OM5 C11
Test Bank
27. Judgmental forecasting should only be used if no historical data are available.
28. The Delphi method is a forecasting approach that is based on expert opinion.
29. Aggregate forecasts are generally much easier to develop whereas detailed forecasts require
more time and resources.
30. In practice, managers rely almost exclusively on statistical forecasts.
Case Study Questions (To reward students who attend class, listen and learn, and take good
class notes on the case discussion and/or student team presentation.)
1. Which one of the following statements is TRUE?
a. The longer the moving average period (k), the better the forecasts for these case data.
b. A simple exponential smoothing alpha value equal to 0.01 provided the best forecast for these
case data.
c. Service management skills are required for good customer service representative (CSR)
performance.
d. The customers of the BankUSA Help Desk were residential, external customers.
Problems for Manual Grading, Take-Home Exams and Partial Credit (Also, review the OM
Instructor’s Manual for end-of-chapter questions/problems)
1. Explain how forecasting is used at different levels of an organization.
2. Discuss the three planning horizons used in forecasting and the types of decisions made in each.
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3. Define time series and its characteristics.
4. Define forecast error and describe its metrics.
5. Using the data shown below, compute the mean square error, mean absolute deviation, and
mean absolute percentage error for the forecasts shown.
Month
Forecast Demand
Actual Demand
April
170
180
May
225
215
June
210
200
July
260
240
OM5 C11
Test Bank
15
August
200
220
ANS:
6. Ed Rogers owns an appliance store. Sales data on a particular model of a DVD player for the
past six months are shown below along with the results of two different forecasting models that
were developed.
Month
Sales
Forecast 1
Jan
35
30
Feb
29
28
Mar
39
43
Apr
42
40
May
51
48
Jun
56
55
Which is the better forecasting model, based on the MAD criterion?
Month
Jan
35
Feb
29
Mar
39
Apr
42
May
51
Jun
56
7. Valentine’s Day is the best day of the year for selling roses at River Road Florist. Dozens of
roses sold on Valentine’s Day over six years are as follows:
Year
Dozen
2005
104
2006
109
2007
101
2008
114
2009
104
2010
100
OM5 C11
Test Bank
a.
What is the forecast for Valentine’s Day in 2011 using a three-period moving average?
b.
What is the forecast for Valentine’s Day in 2011 using a five-period moving average?
c.
What is the mean absolute deviation (MAD) for years 2008-2010 using a three-period moving
average?
d.
What is the tracking signal for years 2008-2010 using a three-period moving average?
ANS:
a.
F(2011) = (114 + 104 + 100)/3 = 106.00
b.
F(2011) = (109 + 101 + 114 + 104 + 100)/5 = 105.6
c.
F(2008) = (104 + 109 + 101)/3 = 104.67
F(2009) = (109 + 101 + 114)/3 = 108.00
F(2010) = (101 + 114 + 104)/3 = 106.33
MAD = (9.33 + 4.00 + 6.33)/3 = 6.55
d.
8. Community General Hospital finds itself treating many bicycle accident victims. Data from the
last seven 24-hour period is shown below:
Day
Bicycle Victims
1
6
2
8
3
4
4
7
5
9
6
9
7
7
a.
What is the forecast for day 4 using a moving average model with AP = 3?
b.
With an alpha value of 0.5 and a starting forecast in day 4 equal to the actual data, what is the
exponentially smoothed forecast for day 8?
c.
What is the mean absolute deviation (MAD) for days 5 to 7 for an exponentially smoothed
forecasting model with an alpha value of 0.5 and a starting forecast in day 4 equal to the actual
data?
d.
What is the tracking signal for days 5 to 7 for an exponentially smoothed forecasting model with
an alpha value of 0.5 and a starting forecast in day 4 equal to the actual data?
a.
ry)
= 26 + 0.5(26 – 26) = 26
F(March)
= 26 + 0.5(32 – 26) = 29
F(April)
= 29 + 0.5(34 – 29) = 31.5
9. A major biotechnology company has developed a new drug for arthritis victims using gene–
splicing technology. It has been on the market for five months and has experienced the following
sales (in thousands of dollars):
Month
Sales
January
26
February
32
March
34
April
34
May
36
a.
What is the exponential smoothing forecast for May assuming that January sales is also the initial
forecast, and the alpha value is 0.5?
b.
What is the exponential smoothing forecast for May assuming that January sales is also the initial
forecast, and the alpha value is 0.8?
c.
What is the mean absolute deviation (MAD) for exponentially smoothed forecasts for the months
March to May assuming that January sales is also the initial forecast, and the alpha value is 0.5?
d.
What is the MAD for exponentially smoothed forecasts for the months March to May assuming
that January sales is also the initial forecast, and the alpha value is 0.8?
e.
What is the tracking signal for exponentially smoothed forecasts for the months March to May
assuming that January sales is also the initial forecast, and the alpha value is 0.5?
f.
What is the tracking signal for exponentially smoothed forecasts for the months March to May
assuming that January sales value is 0.8?
F(Day 4) = (4 + 8 + 6)/3 = 6
b.
F(Day 5) = 7 + .5(7 – 7) = 7.00
F(Day 6) = 7 + .5(9 – 7) = 8.00
F(Day 7) = 8 + .5(9 – 8) = 8.50
F(Day 8) = 8.5 + .5(7 – 8.5) = 7.75
MAD = (2.0 + 1.0 + 1.5)/3 = 1.50
d.
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10. State Division of Motor Vehicles (DMV) statistics show the rate of new driver’s license
applications as shown below:
Month
Week
Applications
March
1
207
2
211
3
196
4
206
April
1
238
2
199
3
215
4
212
a.
Using a three-week moving average, what is the forecast for the first week in April?
b.
Using a four-week moving average, what is the forecast for the first week in April?
a.
F(April, 1) = (211 + 196 + 206)/3 = 613/3 = 204.33
b.
F(April, 1) = (207 + 211 + 196 + 206)/4 = 820/4 = 205
11. The following data represents the home mortgage loan interest rates at a local bank over an
eight-month period:
Month
Rate (%)
Month
Rate (%)
1
8.7
5
8.6
2
8.7
6
8.4
3
8.6
7
8.8
4
8.6
8
8.8
a.
What is the forecast for month 8 using a moving average model with k = 4?
b.
What is the forecast for month 9 using a moving average model with k = 6?
ANS:
F(March)
= 26 + 0.8(32 – 26) = 30.8
F(April)
= 30.8 + 0.8(34 – 30.8) = 33.36
F(May)
= 33.36 + 0.8(34 – 33.36) = 33.87
c.
MAD = (5+ 2.5 + 3.25)/3 = 10.75/3 = 3.58
d.
MAD = (3.2 + 0.64 + 2.13)/3 = 5.91/3 = 1.99
e.
TS = (3.25 + 5 + 2.5)/3.58 = 3.00
TS = (2.13 + 3.2 + 0.64)/1.99 = 3.00
OM5 C11
Test Bank
F(Day 8) = (8.8 + 8.4 + 8.6 + 8.6)/4 = 8.60
b.
F(Day 9) = (8.8 + 8.8 + 8.4 + 8.6 + 8.6 + 8.6)/6 = 8.63
12. The Espresso Cart had the following pattern of espresso sales over the last two weeks:
Week 1
Week 2
Monday
873
Monday
912
Tuesday
904
Tuesday
859
Wednesday
911
Wednesday
906
Thursday
887
Thursday
900
Friday
899
Friday
?
What is the forecast for Friday’s sales using a three-day moving average?
13. Based on the information shown below, develop forecasts for June using both a two-period
moving average model and an exponential smoothing model with α = 0.10. For the exponential
smoothing model, assume the forecast for February was 800.
Month
Actual Demand
February
850
March
900
April
975
May
950
14. Explain the difference between a moving average and single exponential smoothing
forecasting model.
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15. Sales of a new CD at a store for the last 4 weeks are shown below.
Week
1
2
3
4
Sales
112
105
125
118
a.
Find a three-period moving average forecast for the next week.
b.
Find a four-period moving average forecast for the next week.
c.
Actual sales for week 5 were 105 units. What would be the three- and four-period moving
average forecasts for week 6?
ANS:
a.
(105 + 125 + 118)/3 = 116
b.
(112 + 105 + 125 + 118)/4 = 115
c.
3-period: (125 + 118 + 105)/3 = 116
4-period: (105 + 125 + 118 + 105)/4 = 113.25
16. Ed Rogers owns an appliance store. Sales data on a particular model of a DVD player for the
past six months are:
Month
Sales
Jan
35
Feb
29
Mar
39
Apr
42
May
51
Jun
56
Forecast the sales for July using an exponential smoothing model with a smoothing constant of
0.40. Assume that the forecast for May was 36.25.
17. A nine-month simple moving average would approximately equate with what alpha (α) factor
for simple exponential smoothing?
ANS:
OM5 C11
Test Bank
18. Consider the sales for six consecutive weeks for Sam’s Strawberries. The sales are in “flats”
sold.
Week
Sales
1
16
2
18
3
14
4
10
5
20
6
22
a.
Using a three-period moving average, forecast the sales for weeks 4 through 6.
b.
Use exponential smoothing with α = 0.3 to forecast sales for weeks 4 through 6. Assume
the forecast for week 1 to be 10.
c.
Use linear regression (time series) to develop a prediction equation that will forecast
sales. Then use that prediction equation to get forecasts for weeks 4 through 6.
d.
Use MAD to pick the best forecasting method of A through C.
x
y
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19. Define regression analysis and explain how it is an approach to forecasting.
20. The manager of a gas station along an interstate highway has observed that gasoline sales
generally increase each week over the summer months as more families travel by car on vacations.
He also believes that sales are sensitive to fluctuations in the price of gasoline. He developed the
following regression model:
Sales = 59407 + 509 (Week) + 16463 (Price/gallon)
a.
Interpret the coefficients of the independent variables in this model.
b.
What is the sales forecast for the 12th week of the summer if the price per gallon is
estimated to be $3.00?
ANS:
21. A Taiwan electronics company exports personal computers (PCs) to the U.S. Their PC sales
(in thousands) over the past five years are given below.
Year
Sales
1
5
2
10
OM5 C11
Test Bank
3
13
4
15
5
20
a.
What is the regression equation if the company wants to predict sales?
b.
What is the forecast for sales in year 6?
a = [(55) (63) − (15) (224)]/[(5) (55) − (15) (15)] = 120/50 = 2.4
b = [(5) (224) − (15) (63)]/[(5((55) − (15) (15)] = 170/50 = 3.4
Y = 2.4 + 3.4X
b.
For year 6: Y = 2.4 + 3.4(6) = 22.8
22. Explain the difference between statistical forecasting and judgment forecasting.
23. Explain judgmental forecasting, including grass roots forecasting and the Delphi Method.
24. Describe some of the issues that managers must consider in applying forecasting methods in
practice.