Solution 1:

Introduction
Demand forecasting is an act of creating a foundation or vision for future operations to be
executed in any organization. Demand forecasting is the process of estimating future demand
for the products or services of an organization. Since it entails speculating on an
organization's potential future sales figures, it is also known as sales forecasting. Demand
forecasting assists a company in making a variety of financial decisions, including managing
funds, setting prices for its goods, and scheduling the production process.

Demand forecasting is beneficial for both new and established market organizations. For
instance, a new business must anticipate demand to increase its production volume. However,
a current organization needs demand projections to prevent issues like overproduction and
underproduction. By using demand forecasting, a company may plan for the necessary inputs
according to the anticipated demand without wasting any resources.

Concepts
Organizations can forecast demand either internally via the use of guess estimates or
externally through the use of specialized consultants or market research firms. It must be
carried out methodically to provide the desired results. There are several steps involved in
demand forecasting.

1. Specifying the objective:

Demand forecasting must be done with a specific goal in mind before beginning, for instance,
whether it is being done for capital investment or a certain expansion decision. The following
criteria can be used to define the goal:

 Time period – Short-term or long-term demand for a product,

 Demand particular to a company or an industry,
 Demand for the entire market or a specific market niche.

2. Determining the time perspective:

Demand can be predicted for a short time (2–3 years) or a long time (beyond 10 years)
depending on the goal envisioned. While conducting long-term demand forecasting
organizations must take into account the economy's and the market's ongoing
developments which will eventually help in making efficient decisions regarding
expansion as well as capital investment.
3. Selecting the forecasting method:

There are several methods for predicting demand (qualitative & quantitative), not all
techniques, though, are appropriate for all kinds of demand forecasting. The
organization must decide which forecasting approach is best given the goal, time
frame, and data that are available. Each method has a distinct function, thus an
organization should exercise caution when picking a forecasting method for a certain
objective.
The choice of demand forecasting methodology also depends on the qualifications and
experience of the forecaster. The most optimal method will lead to the most
significant output.

4. Collecting and analyzing data:

The data must be gathered after choosing the demand forecasting approach. Data can
be gathered from primary, secondary, or both types of sources. To yield useful
information data is analyzed since it is collected in its raw form.

5. Interpreting Outcomes:

Post-analysis the data is used to estimate demand for the predetermined years.
Generally, the results are in the form of equations, which should be presented in a
comprehensible format hence making it significantly useful. Further actions are taken
based on interpretations obtained through forecasting.

Conclusion

Demand forecasting is effective when actual demand is almost equivalent to the predicted
demand. The choice of an appropriate forecasting technique will determine how effective
demand forecasting is. It paves the way for a business’s growth. If the above steps are
executed appropriately the resulting forecast can be of vital utility for the organization
leading to optimal usage of resources and substantial decisions regarding the capital
investment of business expansion.
Solution 2 :

Introduction:
There are several types of costs that impact a business. In cost accounting, they are analyzed
and functioned accordingly to assist in decision-making regarding the business or to get a
clearer picture of a business's performance. There are fixed costs, variable costs, marginal
costs, direct costs, and indirect costs, etc. which impact day to day operations of any business.

Concept Used:
Total cost refers to the overall cost of production it helps in the assessment of the overall
profit margin at different levels of production. The total fixed cost is often not prone to
fluctuations over a short time frame; the average variable cost per unit is what essentially
determines the total cost of production.

 Total Cost = Total Fixed Cost + Total Variable Cost

Variable costs are reliant on production output or sales. As the capacity of production and
output increases, variable costs will also rise. Total variable cost is basically the quantity of
output multiplied by the variable cost per unit of output. While variable cost is generally used
to define the variable cost for a single product, average variable cost often scrutinizes
production over period and compares variable costs to what has been manufactured.

 Average Variable Cost = Total Variable Cost/ Quantity

Marginal cost is the cost to produce surplus unit of production. It can aid an organization
enhance its production through economies of scale.

 Marginal Cost = Change in Total Cost/Change in Quantity

Quantity Total Total Total Average Average Average Marginal

Fixed Variable Cost Fixed Cost Variable Total Cost
Cost Cost Cost Cost
0 100 0 100 - - - -
1 100 20 120 100 20 120 20
2 100 30 130 50 15 65 10
3 100 40 140 33.3 13.3 46.6 10
4 100 50 150 25 12.5 37.5 10
5 100 60 160 20 12 32 10

Calculation & Explanation:

  Total Cost = Total Fixed Cost + Total Variable Cost

E.g. Total Cost 1= 100+0 =100

Total Cost 2= 100+20=120

 Average Fixed Cost = Total Fixed Cost/Quantity

Average Fixed Cost 2 = 100/1=100
Average Fixed Cost 3 =100/2=50

 Average Variable Cost = Total Variable Cost/ Quantity

Average Variable Cost 3 = 30/2 =15

 Average Total Cost = Total Cost/Quantity

Average Total Cost 3 = 130/2 = 65

 Marginal Cost = Change in Total Cost/Change in Quantity

Marginal Cost = (Total Cost 2 - Total Cost 1)/ (Quantity 2 - Quantity 1)
= (120-100)/ (1-0)
= 20/1 = 20

Interpretation:
In the above table, each cost is calculated and displayed. And can be used to get an insight
into the business. Since fixed cost remains constant despite changes in quantity the average
fixed cost decreases with an increase in quantity. The variable cost incurred also doesn't
fluctuate much the average total cost decreases significantly making the production cost-
efficient. As producing more quantity with a controlled variable cost isn't capital intensive.
Hence it is beneficial to produce more as far as marginal cost is lesser than marginal revenue.

Solution 3 (a) :

Introduction
When there is a significant change in a consumer's income there is a tendency to change the
lifestyle which is currently followed by the consumer. The buying capacity defines the sale of
any product. Whether a product is a luxury item or a necessity, are the consumers reluctant to
buy the product even if is priced higher, the demand falls accordingly. All this is indicated by
income elasticity.
Concept of Income Elasticity:
The term "income elasticity of demand" describes how a consumer's income impacts the
demand for a product. It is used to describe whether a product is a necessity or a luxury item.
Businesses use this statistic to forecast how economic cycles may affect sales.

There are five kinds of Income elasticity of demand

1. Negative: income increment leads to a decrease in the quantity demanded

2. High: Income increment leads to higher quantity demand
3. Low: Income increment less than proportional to increase in quantity
demanded
4. Unitary: Income increment proportional to quantity demanded
5. Zero: No changes

Formula Used:
Income Elasticity of demand:

= percentage change in the quantity/percentage change in income

Calculation:
Given,
Initial income (I) = 20000
Final Income = 25000
Initial quantity = 40
Final quantity = 60
change in income (ΔI) =25000-20000=5000
change in quantity (Δ Qd) = 60-40=20

Income elasticity of demand = (Δ Qd/Qd )/ (ΔI/I)

= (20/40)/(5000/20000)
=(1/2)/(1/4)
=2

Interpretation:
Income elasticity of demand = 2
The elasticity is positive hence an increase in income will lead to a rise in quantity demand.
Since the elasticity is greater than one i.e. 2 it means a 1% increase in income leads to a 2%
increase in demand. Also, the product is luxury in nature.
Solution 3 (b) :

Introduction

The consumption of any product depends on its price. It depends upon the affordability of a
product and how much a consumer prefers to buy that product. In case of price reduction, it
can fall into the consumption bracket of a larger number of consumers hence amassing the
demand for that product.

Concept of Price Elasticity:

Consumption of a product is altered when there is a change in its price.

To examine how price changes affect a product's supply and demand price elasticity of
demand and supply is calculated.

There are 5 types of price elasticity:

Price elasticity Known as Interpretation

Infinity Perfectly elastic Demand declines to zero
Greater than 1 Elastic A significant change in
demand
1 Unitary Equivalent change in demand
Lesser than 1 Inelastic Insignificant change in
demand
0 Perfectly inelastic No change in demand

Formula Used:

Price Elasticity of demand = Percentage change in quantity/ percentage change in price

Price Elasticity of demand = -p1/d1 * Δd/ Δp

Explanation:

Given,
Prices (p): p1 = 500, p2 = 400
Demands (d): d1 = 20000, d2 = 25000
 Elasticity of demand = -p1/d1 * (d2-d1)/ (p2-p1)
= -500/20000 * 5000/-100
= 5/4
=1.25

Interpretation:
Since the price elasticity of demand is 1.25 hence the product is elastic. The consumer is
sensitive to price changes. In this case, a 20% decrease in price leads to a 25% increase in
product demand. The affordability of a product leads to its demand increment.