IE 5744 Operations Management

Assignment No.1
Department of Industrial Engineering
May 12, 2020

Please solve the following questions:

Question 1

The Saki motorcycle dealer in the Minneapolis–St. Paul area wants to make an accurate forecast
of demand for the Saki Super TXII motorcycle during the next month. Because the manufacturer
is in Japan, it is difficult to send motorcycles back or reorder if the proper number is not ordered
a month ahead. From sales records, the dealer has accumulated the following data for the past
year:

Month Motorcycle Sales

January 9
February 7
March 10
April 8
May 7
June 12
July 10
August 11
September 12
October 10
November 14
December 16

a. Compute a 3-month moving average forecast of demand for April through January (of the
next year).
b. Compute a 5-month moving average forecast for June through January.
c. Compare the two forecasts computed in (a) and (b), using MAD. Which one should the
dealer
use for January of the next year?

Question 2

The manager of the Carpet City outlet needs to make an accurate forecast of the demand for Soft
Shag carpet (its biggest seller). If the manager does not order enough carpet from the carpet mill,
customers will buy their carpet from one of Carpet City’s many competitors. The manager has
collected the following demand data for the past 8 months:
 Demand for Soft Shag
Month Carpet (1,000 yd.)
1 8
2 12
3 7
4 9
5 15
6 11
7 10
8 12

a. Compute a 3-month moving average forecast for months 4 through 9.

b. Compute a weighted 3-month moving average forecast for months 4 through 9. Assign
c. weights of .55, .33, and .12 to the months in sequence, starting with the most recent
month.
d. Compare the two forecasts by using MAD. Which forecast appears to be more accurate?

Question 3

The Victory Plus Mutual Fund of growth stocks has had the following average monthly price for
the past 10 months:

Month Fund Price

1 62.7
2 63.9
3 68.0
4 66.4
5 67.2
6 65.8
7 68.2
8 69.3
9 67.2
10 70.1

Compute the exponentially smoothed forecast with a = .40 the adjusted exponential smoothing
forecast with α = 0.40 and β = 0.30 and the linear trend line forecast. Compare the accuracy of
the three forecasts, using cumulative error and MAD, and indicate which forecast appears to be
most accurate.

Question 4

Emily Andrews has invested in a science and technology mutual fund. Now she is considering
liquidating and investing in another fund. She would like to forecast the price of the science and
technology fund for the next month before making a decision. She has collected the following
data on the average price of the fund during the past 20 months:
Month Fund Price
1 $ 63 1/4
2 60 1/8
3 61 3/4
4 64 1/4
5 59 3/8
6 57 7/8
7 62 1/4
8 65 1/8
9 68 1/4
10 65 1/2
11 68 1/8
12 63 1/4
13 64 3/8
14 68 5/8
15 70 1/8
16 72 3/4
17 74 1/8
18 71 3/4
19 75 1/2
20 76 ¾

a. Using a 3-month average, forecast the fund price for month 21.
b. Using a 3-month weighted average with the most recent month weighted 0.60, the next
most recent month weighted 0.30, and the third month weighted 0.10, forecast the fund
price for month 21.
c. Compute an exponentially smoothed forecast, using alpha = .40, and forecast the fund
price for month 21.
d. Compare the forecasts in (a), (b), and (c), using MAD, and indicate the most accurate.

Question 5

The manager of the Ramona Inn Hotel near Cloverleaf Stadium believes that how well the local
Blue Sox professional baseball team is playing has an impact on the occupancy rate at the
hotel during the summer months. Following are the number of victories for the Blue Sox (in a
162-game schedule) for the past 8 years and the hotel occupancy rates:

Year Blue Sox Wins Occupancy Rate (%)

1 75 83
2 70 78
3 85 86
4 91 85
5 87 89
6 90 93
7 87 92
8 67 91
Develop a linear regression model for these data and forecast the occupancy rate for next year if
the Blue Sox win 88 games.

Question 6

The manager of Gilley’s Ice Cream Parlor needs an accurate forecast of the demand for ice
cream. The store orders ice cream from a distributor a week ahead; if the store orders too little,
it loses business, and if it orders too much, the extra must be thrown away. The manager believes
that a major determinant of ice cream sales is temperature (i.e., the hotter the weather, the more
ice cream people buy). Using an almanac, the manager has determined the average daytime
temperature for 10 weeks, selected at random, and from store records he has determined the ice
cream consumption for the same 10 weeks. These data are summarized as follows:

Average Temperature Ice Cream Sold

Week (degrees) (gal.)

1 73 110
2 65 95
3 81 135
4 90 160
5 75 97
6 77 105
7 82 120
8 93 175
9 86 140
10 79 121

a. Develop a linear regression model for these data and forecast the ice cream consumption
if the average weekly daytime temperature is expected to be 85 degrees.
b. Determine the strength of the linear relationship between temperature and ice cream
consumption by using correlation.