Unit 2

Management of Conversion System

Chapter 3: Forecasting
Lesson 8 – Tutorial 2

Questions for Discussion

1. What is the difference between dependent and independent demand?
2. Suggest which model you might use for (a) demand for new houses,
(b) electrical power usage, (d) new plant expansion plans.
3. What is the logic in the least squares method of linear regression
analysis?
4. Give some very simple rules you might use to manage demand for a
firm’s product.
5. From the choice of simple moving average, weighted moving average,
exponential smoothing, and linear regression analysis, which
forecasting technique would you consider the most accurate? Why?
6. Historical demand for a product is:

Demand

January 12
February 11
March 15
April 12
May 16
June 15
(a) Using a weighted moving average with weights of 0.60, 0.30, and
0.10, find the July forecast.
(b) Using a simple three-month moving average, find the July forecast.
(c) Using single exponential smoothing with α = 0.2 and a June forecast
= 13, find the July forecast. Make whatever assumptions you wish.
(d) Using simple linear regression analysis, calculate the regression
equation for the preceding demand data.
(e) Using the regression equation in d, calculate the forecast for July.

7. A particular forecasting model was used to forecast a six-month

period. Here are the forecasts and actual demand that resulted:
 Forecast Actual
April 250 200
May 325 250
June 400 325
July 350 300
August 375 325
September 450 400

Find the tracking signal and state whether you think the model being used
is giving acceptable answers.

8. Raghav Jain, the new productions manager for Sound and Song, needs
to find out which variable most affects the demand for their line of
stereo speakers. He is uncertain whether the unit price of the product
or the effects of increased marketing are the main drivers in sales and
wants to use regression analysis to figure out which factor drives more
demand for their particular market. Pertinent information was
collected by an extensive marketing project that lasted over the past
10 years and was reduced to the data that follow:

Year Sales/Unit Price/Unit Advertising (Rs

(Thousands) in thousands)
1990 400 280 600
1991 700 215 835
1992 900 211 1100
1993 1300 210 1400
1994 1150 215 1200
1995 1200 200 1300
1996 900 225 900
1997 1100 207 1100
1998 980 220 700
1999 1234 211 900
2000 925 227 700
2001 800 245 690

(a) Perform a regression analysis based on these data using Excel. Answer
the following questions based on your results.
(b) Which variable, price or advertising, has a larger effect on sales and how
do you know?
(c ) Predict average yearly speaker sales for Sound and Song based on the
regression results if the price was Rs300 per unit and the amount spent on
advertising (in thousands) was Rs900