MGT613 inventory control Solved MCQS from book
Which of the following is a function of inventory?
a. to decouple or separate parts of the production process
b. to provide a stock of goods that will provide a selection for customers
c. to take advantage of quantity discounts
d. to hedge against inflation
e. all of the above are functions of inventory
2. Which of the following would not generally be a motive for a firm to hold inventories?
a. to decouple or separate parts of the production process
b. to provide a stock of goods that will provide a selection for customers
c. to take advantage of quantity discounts
d. to minimize holding costs
3. All of the following statements about ABC analysis are true except
a. inventory may be categorized by measures other than dollar volume
b. it categorizes on-hand inventory into three groups based on annual dollar volume
c. it is an application of the Pareto principle
d. it states that all items require the same degree of control
e. it states that there are the critical few and the trivial many inventory items
4. ABC analysis is based upon the principle that
a. all items in inventory must be monitored very closely
b. there are usually a few critical items, and many items which are less critical
c. an item is critical if its usage is high
d. the safety stock in terms of volume should be higher for A items than for C items
5. Which of the following statements about ABC analysis is false?
a. ABC analysis is based on the presumption that controlling the few most important items produces the
vast majority of inventory savings.
b. In ABC analysis, "A" Items are tightly controlled, have accurate records, and receive regular review
by major decision makers.
c. In ABC analysis, "C" Items have minimal records, periodic review, and simple controls.
d. ABC analysis is based on the presumption that all items must be tightly controlled to produce
important cost savings.
6. ABC analysis divides on-hand inventory into three classes, generally based upon
a. item quality
b. unit price
c. the number of units on hand
d. annual demand
e. annual dollar volume
7. Cycle counting
a. is a process by which inventory records are verified once a year
b. provides a measure of inventory accuracy
c. provides a measure of inventory turnover
d. assumes that all inventory records must be verified with the same frequency 2
8. Among the advantages of cycle counting is that it
a. does not need to be performed for less expensive items
b. does not require the detailed inventory records necessary when annual physical inventory is used
c. does not require highly trained people
d. allows more rapid identification of errors and consequent remedial action than is possible with annual
physical inventory
9. The two most basic inventory questions answered by the typical inventory model are
a. timing and cost of orders
b. quantity and cost of orders
c. timing and quantity of orders
d. order quantity and service level
10. A certain type of computer costs $1,000, and the annual holding cost is 25%. Annual demand is 10,000 units,
and the order cost is $150 per order. What is the approximate economic order quantity?
a. 70
b. 110
c. 250
d. 12,000
11. Most inventory models attempt to minimize
a. the likelihood of a stockout
b. the number of items ordered
c. total inventory based costs
d. the number of orders placed
12. In the basic EOQ model, if the cost of placing an order doubles, and all other values remain constant,
the EOQ will
a. increase by about 41%
b. increase by 100%
c. increase by 200%
d. either increase or decrease
13. In the basic EOQ model, if D = 6,000 per year, S = $100, H = $5 per unit per month, the Economic
Order Quantity is approximately
a. 527
b. 100
c. 490
d. 142
14. Which of the following statements about the basic EOQ model is true?
a. If the ordering cost were to double, the EOQ would rise.
b. If annual demand were to double, the EOQ would increase.
c. If the carrying cost were to increase, the EOQ would fall.
d. All of the above statements are true.
15. Which of the following statements about the basic EOQ model is false?
a. If the setup cost were to decrease, the EOQ would fall.
b. If annual demand were to increase, the EOQ would increase.
c. If the ordering cost were to increase, the EOQ would rise.
d. If annual demand were to double, the EOQ would also double. 3
16. A product whose EOQ is 40 experiences a decrease in ordering cost from $90 per order to $10. The revised
EOQ is
a. three times as large
b. one-third as large
c. nine times as large
d. one-ninth as large
17. A product whose EOQ is 400 experiences a 50% increase in demand. The new EOQ is
a. unchanged
b. increased by less than 50%
c. increased by 50%
d. increased by more than 50%
18. For a certain item, the cost-minimizing order quantity obtained with the basic EOQ model was 200 units
and the total annual inventory cost was $600. The inventory carrying cost per unit per year for this item is
a. $1.50
b. $3.00
c. $2.00
d. $6.00
19. A product has demand of 4,000 units per year. Ordering cost is $20 and holding cost is $4 per unit per year.
The EOQ model is appropriate. The cost-minimizing solution for this product will cost _____ per year in total
annual inventory costs.
a. $400
b. $800
c. $1,200
d. $16,000
20. A product has demand of 4,000 units per year. Ordering cost is $20 and holding cost is $4 per unit per year.
The cost-minimizing solution for this product is to order
a. all 4,000 units at one time
b. 200 units per order
c. 1000 units per order
d. 400 units per order
21. The EOQ model with quantity discounts attempts to determine
a. what is the lowest amount of inventory necessary to satisfy a certain service level
b. what is the lowest purchasing price
c. whether to use fixed-quantity or fixed period order policy
d. how many units should be ordered
22. An inventory decision rule states "when the inventory level goes down to 14 gearboxes, 100 gearboxes will
be ordered." Which of the following statements is true?
a. 100 is the reorder point, and 14 is the order quantity.
b. 14 is the reorder point, and 100 is the order quantity.
c. The number 100 is a function of demand during lead time.
d. 14 is the safety stock, and 100 is the reorder point.
23. Which of the following statements regarding the Production Order Quantity model is true?
a. It applies only to items produced in the firm's own production departments.
b. It relaxes the assumption that all the order quantity is received at one time.
c. It relaxes the assumption that the demand rate is constant.
d. It minimizes the total production costs. 4
24. The Production Order Quantity model
a. relaxes the assumption of known and constant demand
b. uses Ordering Cost, not Setup Cost, in its formula
c. is appropriate when units are sold/used as they are produced
d. results in larger average inventory than an equivalent EOQ model
25. When quantity discounts are allowed, the cost-minimizing order quantity
a. minimizes the sum of holding and ordering costs
b. minimizes the unit purchase price
c. may be a quantity below that at which one qualifies for that price
d. minimizes the sum of holding, ordering, and product costs
26. A specific product has expected demand during lead time of 100 units, with a standard deviation of 25
units. What safety stock (approximately) provides a 95% service level?
a. 41
b. 55
c. 133
d. 140
27. Demand for dishwasher water pumps is 8 per day. The standard deviation of demand is 3 per day, and the
order lead time is four days. The service level is 95%. What should the reorder point be?
a. about 18
b. about 24
c. about 32
d. about 33
e. more than 35
28. The purpose of safety stock is to
a. replace failed units with good ones
b. eliminate the possibility of a stockout
c. eliminate the likelihood of a stockout due to erroneous inventory tally
d. control the likelihood of a stockout due to the variability of demand during lead time
29. The proper quantity of safety stock is typically determined by
a. minimizing an expected stockout cost
b. carrying sufficient safety stock so as to eliminate all stockouts
c. meeting 95% of all demands
d. setting the level of safety stock so that a given stockout risk is not exceeded
30. If demand is not uniform and constant, then stockout risks can be controlled by
a. increasing the EOQ
b. placing an extra order
c. raising the selling price to reduce demand
d. adding safety stock
31. A disadvantage of the fixed-period inventory system is that
a. it involves higher ordering costs than the fixed quantity inventory system
b. additional inventory records are required
c. the average inventory level is decreased
d. since there is no count of inventory during the review period, a stockout is possible 5
Chapter 12: Multiple Choice Answers
1. e
2. d
3. d
4. b
5. d
6. e
7. b
8. d
9. c
10. b
11. c
12. a
13. d
14. d
15. d
16. b
17. b
18. d
19. b
20. b
21. d
22. b
23. b
24. c
25. d
26. a
27. e
28. d
29. d
30. d
31. d
MGT613 MCQs from Lesson 1-13 Solved by Mehreen
Humayun
Production Operations Management - MGT613
Lecture no.01 to 13
Solved by vuZs Team
Mehreen Humayun
www.vuzs.info
In terms of operations management the forecast which projects a company’s sales is called:
Economic forecast (http://www.vuzs.info/extra-notes/176-mgt613-production-operations-management/4831-test-
ref.html#myref)
Technological forecast
Demand forecast
Associative model
Ref:
Demand forecasting is the activity of estimating the quantity of a product or service that consumers will
purchase. A demand forecast is the prediction of what will happen to your company's existing product sales.
In which one of the following techniques, the least squares method models uses one
dependent and one or more independent variables?
Trend adjusted forecast
Simple moving average
Regression analysis
Exponential smoothing
Regression analysis that uses two or more independent variables to forecast values of the
dependent variable is called a multiple regression analysis.
(http://www.referenceforbusiness.com/encyclopedia/Fa-For/Forecasting.html)
The operational strategy must be in line with the:
Department goals
Organizational goals
Management goals
None of the above
Operational Strategy is:
Narrower in scope and in more detail
Prepared by middle management.
Should be in line with the Organization strategy.
Which one of the following strategies specifies how the firm will employ its production capabilities to support its
corporate strategy?
Tactical
Operations
Manufacturing
Production
Ref:
Operations Management is concerned with managing the operations strategy, which specifies how the firm will
employ its production capabilities to support its corporate strategy.
The systematic processing of data to yield information is a part of __________.
Management science
Information sciences
Industrial engineering
Scientific management
Collaborative Planning, Forecasting, and Replenishment (CPFR) a Web based tool used to coordinate
demand forecasting, ____________ and inventory replenishment between supply chain trading partners.
Production and purchase planning
Demand and supply planning
Quantitative forecasting
Demand management
Collaborative Planning, Forecasting, and Replenishment (CPFR) a Web-based tool used to coordinate
demand forecasting, production and purchase planning, and inventory replenishment between supply chain
trading partners. You will learn about this in your later part of the semester.
www.vuzs.info (http://www.vuzs.info)
Parabolic, exponential and growth are element of:
Linear trends
Non linear Trends (http://www.vuzs.info/extra-notes/176-mgt613-production-operations-
management/4830-mgt613-common-nonlinear-trends.html)
Forecast accuracy
None of the above
Which of the following ensures that the design meets the performance characteristics that are specified in the
product concept?
Functional design
Production design
Service design
Product design
Functional design is ensuring that the design meets the performance characteristics that are specified in the
product concept.
The forecasting time horizon that would typically be easiest to predict would be:
Medium-range
Long-range
Short-range
Intermediate range
Most of the organizations adopt a defensive design R&D Strategy in an attempt to prolong the life of the
product by employing new packaging, redesigning it, improving its reliability. This is __________ phase in
product life cycle.
Growth
Maturity
Saturation
Decline
DECLINE: In this phase, most of the organizations adopt a defensive design R&D Strategy in an attempt to
prolong the life of the product by employing new packaging, redesigning it, improving its reliability.
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The three major business functions necessary to all organizations are:
Accounting, personnel, operations
Marketing, finance/accounting, operations
Marketing, accounting, personnel
Marketing, finance, operations
As the time horizon increases the accuracy of the forecast:
Decreases
Increases
Is not affected with time horizon
None of the above
Forecast accuracy decreases as time horizon increases indicating it is safe to make short range forecasts
instead of long term forecasts.
Four important pillars capital, quality, ________ and technology. are responsible for positively as well as
negatively affecting on the Productivity of the organization.
Customers
Process
System
Management
Productivity stands tall on four important pillars of Capital, Quality, Management and Technology. These pillars
are also responsible for positively as well as negatively affecting the Productivity of the Organization.
Releasing products with defects should be informed to the customers. This statement comes under ______
frame work.
Legal
Ethical
Environmental
None of the above
Ethical: Operations Manager should understand that he is under Contractual agreement not to exhibit
unethical behavior. Releasing products with defects should be informed to the customers.
Sequence of data points that are measured typically at successive times at regular time intervals is known as:
Moving average
Weighted moving average
Time series
Forecasts
In statistics (http://en.wikipedia.org/wiki/Statistics), signal processing
(http://en.wikipedia.org/wiki/Signal_processing), econometrics (http://en.wikipedia.org/wiki/Econometrics) and
mathematical finance (http://en.wikipedia.org/wiki/Mathematical_finance), a time series is a sequence of data
points (http://en.wikipedia.org/wiki/Data_point), measured typically at successive times spaced at uniform time
intervals.
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Planning workforce requirements, scheduling of the equipment and financial analysis are the major uses
of__________.
Productivity ratios
Productivity Growth
Multifactor productivity
Operations strategy
Which one of the following is not a step of decision process:
Specify objectives
Determine the product of chance probabilities
Analyze and select alternative
Implement and monitor the result
The forecasting time horizon that would typically be easiest to predict would be:
Medium-range
Long-range
Short-range
Intermediate range
_____ means that the relevant parameters such as cost, capacity and demand have known values.
Risk
Certainty
Uncertainty
None of above
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The forecasting model that is based upon estimates of salesperson's expected sales is likely to be called
________.
Delphi method
Sales force combination
Consumer market survey
Panel of executive opinion
Completion of any operations depends upon the slowest process in the assembly line. What operations
managers need to do in order to be successful?
Target and eliminate bottlenecks
Identify the bottlenecks
Make slowest process more slow
Non of the above
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MGT613 Online Quiz - Production and operations
management - solved mcqs
MGT613 Online Quiz Shared by Usman Aslam(R)
www.vuzs.info
By usman aslam
Solved BY vuZs Solution team
Re-checked by Eemaan Khan
Question # 1
Which ONE of the following forms a bridge between two islands of Engineering and Management?
Production Engineering
Operations Management
Industrial Management
Operations Engineering
Question # 2
Which of the following forecasting techniques induce personal bias in a forecast?
Qualitative
Quantitative
Associative
Trend forecast
Question # 3
Which of the following is NOT an attribute to classify services?
Tangibility
Perishability
Simultaneity
Degree of customer contact
Which of the following forecasting technique is used when introducing new products, services, new features and
new packaging?
Quantitative technique
Associative model
Focus group
Judgmental forecast
Question # 5
Services differ from manufacturing in all the following ways EXCEPT:
Customers typically interact directly with the service delivery process
Consumption and production take place simultaneously.
Services are intangible.
Services can be stored
REF:production and consumption takes place at about the same time. This is a characteristic of Service Sector.
Question # 6
Organizational strategy is different from operations strategy because it is;
Prepared by middle managers
Narrower in scope
Longer in time horizon
All of the above
Question # 8
Which one of the following forms of productivity has units of output per dollar input?
Capital
Energy
Labor
Machine
Question # 9
Which one of the following refers to a decision environment in which relevant parameters have known values?
Certainty
Uncertainty
Risk
Bounded rationality
Question # 10
Which one the following formula or function can be used to measure the performance?
Flexibility + profit+ operations
Work + profit + value
Quality + speed + flexibility
Profit + Incentives + standards
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Question # 11
All of the following are examples of Qualitative forecasting except:
Judgmental
Delphi Method
Consumer Survey
Naïve Forecasting
Question # 12
Characteristics like taste, feel, expertise, image or reputation relates to -----------.
Subjective inputs
Objective inputs
Quantitative technique
None of the given options
Question # 13
Materials, land, energy and human and capital resources are the examples of:
Inputs
Transformation
Outputs
Productivity
Question # 14
Forecasts help managers by reducing the degree of:
Accuracy
Precision
Uncertainty
Reliability
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Question # 1
Techniques having numerical data include which of the following?
Subjective inputs
Qualitative technique
Quantitative technique
Delphi method
Question # 2
To make operations strategy effective it should be:
Independent of the organization’s strategy
Consistent with the organization’s strategy
Developed by a first line manager
Independent of time dimension
Question # 3
Which one of the following forecasting techniques is used to identify a trend when data is neither growing nor declining
rapidly and has no seasonal characteristics.
Simple moving average
Delphi method
Trend adjusted forecast
Naïve forecast
Ref:The Moving Average model takes the average of several periods of data; the result is a dampened or smoothed data
set; use this model when demand is stable and there is no evidence of a trend or seasonal pattern. www.shmula.com
Question # 7
All of the following are examples of transformation process EXCEPT:
Cutting
Packing
Facilitating
Labeling
Question # 8
A tool to measure effective use of resources and usually expressed as the ratio of output to input is known as;
Production ratio
Productivity
Reliability
Operations ratio
Question # 9
Following are all examples of distinctive competencies EXCEPT;
Price
Quality
Planning
Flexibility
Question # 10
Which of the following statements corresponds to an order-winning characteristic?
A factor which may be significant in other parts of the organization
A factor which gives an organization a competitive edge
A factor which serves as a minimum standard for purchase
A factor which increases the profitability of the organization
Question # 12
Which one of the following is NOT used for decision making under uncertainty?
Maximax
Mmaximin
Mminimax regret
EMV criterion
Question # 1
Which one of the following formulae can be used to compute value?
(Quality + Speed – Flexibility) / Cost
(Quality + Speed+ Flexibility) / Cost
(Quality + Speed - Cost) / Flexibility
(Quality + Speed+ Cost) / Flexibility
Question # 2
The role of a -------------- manager is to sustain, protect, and project the company’s operations side.
Project Manager
Operations Manager
Finance Manager
Marketing Manager
Question # 3
Which of the following provide guidance and directions for carrying out operations?
Tactics
Strategies
Policies
Mission
Question # 4
Techniques having numerical data include which of the following?
Subjective inputs
Qualitative technique
Quantitative technique
Delphi method
Question # 5
Which one of the following factors makes a forecast LESS perfect?
Randomness
Non serious attitude
Non availability of data
Un qualified personnel
Question # 6
Within the operations function, which one of the following is a long-term management decision?
Control decision
Non-operational decision
Strategic decision
Tactical decision
Question # 10
Which one of the following is NOT a business application of forecasting?
Budgeting
Capacity planning
Inventory management
Quality control
Question # 11
Which one of the following forecasts is quick and easy to prepare?
Time series
Delphi
Naïve
Associative
Question # 15
Which one of the following reasons account for using moving average in forecasting?
It eliminates the trend
It smoothes the random fluctuations
It counteracts the seasonal variations
It approximates the period average
Reference:
(http://www.shmula.com/308/forecasting-unweighted-and-weighted-moving-average-model)
Question # 1
In which one of the following decision environments it is impossible to assess the likelihood of various future
events?
Certainty
Uncertainty
Risk
Bounded rationality
Question # 2
Which one of the following correctly represents a set of time series forecats?
Averaging, cycle, seasonality, random variations
Trend, seasonality, exponential smoothing
Trend, cycle, seasonality, moving average
Trend, cycle, seasonality, random variations
Question # 3
Which one of the following is an implication of laplace approach of decision making?
The best of the worst possible payoff
The best possible payoff
The best average payoff
The least of the worst regrets
MGT613 Operation Management Test Bank Solved MCQS
Chapert 3a by William Stevenson
MGT613 Operation Management Test Bank Solved MCQS Chapert 3a by William Stevenson
Forcasting
1. Forecasting techniques generally assume an existing causal system that will continue to exist in the future.
TRUE
Forecasts depend on the rules of the game remaining reasonably constant.
2. For new products in a strong growth mode, a low alpha will minimize forecast errors when using exponential
smoothing techniques.
FALSE
If growth is strong, alpha should be large so that the model will catch up more quickly.
3. Once accepted by managers, forecasts should be held firm regardless of new input since many plans have been
made using the original forecast.
FALSE
Flexibility to accommodate major changes is important to good forecasting.
4. Forecasts for groups of items tend to be less accurate than forecasts for individual items because forecasts for
individual items don't include as many influencing factors.
FALSE
Forecasting for an individual item is more difficult than forecasting for a number of items.
5. Forecasts help managers plan both the system itself and provide valuable information for using the system.
TRUE
Both planning and use are shaped by forecasts.
6. Organizations that are capable of responding quickly to changing requirements can use a shorter forecast
horizon and therefore benefit from more accurate forecasts.
TRUE
If an organization can react quicker, its forecasts need not be so long term.
7. When new products or services are introduced, focus forecasting models are an attractive option.
FALSE
Because focus forecasting models depend on historical data, they're not so attractive for newly introduced products or
services.
8. The purpose of the forecast should be established first so that the level of detail, amount of resources, and
accuracy level can be understood.
TRUE
All of these considerations are shaped by what the forecast will be used for.
9. Forecasts based on time series (historical) data are referred to as associative forecasts.
FALSE
Forecasts based on time series data are referred to as time-series forecasts.
10. Time series techniques involve identification of explanatory variables that can be used to predict future
demand.
FALSE
Associate forecasts involve identifying explanatory variables.
11. A consumer survey is an easy and sure way to obtain accurate input from future customers since most people
enjoy participating in surveys.
FALSE
Most people do not enjoy participating in surveys.
12. The Delphi approach involves the use of a series of questionnaires to achieve a consensus forecast.
TRUE
A consensus among divergent perspectives is developed using questionnaires.
13. Exponential smoothing adds a percentage (called alpha) of last period's forecast to estimate next period's
demand.
FALSE
Exponential smoothing adds a percentage to the last period's forecast error.
14. The shorter the forecast period, the more accurately the forecasts tend to track what actually happens.
TRUE
Long-term forecasting is much more difficult to do accurately.
15. Forecasting techniques that are based on time series data assume that future values of the series will duplicate
past values.
FALSE
Time-series forecast assume that future patterns in the series will mimic past patterns in the series.
16. Trend adjusted exponential smoothing uses double smoothing to add twice the forecast error to last period's
actual demand.
FALSE
Trend adjusted smoothing smoothes both random and trend-related variation.
17. Forecasts based on an average tend to exhibit less variability than the original data.
TRUE
Averaging is a way of smoothing out random variability.
18. The naive approach to forecasting requires a linear trend line.
FALSE
The naïve approach is useful in a wider variety of settings.
19. The naive forecast is limited in its application to series that reflect no trend or seasonality.
FALSE
When a trend or seasonality is present, the naïve forecast is more limited in its application.
20. The naive forecast can serve as a quick and easy standard of comparison against which to judge the cost and
accuracy of other techniques.
TRUE (http://www.vuzs.info/)
Often the naïve forecast performs reasonably well when compared to more complex techniques.
21. A moving average forecast tends to be more responsive to changes in the data series when more data points
are included in the average.
FALSE
More data points reduce a moving average forecast's responsiveness.
22. In order to update a moving average forecast, the values of each data point in the average must be known.
TRUE
The moving average cannot be updated until the most recent value is known.
23. Forecasts of future demand are used by operations people to plan capacity.
TRUE
Capacity decisions are made for the future and therefore depend on forecasts.
24. An advantage of a weighted moving average is that recent actual results can be given more importance than
what occurred a while ago.
TRUE
Weighted moving averages can be adjusted to make more recent data more important in setting the forecast.
25. Exponential smoothing is a form of weighted averaging.
TRUE
The most recent period is given the most weight, but prior periods also factor in.
26. A smoothing constant of .1 will cause an exponential smoothing forecast to react more quickly to a sudden
change than a smoothing constant value of .3.
FALSE
Smaller smoothing constants result in less reactive forecast models.
27. The T in the model TAF = S+T represents the time dimension (which is usually expressed in weeks or months).
FALSE
The T represents the trend dimension. (http://www.vuzs.info/)
28. Trend adjusted exponential smoothing requires selection of two smoothing constants.
TRUE
One is for the trend and one is for the random error.
29. An advantage of "trend adjusted exponential smoothing" over the "linear trend equation" is its ability to adjust
over time to changes in the trend.
TRUE
A linear trend equation assumes a constant trend; trend adjusted smoothing allows for changes in the underlying trend.
30. A seasonal relative (or seasonal indexes) is expressed as a percentage of average or trend.
TRUE
Seasonal relatives are used when the seasonal effect is multiplicative rather than additive.
31. In order to compute seasonal relatives, the trend of past data must be computed or known which means that for
brand new products this approach can't be used.
TRUE
Computing seasonal relatives depends on past data being available.
32. Removing the seasonal component from a data series (de-seasonalizing) can be accomplished by dividing each
data point by its appropriate seasonal relative.
TRUE
Deseasonalized data points have been adjusted for seasonal influences.
33. If a pattern appears when a dependent variable is plotted against time, one should use time series analysis
instead of regression analysis.
TRUE
Patterns reflect influences such as trends or seasonality that go against regression analysis assumptions.
34. Curvilinear and multiple regression procedures permit us to extend associative models to relationships that are
non-linear or involve more than one predictor variable.
TRUE
Regression analysis can be used in a variety of settings.
35. The sample standard deviation of forecast error is equal to the square root of MSE.
TRUE
The MSE is equal to the sample variance of the forecast error.
36. Correlation measures the strength and direction of a relationship between variables.
TRUE
The association between two variations is summarized in the correlation coefficient.
37. MAD is equal to the square root of MSE which is why we calculate the easier MSE and then calculate the more
difficult MAD.
FALSE
MAD is the mean absolute deviation.
38. In exponential smoothing, an alpha of 1.0 will generate the same forecast that a naïve forecast would yield.
TRUE
With alpha equal to 1 we are using a naïve forecasting method.
39. A forecast method is generally deemed to perform adequately when the errors exhibit an identifiable pattern.
FALSE
Forecast methods are generally considered to be performing adequately when the errors appear to be randomly distributed.
40. A control chart involves setting action limits for cumulative forecast error.
FALSE
Control charts set action limits for the tracking signal.
41. A tracking signal focuses on the ratio of cumulative forecast error to the corresponding value of MAD.
TRUE
Large absolute values of the tracking signal suggest a fundamental change in the forecast model's performance.
42. The use of a control chart assumes that errors are normally distributed about a mean of zero.
TRUE
Over time, a forecast model's tracking signal should fluctuate randomly about a mean of zero.
43. Bias exists when forecasts tend to be greater or less than the actual values of time series.
TRUE
A tendency in one direction is defined as bias.
44. Bias is measured by the cumulative sum of forecast errors.
TRUE
Bias would result in the cumulative sum of forecast errors being large in absolute value.
45. Seasonal relatives can be used to de-seasonalize data or incorporate seasonality in a forecast.
TRUE
Seasonal relatives are used to de-seasonalize data to forecast future values of the underlying trend, and they are also used
to re-seasonalize de-seasonalized forecasts.
46. The best forecast is not necessarily the most accurate.
TRUE
More accuracy often comes at too high a cost to be worthwhile. (http://www.vuzs.info/)
47. A proactive approach to forecasting views forecasts as probable descriptions of future demand, and requires
action to be taken to meet that demand. http://www.vuzs.info (http://www.vuzs.info/)
FALSE
Proactive approaches involve taking action to influence demand.
48. Simple linear regression applies to linear relationships with no more than three independent variables.
FALSE
Simple linear regression involves only one independent variable.
49. An important goal of forecasting is to minimize the average forecast error.
FALSE
Regardless of the model chosen, so long as there is no fundamental bias average forecast error will be zero.
50. Forecasting techniques such as moving averages, exponential smoothing, and the naive approach all represent
smoothed (averaged) values of time series data.
FALSE
The naïve approach involves no smoothing.
51. In exponential smoothing, an alpha of .30 will cause a forecast to react more quickly to a large error than will an
alpha of .20.
TRUE
Larger values for alpha result in more responsive models.
See Also
