracking values.

70) Given a prior forecast demand value of 230, a related

actual demand value of 250, and a smoothing constant alpha
of 0.1, what is the exponential smoothing forecast value for
the following period?

D) 248
A) 230 E) 250
B) 232
C) 238

71) If a firm produced a standard item with relatively

stable demand, the smoothing constant alpha (reaction rate to
differences) used in an exponential smoothing forecasting
model would tend to be in which of the following ranges?

D) 60% to 120%
A) 5% to 10% E) 90% to 100%
B) 20% to 50%
C) 20% to 80%

72) If a firm produced a product that was experiencing

growth in demand, the smoothing constant alpha (reaction
rate to differences) used in an exponential smoothing
forecasting model would tend to be which of the following?

E) 0.5 or higher.
A) Close to zero.
B) A very low, less than 0.1.
C) The more rapid the growth, the higher alpha.
D) The more rapid the growth, the lower alpha.

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73) Given a prior forecast demand value of 1,100, a
related actual demand value of 1,000, and a smoothing
constant alpha of 0.3, what is the exponential smoothing
forecast value?

D) 1,130
A) 1,000 E) 970
B) 1,030
C) 1,070

74) A company wants to generate a forecast for unit

demand for year 2018 using exponential smoothing. The
actual demand in year 2017 was 120. The forecast demand in
year 2017 was 110. Using this data and a smoothing constant
alpha of 0.1, which of the following is the resulting year 2018
forecast value?

D) 114
A) 100 E) 120
B) 110
C) 111

75) As a consultant you

have been asked to
generate a unit demand
forecast for a product for
year 2018 using
exponential smoothing.

Version 1 22
The actual demand in year 2017 was 750. The forecast resulting year 2018
demand in year 2017 was 960. Using this data and a forecast value?
smoothing constant alpha of 0.3, which of the following is the

D) 1,023
A) 766 E) 1,120
B) 813
C) 897

76) A company wants to forecast demand using the simple

moving average. The company uses four positive prior yearly
(2014, 2015, 2016 and 2017) sales values. All yearly sales
figures are unique (no repetitions). Which of the following is
most accurate about the moving average forecast for year
2018?
A. Has to be smaller than at least one of the four yearly sales
figures.

B. Has to be larger than at least one of the four yearly sales

figures.

C. Has to be between the smallest and largest yearly sales

figures.

D. Has to greater than all four yearly sales figures.

D) Choice D
A) Choice A E) Choice A, B and
B) Choice B C only
C) Choice C

77) As a consultant, you have been asked to generate a A. Forecast for year 2018
unit demand forecast for a product for year 2018 using will be higher than the
exponential smoothing. You have data for the past three actual for 2017, if your α is
years, the forecast and the actual are the same for the first close to 1.0
period of your data (3 years ago). Which of the following is
the most accurate? B. Forecast for 2018 will

Version 1 23
be between all the actual sales forecasting method

C. Exponential smoothing is a type of weighted average

E) None of the
A) Choice A. above.
B) Choice B.
C) Choice C.
D) Choice B and C only.

78) As a consultant, you have been thinking about

choosing the “right” alpha (smoothing constant) for
forecasting using exponential smoothing. Which of the
following is the most accurate about alpha?
A. If alpha is high, speed of reaction to changes in actually
low.

B. If a firm produces standard product with relatively stable

demand, alpha should be small.

C. Products experiencing growth should be assigned higher

alpha value.

D. Alpha could be more than 1.0, and in this case (1-alpha)

will become negative to make up for it.

D) Choice D.
A) Choice A. E) Choice B and C.
B) Choice B.
C) Choice C.

79) Using the exponential smoothing model for of smoothing

forecasting, the smoothing constant alpha determines the level and_____________blank

forecasts and actual results.

A) the slope of the growth curve. C) the intercept on
B) the speed of reaction to differences between the Y-axis.

Version 1 24
 D) the next forecast error.
E) a measure of forecast accuracy.

80) The least squares method refers to

_____________blank

forecast.
A) a computation in linear regression. E) calculating the
B) selecting participants for the Delphi Technique. running sum of forecast
C) time series decomposition into smaller and smaller errors.
units.
D) determining the smallest sources of error in a

81) Which of the following forecasting methods is

considered a causal forecasting technique?

D) Historical
A) Exponential smoothing. analogy.
B) Weighted moving average. E) Market research.
C) Linear regression.

82) If the intercept value of a linear regression model is

40, the slope value is 40, and the value of X is 40, which of
the following is the resulting forecast value using this model?

D) 2,200
A) 120 E) 64,000
B) 1,600
C) 1,640

83) A company hires

you to develop a linear
regression forecasting
model. Based on the
company's historical sales

Version 1 25
information, you determine the intercept value of the model to of the following is the
be 1,200. You also find the slope value is −50. If after resulting forecast value
developing the model you are given a value of X = 10, which using this model?

D) 1,150
A) −1,800 E) 12,000
B) 700
C) 1,230

84) Which of the following is a possible source of bias

error in forecasting?

E) Using standard
A) Failing to include the right variables. deviation rather than
B) Using the wrong forecasting method. MAD.
C) Employing less sophisticated analysts than
necessary.
D) Using incorrect data.

85) Which of the following is used to describe the degree

of error?

E) Mean absolute
A) Weighted moving average deviation
B) Regression
C) Moving average
D) Forecast as a percent of actual

86) A company has actual unit demand for three

consecutive years of 124, 126, and 135. The respective
forecasts for the same three years are 120, 120, and 130.
Which of the following is the resulting MAD value that can
be computed from this data?

B) 3
A) 1 C) 5

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 D) 15 E) 123

87) A company has actual unit demand for four

consecutive years of 100, 105, 135, and 150. The respective
forecasts were 120 for all four years. Which of the following
is the resulting MAD value that can be computed from this
data?

D) 22.5
A) 2.5 E) 30
B) 10
C) 20

88) If you were selecting from a variety of forecasting

models based on MAD, which of the following MAD values
from the same data would reflect the most accurate model?

D) 10.0
A) 0.2 E) 100.0
B) 0.8
C) 1.0

89) A company has calculated its running sum of forecast

errors to be 500 and its mean absolute deviation is exactly 35.
Which of the following is the company's tracking signal?

D) Exactly 35.
A) Cannot be calculated based on this information. E) About 0.07.
B) About 14.3.
C) More than 35.

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90) A company has a MAD of 10. It wants to have a 99.7 conclude from this
percent control limits on its forecasting system. The most information?
recent tracking signal value is 3.1. What can the company

E) It is using an
A) The forecasting model is operating acceptably. inappropriate forecasting
B) The forecasting model is out of control and needs methodology.
to be corrected.
C) The MAD value is incorrect.
D) The upper control value is less than 20.

91) You are hired as a consultant to advise a small firm on

forecasting methodology. Based on your research you find the
company has a MAD of 3. Its wants to have a 99.7 percent
control limits on its forecasting system. Company most recent
tracking signal value is 15. What should be your report to the
company?

E) The company is
A) The forecasting model is operating acceptably. using an inappropriate
B) The forecasting model is out of control and needs forecasting methodology.
to be corrected.
C) The MAD value is incorrect.
D) The upper control value is less than 20.

92) Which of the following is the portion of observations

you would expect to see lying within −3MAD and +3MAD
range.

D) 99.85 %
A) 57.05 % E) 100 %
B) 88.95 %
C) 98.36 %

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93) Which of the following is the portion of observations range.
you would expect to see lying within −2MAD and +2MAD

D) 99.86%
A) 57.04% E) 100.00%
B) 89.04%
C) 98.33%

94) You are using an exponential smoothing model for

forecasting. The running sum of the forecast error statistics
(RSFE) are calculated each time a forecast is generated. You
find the last RSFE to be 34. Originally, the forecasting model
used was selected because it's relatively low MAD of 0.4. To
determine when it is time to reevaluate the usefulness of the
exponential smoothing model you compute tracking signals.
Which of the following is the resulting tracking signal?

D) 12.9
A) 85 E) 8
B) 60
C) 13.6

95) Heavy sales of umbrellas during a rain storm is an

example of which of the following?

D) A coincidence.
A) A trend. E) A fad.
B) A causal relationship.
C) A statistical correlation.

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96) Which of the following forecasting methods is
considered a qualitative forecasting technique?

E) Multiple
A) Simple moving average. regression.
B) Market research.
C) Linear regression.
D) Exponential smoothing.

97) Which of the following forecasting methods uses

executive judgment as its primary component for forecasting?

E) Linear
A) Historical analogy. regression.
B) Time series analysis.
C) Panel consensus.
D) Market research.

98) Which of the following forecasting methods is very

dependent on selection of the right individuals who will
judgmentally be used to actually generate the forecast?

D) Delphi method.
A) Time series analysis. E) Panel consensus.
B) Simple moving average.
C) Weighted moving average.

99) Collaborative Planning, Forecasting, and C) Firms in a supply chain

Replenishment (CPFR) is a web-based tool used to coordinate may not trust each other
demand forecasting, production and purchase planning, and sufficiently to share
inventory replenishment between supply chain trading information openly.
partners. In practice CPFR often doesn't deliver on its' D) conflicting objectives
promise because _____________blank. between the profit-
A) Computer systems at supplier companies cannot be made maximizing vendor and the
to work with each other. cost-minimizing customer
B) Forecast errors accumulate as data exchanges are made give rise to adversarial
down the supply chain culminating in the “feast or famine” supply chain relationships.
phenomena known as the “bullwhip effect.”

Version 1 30
 D) A, C, and D
A) All of these E) C and D
B) B and D
C) A and C

Version 1 31
Answer Key

Test name: Chapter 03 Test Bank - Static

1) FALSE
In considering what forecasting approach to replenished, or how
use it is important to consider the purpose of much production
the forecast. Some forecasts are for very high- should we schedule
level demand analysis. What do we expect the for an item next
demand to be for a group of products over the week? These are
next year, for example? Some forecasts are tactical forecasts
used to help set the strategy of how, in an where the goal is to
aggregate sense, we will meet demand. We estimate demand in
will call these strategic forecasts. Forecasts are the relative short
also needed for how a firm operates processes term, a few weeks
on a day-to-day basis. For example, when or months.
should the inventory for an item be
2) FALSE
When forecasting, a good strategy is to use common sense
two or three methods and look at them for the view.
3) FALSE
When forecasting, a good strategy is to use
two or three methods and look at them for the
commonsense view.
4) FALSE
Second guessing is not a forecasting
technique.

Version 1 32
5) FALSE
By their nature, cyclical influences are non- linear.

6) TRUE
Cyclical influence on demand may come from pressures.
such occurrences as political elections, war,
economic conditions, or sociological
7) FALSE
Trend lines are the usual starting point in developing a
forecast.
8) TRUE
Time series forecasting models try to predict the future based on
past data.
9) TRUE
See exhibit 3.3
A Guide to Selecting an Appropriate u ty
Forecasting Method s )
FORECASTIN AMOUNT OF DATA FOREC e
G METHOD HISTORICA PATTERN AST d
L DATA HORIZ 10) TRUE
ON
Simple 6 to 12 Stationar Shor
moving months; y only t
average weekly (i.e., no
data are trend or
often seasonali

While a shorter time span produces more smoother response

oscillation, there is a closer following of the but lags the trend.
trend. Conversely, a longer time span gives a

Version 1 33
11) FALSE
A weighted moving average (model) allows weights equals 1
any weights to be placed on each element, (one).
providing, of course, that the sum of all
12) TRUE
Experience, trial, and error are the simplest moving average
ways to choose weights for the weighted forecasting model.

13) FALSE
Experience and trial and error are the simplest
ways to choose weights for the weighted
moving average forecasting model.

Version 1 34
14) TRUE
The weighted moving average has a definite being able to vary
advantage over the simple moving average in the effects of past
data.
15) FALSE
If the premise that the importance of data
diminishes as the past becomes more distant is
valid then exponential smoothing may be the
most logical and easiest method to use.

Version 1 35
16) FALSE
The equation for exponential smoothing states what actually
that the new forecast is equal to the old occurred).
forecast plus a portion of the error (the
difference between the previous forecast and
17) FALSE
Exponential smoothing is the most used of all However, it may not
forecasting techniques. It may also be the always be the most
most logical and easiest methods to use. accurate.
18) FALSE
In the exponential smoothing method, only determined both by
three pieces of data are needed to forecast the the nature of the
future: the most recent forecast, the actual product and by the
demand that occurred for that forecast period, manager's sense of
and a smoothing constant alpha. This what constitutes a
smoothing constant determines the level of good response rate.
smoothing and the speed of reaction to
differences between forecasts and actual
occurrences. The value for the constant is
19) TRUE
The more rapid the growth, the higher the be.
reaction rate (e.g., smoothing constant) should
20) TRUE
Exponential smoothing requires that the between 0 and 1.
smoothing constant alpha be given a value
21) TRUE

Version 1 36
Single exponential smoothing has the
shortcoming of lagging changes in demand.

22) TRUE
The forecast lags during an increase or
decrease but overshoots when a change in
direction occurs. To more closely track actual
demand, a trend factor may be added.

Version 1 37
23) TRUE
Besides the smoothing constant α, the trend included, the trend
equation also uses a smoothing constant delta overreacts to errors.
(δ). Both alpha and delta reduce the impact of
the error that occurs between the actual and
the fore-cast. If both alpha and delta are not
24) TRUE
The major restriction in using linear assumed to fall on
regression forecasting is, as the name implies, or near a straight
that past data and future projections are line.
25) TRUE
Regression can be defined as a functional
relationship between two or more correlated
variables. It is used to predict one variable
given the other.
26) FALSE
Linear regression is useful for long-term
forecasting of major occurrences and
aggregate planning.
27) FALSE
The standard error of estimate indicates how
well the line fits the data.
28) TRUE
Decomposition of a time series means identifying and

Version 1 38
separating the time series data into its components.
29) TRUE
A time series can be defined as seasonal, cyclical,
chronologically ordered data that may contain autocorrelation, and
one or more components of demand: trend, random.
30) FALSE
In practice, it is relatively easy to identify the comparing the same
trend (even without math¬ematical analysis, it period year to year).
is usually easy to plot and see the direction of
movement) and the seasonal component (by
31) FALSE
It is considerably more difficult (than trend
detection) to identify the cycles,
autocorrelation, and random components.
32) FALSE
We usually associate seasonal with a period of other than annual
the year characterized by some particular recurrent periods of
activity. We use the word cyclical to indicate repetitive activity.
33) TRUE
Demand for a product is generated through the
interaction of a number of factors too complex
to describe accurately in a model. Therefore,
all forecasts certainly contain some error.

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34) TRUE
Random errors can be defined as those that being used.
cannot be explained by the forecast model
35) FALSE
Random errors can be defined as those that being used.
cannot be explained by the forecast model
36) FALSE
The MAD is one of the formula inputs to calculate the
tracking signal.
37) TRUE
In recent years, MAD has made a comeback
because of its simplicity and usefulness in
obtaining tracking signals.

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38) FALSE
RSFE stands for running sum of forecast
errors.
39) TRUE
RSFE stands for running sum of forecast
errors.
40) TRUE
A tracking signal can be calculated using the by the mean
arithmetic sum of forecast deviations divided absolute deviation.

41) FALSE
When a forecast is consistently low or high, it
is referred to as a biased forecast.
42) FALSE
Causal relationship forecasting involves using predict future
independent variables other than time to demand.
43) FALSE
In multiple regression analysis, a number of effects of each on
variables are considered, together with the the item of interest.
44) TRUE
Forecasting by multiple regression is influence a variable
appropriate when a number of factors of interest.
45) FALSE
Qualitative forecasting techniques generally take advantage of

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the knowledge of experts and require much judgment.

46) FALSE
Market research is used mostly for product Again, the data
research in the sense of looking for new collection methods
product ideas, likes and dislikes about existing are primarily
products, which competitive products within a surveys and
particular class are preferred, and so on. interviews.
47) TRUE
In trying to forecast demand for a new function of income.
product, an ideal situation would be where an An example would
existing product or generic product could be be toasters and
used as a model. There are many ways to coffeemakers.
classify such analogies—for example,
complementary products, substitutable or
competi¬tive products, and products as a
48) TRUE
Collaborative Planning, Forecasting, and forecast, which is
Replenishment (CPFR) is a web-based tool successively used to
used to coordinate demand forecasting, synchronize
production and purchase planning, and forecasts,
inventory replenishment between supply chain production, and
trading partners. CPFR is being used as a replenishment plans
means of integrating all members of an n-tier upstream through
supply chain, including manufacturers, the supply chain.
distributors, and retailers. As depicted in
Exhibit 3.14, the ideal point of collabora¬tion
utilizing CPFR is the retail-level demand

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49) D
Variance is a measure of the degree of error, squared error (or
not a component of demand variation. E.g., variance), and mean
several common terms used to describe the absolute deviation.
degree of error are standard error, mean
50) E
Forecasting can be classified into four basic relationships, and
types: qualitative, time series analysis, causal simulation.

51) D
In most cases, demand for products or services variation, and
can be broken down into six components: autocorrelation.
average demand for the period, a trend,
seasonal elements, cyclical elements, random
52) A
In most cases, demand for products or services variation, and
can be broken down into six components: autocorrelation.
average demand for the period, a trend,
seasonal elements, cyclical elements, random
53) B
In most cases, demand for products or services variation, and
can be broken down into six components: autocorrelation.
average demand for the period, a trend,
seasonal elements, cyclical elements, random
54) A
Simple moving average is the only choice that attempts to predict

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future values of demand based upon past data.
55) D
56) D
In business forecasting short term usually refers to under three
months.
57) B
In business forecasting medium term (refers to) three months to
two years.
58) D
In business forecasting long term (refers to) greater than two
years.
59) A
In general, the short-term models compensate a new product).
best for random variation and adjust for short-
term changes (such as consumers' responses to
60) D
Medium-term forecasts are useful for capturing seasonal
effects.
61) C
Long-term models detect general trends and turning points.
are especially useful in identifying major
62) A
Refer to exhibit 3.3

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 A Guide to Selecting an Appropriate ty
Forecasting Method Tr 2 St S
FORECASTIN AMOUNT OF DATA FOREC en t at h
G METHOD HISTORICA PATTERN AST d o io o
L DATA HORIZ an 3 na r
ON d o ry t
Simple 6 to 12 Stationar Shor se b ,
moving months; y only t as s tr t
average weekly (i.e., no on e en o
data are trend or al r d,
often seasonali mo v se m
used ty) de a as e
Weighted 5 to 10 Stationar Shor ls t on d
moving observat y only t i al i
average ions o it u
and needed n y m
simple to start s
exponenti p
al e
smoothing r
Exponenti 5 to 10 Stationar Shor s
al observat y and t e
smoothing ions trend a
with needed s
trend to start o
n
Linear 10 to 20 Stationar Shor
regressio observat y, trend, t to 63) B
n ions and medi
seasonali um

Which forecasting model a firm should choose qualified personnel.

depends on: (1) Time horizon to forecast; (2)
Data availability; (3) Accuracy required; (4)
Size of forecasting budget; (5) Availability of
64) C
Forecast for 2018 = (100 + 120 + 140 + 210) / 4 = 570 / 4 = 142.5

65) C

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Forecast for 2018 = (130 + 110 + 160) / 3 = 400 / 3 = 133.3

66) B
Forecast for 2018 = (110 × 0.1) + (130 × 0.9) = 11 + 117 = 128

67) C
Forecast for 2018 = (160 × 0.3) + (140 × 0.3)
+ (170 × 0.4) = 158

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68) A
69) A
In the exponential smoothing method, only and a smoothing
three pieces of data are needed to forecast the constant alpha.
future: the most recent forecast, the actual
demand that occurred for that forecast period,
70) B
Forecast = 230 + 0.1 × (250 − 230) = 232

71) A
If a firm produced a standard item with or 10 percentage
relatively stable demand, the reaction rate to points.
differences between actual and forecast
demand would tend to be small, perhaps just 5
72) C
73) D
Forecast = 1,100 + 0.3 × (1,100 − 1,000) =
1,130

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74) C
Forecast = 110 + 0.1 × (120 − 110) = 111

75) C
Forecast = 960 + 0.3 × (750 − 960) = 897

76) E
77) D
78) E
79) B
80) A
81) C
82) C
83) B
84) A
Bias errors occur when a consistent mistake is normally occurs;
made. Sources of bias include the failure to and the existence of
include the right variables; the use of the some undetected
wrong relationships among variables; secular trend.
employing of the wrong trend line; a mistaken
shift in the seasonal demand from where it
85) E
Several common terms used to describe the deviation.
degree of error are standard error, mean
squared error (or variance), and mean absolute

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86) C
MAD = ABS((124 − 120) + (126 − 120) + (135 − 130)) / 3 =
15 / 3 =5
87) C
MAD = ABS((100 − 120) + (105 − 120) +
(135 − 120) + (150 − 120)) / 4 = 80/4 = 20

88) A
Mean absolute percent error (MAPE) gauges MAPE would be
the error relative to the average demand. For least when MAD
example, if the MAD is 10 units and average was smallest.
demand is 20 units, the error is large and Therefore 0.2 is the
significant, but relatively insignificant on an correct answer.
average demand of 1,000 units. Since the
same data is being used in the question,
89) B
The tracking signal is RSFE/MAD = 500 / 35
= 14.29.

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90) A
Tracking Signal = RSFE / MAD hence, 3.1 = 12.5 or 37.5 for the
RSFE/10 or RSFE =3.1 × 10 = 31. MAD = 10, forecasting model to
SD = 1.25 × MAD = 12.5. Since 99.7 percent be out of control.
corresponds to 3 standard deviations from the
mean, RSFE would have to be higher than 3 ×
91) B
92) C
3 MAD × 0.8 = 2.4 Standard Deviations. 98.36%
From any Z table, 2.4 standard deviations
includes = 0.4918 of the area × 2 = 0.9836 or
93) B
2 MAD × 0.8 = 1.6 Standard Deviations. 89.04%
From any Z table, 1.6 standard deviations
includes = 0.4452 of the area × 2 = 0.8904 or
94) A
95) B
96) B
97) C
98) D
99) E

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