Practice Problems: Chapter 4, Forecasting

Problem 1: Auto sales at Carmens Chevrolet are shown below. Develop a 3-week moving average. Week Auto Sales 8 10 9 11 10 13 -

1 2 3 4 5 6 7

Problem 2: Carmens decides to forecast auto sales by weighting the three weeks as follows: Weights Applied 3 2 Period

Last week Twoweeks ago Three weeks ago

6 Problem 3:

Total

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 Forecast Battery Sales 20 22

January

February 21 March April May June 15 14 13 16

Problem: 5 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: 6 Using the data in Problem 5, Meredith and Smunt Manufacturing expects sales of pumps to grow by 10% next year. Compute next years sales and the sales for each quarter.

ANSWERS: Problem 1: Moving average = Week Auto Sales 8 10 9 11 10 13 (8 + 9 + 10) / 3 = 9 (10 + 9 + 11) / 3 = 10 (9 + 11 + 10) / 3 = 10 (11 + 10 + 13) / 3 = 11 1/3

demand in previous n periods

n Moving

Three-Week Average

1 2 3 4 5 6 7

Problem 2: Weighted moving average =

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

Week

Auto Sales 8 10 9 11 10 13 -

Three-Week Moving Average

1 2 3 4 5 6 7

[(3*9) + (2*10) + (1*8)] / 6 = 9 1/6 [(3*11) + (2*9) + (1*10)] / 6 = 10 1/6 [(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 + ( A t 1 Ft 1 ) = 500 + 0.1( 450 500) = 495 units

Problem 4: Month Actual Rounded Battery Sales Forecast with a =0.8 20 21 15 14 13 16 22 20 21 16 14 13 Absolute Deviation with a =0.8 2 1 6 2 1 3 Rounded Forecast with a =0.5 22 21 21 18 16 14.5 Absolute Deviation with a =0.5 2 0 6 4 3 1.5

January February March April May June

S = 15 2.56

S = 16 2.95

SE

3.5

3.9

On the basis of this analysis, a smoothing constant of a = 0.8 is preferred to that of a = 0.5 because it has a smaller MAD. Problem 5: 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 6: . = 11,000). Sales for each quarter Next years sales should be 11,000 pumps (10,000 * 110 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.