`Practice Problems: Chapter 4, Forecasting

Problem 1:
Auto sales at Carmens Chevrolet are shown below. Develop a 3-week moving average.

Week

Auto Sales

10

11

10

13

Problem 2:
Carmens decides to forecast auto sales by weighting the three weeks as follows:

Weights Applied

Period

Last week

Two weeks ago

Three weeks ago

Total

Problem 3:
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Ft Ft 1 ( At 1 Ft 1 ) 500 0.1(450 500) 495 units

A firm uses simple exponential smoothing with 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 are
examined, 0.8 and 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 Battery Sales

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 2003 sales.

Year

Sales (Units)

1996

100

1997

110

1998

122

1999

130

2000

139

2001

152

2002

164

To minimize computations, transform the value of x (time) to simpler numbers. In this

case, designate year 1996 as year 1, 1997 as year 2, etc.

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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 Demand

Actual Demand

78

71

75

80

83

101

84

84

88

60

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 years sales and the sales for each quarter.

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ANSWERS:
Problem 1:

Moving average

demand in previous n periods

n

Week

Auto Sales

10

11

(8 + 9 + 10) / 3 = 9

10

(10 + 9 + 11) / 3 = 10

13

(9 + 11 + 10) / 3 = 10

(11 + 10 + 13) / 3 = 11 1/3

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Three-Week Moving Average

Problem 2:

Weighted moving average

(weight for period n)(demand in period n)

weights

Week

Auto
Sales

Three-Week Moving Average

10

11

[(3*9) + (2*10) + (1*8)] / 6 = 9 1/6

10

[(3*11) + (2*9) + (1*10)] / 6 = 10 1/6

13

[(3*10) + (2*11) + (1*9)] / 6 = 10 1/6

[(3*13) + (2*10) + (1*11)] / 6 = 11 2/3

Problem 3:
Ft Ft 1 ( At 1 Ft 1 ) 500 0.1(450 500) 495 units

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Problem 4:

Month

Actual
Battery Sales

Rounded
Forecast for
=0.8

Absolute
Deviation
for =0.8

Rounded
Forecast for
=0.5

Absolute
Deviation
for =0.5

January

20

22

22

February

21

20

21

March

15

21

21

April

14

16

18

May

13

14

16

June

16

13

14.5

1.5

= 15

= 16

2.56

2.67

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

= 0.5 because it has a smaller MAD.

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Problem 5:
Year

Time Period (X)

Sales (Units) (Y)

X2

XY

1996

100

100

1997

110

220

1998

122

366

1999

130

16

520

2000

139

25

695

2001

152

36

912

2002

164

49

1148

X = 28

Y =917

X2=140

XY = 3961

x 28 4

y 917 131

xy nxy 3961 (7)(4)(131) 293 10.46

140 (7)(4 )
28
x nx
2

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 2003, we denote the year 2003 as x = 8, and:

Sales in 2003 89.16 10.46*8 172.84
Problem 6:

Year

Forecast
Demand

Actual
Demand

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Error

RSFE

MAD =

78

71

-7

-7

75

80

-2

83

101

18

16

84

84

16

88

60

-28

-12

85

73

-12

-24

Forecast errors 70 11.7

n

Year

Forecast
Demand

Actual
Demand

|Forecast Error|

Cumulative
Error

MAD

Tracking
Signal

78

71

7.0

-1.0

75

80

12

6.0

-0.3

83

101

18

30

10.0

+1.6

84

84

30

7.5

+2.1

88

60

28

58

11.6

-1.0

85

73

12

70

11.7

-2.1

Tracking Signal =

RFSE 24

2.1 MADs
MAD 11.7

Problem 7:

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Equally dividing the annual sales of 10,000 units over the four seasons:
10,000/4 = 2,500
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 = 0.8

Winter

1,000/2,500 = 0.4

Problem 8:

. 11,000).
Next years sales should be 11,000 pumps (10,000 * 110
Sales for each quarter should be 1/4 of the annual sales times the quarterly index
computed in Problem 7.
Spring

(11,000/4) * 1.6 = 4,400

Summer

(11,000/4) * 1.2 = 3,300

Fall

(11,000/4) * 0.8 = 2,200

Winter

(11,000/4) * 0.4 = 1,100

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