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

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Problem 3:
A firm uses simple exponential smoothing with α = 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 α are
examined, α = 0.8 and α = 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

January 20 22

February 21

March 15

April 14

May 13

June 16

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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

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Problem 6:
Given the forecast demand and actual demand for 10-foot fishing boats, compute the
tracking signal and MAD.

Year Forecast Actual

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 7, 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.

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 ANSWERS:

Problem 1:

Moving average =
∑ demand in previous n periods
n

Week Auto Three-Week Moving

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

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Problem 2:

Weighted moving average =

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 + α ( A t −1 − Ft −1 ) = 500 + 0.1( 450 − 500) = 495 units

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Problem 4:

Month Actual Rounded Absolute Rounded Absolute

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 15 1

Sum = 15 16

2.5 2.75

SE 3.7 4.1

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

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Problem 5:

Year Time Sales X2 XY

2001 1 100 1 100

2002 2 110 4 220

2003 3 122 9 366

2004 4 130 16 520

2005 5 139 25 695

2006 6 152 36 912

2007 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 2008, we denote the year 2008 as x = 8, and:
Sales in 2008 = 89.16 + 10.46 * 8 = 172.84

Problem 6:

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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

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

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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.

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