Chapter 13

CHAPTER 13
FORECASTING
Review and Discussion Questions
1. What is the difference between dependent and independent demand?
Independent demand is forecasted item demand that occurs separately from the demand for
other items. Dependent demand is calculated from the demand for another item. The
difference lies in the way the two demands are determined.
2. Eamine Ehibit 13.! and su""est which model you mi"ht use for #1$ bathin" suit demand%
#2$ demand for new houses% #3$ electrical power usa"e% #!$ new plant epansion plans.
While any of the models in Ehibit 13.! can potentially be used to forecast any of the items%
the followin" models are "enerally appropriate& #1$ 'athin" suit demand could be forecasted
usin" eponential smoothin". The time hori(on is short% model compleity and cost is low%
model accuracy is fair and data re)uirements are *ery low. #2$ Demand for new houses can
be forecasted usin" linear re"ression. The time hori(ons are lon"% model compleity is
medium hi"h% model accuracy is medium hi"h and data re)uirements are hi"h. #3$ Causal
re"ression models mi"ht be used to forecast electrical power usa"e. The time hori(on is lon"%
model compleity is fairly hi"h% model accuracy is hi"h and data re)uirements are hi"h. #!$
+ew plant epansion plans can be forecast usin" )ualitati*e forecastin" techni)ues. This
ta,es into account non)uantifible issues when plannin" plant epansion.
3. What is the lo"ic in the least s)uares method of linear re"ression analysis?
The least s)uares method fits a line to the data which minimi(es the sum of the s)uared error
between particular points on a re"ression line and actually obser*ed data lyin" in the same -
plane. If a central point #-.bar% /.bar$ is located in a scatter plot% an infinitely lar"e number
of re"ression lines could be found to represent the data e)ually well in terms of absolute
error. 0owe*er% there is only one% uni)ue re"ression line that minimi(es the sum of the
s)uare errors.
1!1
Chapter 13
!. Eplain the procedure to create a forecast usin" the decomposition method of least s)uares
re"ression.
The steps are as follows&
I. Decompose the time series into the components.
a. 2ind the seasonal component.
b. Deseasonali(e the demand.
c. 2ind the trend component
II. 2orecast future *alues of each component.
a. 3ro4ect trend components into the future.
b. 5ultiply trend component by seasonal component.
6. 7i*e some *ery simple rules you mi"ht use to mana"e demand for a firm8s product. #9n
eample is :limited to stoc, on hand.;$
Demand mana"ement can be in terms of& order control<:limited to stoc, on hand%; lead time
<:allow si wee,s for deli*ery%; need<:supply the parts to inoperati*e units first%; time
open<:close up early e*ery day%; or :closed on =aturdays%; plus others as mentioned in the
tet such as price cuts% incenti*es% promotions% etc.
>. What strate"ies are used by supermar,ets% airlines% hospitals% ban,s% and cereal manufacturers
to influence demand?
=upermar,ets<se*eral sales items% free "i*eaway items #such as a pound of butter or a loaf
of bread$% an occasional :midni"ht madness; sale where the store is open late or e*en all
ni"ht.
9irlines<ecursion rates% a"e rates #senior citi(ens% children% youth fares$% charter fli"hts%
off.season rates% eceptionally "ood meals #or no meals for further reduced prices$% more
fli"hts% tie.in with hotels or auto rental% and tour a"encies for :pac,a"e tours%; free
champa"ne% free stop.o*er at a third point% or new terminals.
0ospitals<patients "enerally "o to the hospital recommended by their physician. Therefore%
hospitals offer free office space% nursin" assistance% lab e)uipment% staff positions% and patient
billin" to physicians. 0ospitals fre)uently ad*ertise their occupancy rate and room rates%
which tend to influence demand. 9lso% they could become a preferred pro*ider or"ani(ation.
'an,s<free "ifts for new accounts% free chec,in"% free safety deposit bo% free financial
ad*ice% :club memberships%; and free use of :eecuti*e loun"es; for depositors in *arious
si(e account ran"es% community rooms for club meetin"s.
Cereal manufacturers<T? ad*ertisin"% sponsorship of some youth e*ents% free pri(es in
cereal boed% usin" prime display space.
1!@
2orecastin"
A. 9ll forecastin" methods usin" eponential smoothin"% adapti*e smoothin"% and eponential
smoothin" includin" trend re)uire startin" *alues to "et the e)uations "oin". 0ow would you
select the startin" *alue for% say 2t.1?
=tartin" *alues can be simply an a*era"e of the early periods% or a "uess. If the startin" *alue
is ta,en some period bac, #as opposed to startin" to use the e)uations on *ery recent data$ the
e)uation will ha*e a chance to ad4ust as it is carried forward to today.
1. 2rom the choice of simple mo*in" a*era"e% wei"hted mo*in" a*era"e% eponential
smoothin"% and linear re"ression analysis% which forecastin" techni)ue would you consider
the most accurate? Why?
Bf these four choices% the wei"hted mo*in" a*era"e is the most accurate% since specific
wei"hts can be placed in accordance with their importance. The other methods ma,e
assumptions% such as an a*era"e% strai"ht line% or eponential cur*e. The wei"hted a*era"e
may be modified to any form. If a lon" time span is ta,en% howe*er% the wei"hted a*era"e
can be cumbersome to use. In addition% as time periods pass% the user most li,ely would li,e
to chan"e the wei"hts. This would add to the difficulty of usin" the techni)ues for a lar"e
number of applications such as forecastin" demand for in*entory items.
@. 7i*e some eamples that you can thin, of that ha*e a multiplicati*e seasonal trend.
5ultiplicati*e effects are the most common. Essentially all business sales are multiplicati*e.
2or eample% in auto sales% as "rowth in total sales increases% the seasonal *ariation increases.
1C. What is the main disad*anta"e of daily forecastin" usin" re"ression analysis?
The main disad*anta"e is the mathematical computation. There is *ery little time in*ol*ed
for a computeri(ed analysis% but hand computation is time consumin" and prone to error.
11. What are the main problems with usin" adapti*e eponential smoothin" in forecastin"?
9dapti*e smoothin" is computationally difficultD it re)uires sol*in" a set of e)uations in
se)uence. The user must select two constants for the e)uationsD one is ad4usted by the
e)uations% but the other is not. It is not clear as to what the *alue should be. Eastly% there is
some challen"e to the *alue of adapti*e smoothin" when compared to other methods.
12. 0ow is a seasonal inde computed from a re"ression line analysis?
=easonal inde is e)ual to the actual *alue #data point$ di*ided by the *alue computed from
the re"ression line. To lessen the effects of random errors% the indices may be a*era"ed o*er
se*eral years for that same period.
13. Discuss the basic differences between the mean absolute de*iation and standard de*iation.
The standard de*iation is a statistically based measurement defined as the s)uare root of the
arithmetic mean of the s)uared de*iations from the mean of the data or
n
x xi
2
$ #
=
.
16C
Chapter 13
The mean absolute de*iation% or 59D% is easier to do computationally since it is obtained
simply by calculatin" the absolute difference of each *alue from some other )uantity% and
then a*era"in" the differences by ta,in" the arithmetic mean. If the interest is the mean
absolute de*iation from the arithmetic mean of the data% then
n
x x
MAD
n
i
i

=
1
.
In this chapter% the interest was in the mean absolute difference between actual outcomes
*ersus forecasted outcomes% or
n
F A
MAD
n
i
i i
=

=
1
.
Bne 59D is approimately e)ual to .1% or con*ersely% 1 is approimately e)ual to 1.26
59D.
1!. What implications do forecast errors ha*e for the search for ultrasophisticated statistical
forecastin" models?
The eistence of una*oidable forecast errors seems to su""est that no matter what ,ind of
model one uses<simple or sophisticated<a perfect forecast is unattainable. =ince forecasts
are predictions of the future based on present and past data% there is ample opportunity for
*ery serious forecast errors to be caused by chan"es in the conditions that "enerated the data.
This could lead to an in*alid forecast or at least one that contains added error. Therefore% one
could be easily persuaded to stop searchin" for ways to ma,e more accurate forecasts and
loo, instead for ways to )uic,ly respond and adapt to demand chan"es.
16. What are the stron"est sellin" points of focused forecastin"?
2ocused forecastin" is simple% easy to understand% easy to use% and eperience has shown it
also "i*es "ood results.
1>. Causal relationships are potentially useful for which component of a time series?
9 time series creates an e)uation% such as y F a G b% where a is the y.intercept. Therefore% if
there is a relationship between y and % it would show up as the slope b. If there is no
relationship% b would be (ero. There is some )uestion as to the relationship bein" truly
:causal%; since many relationships may depend on other factors outside of the analysis.
161
2orecastin"
Pro!e"s
3roblem
Type of 3roblem
Difficulty
+ew
3roble
m
5odified
3roblem
Chec,
fi"ure in
9ppendi
9
5o*in"
a*era"e
Eponen.
tial
smooth.
in"
Eponential
smoothin"
with trend
Einear
re"ression
Trac,in"
si"nal
2ocus
2ore.
castin"
Decomp
osition
1 /es 5oderate
2 /es /es 5oderate
3 /es Easy /es
! /es Difficult
6 /es Difficult
> /es 5oderate
A /es Difficult /es
1 /es Difficult
@ /es /es Easy
1C /es 5oderate
11 /es /es Easy /es
12 /es 5oderate
13 /es 5oderate
1! /es /es Easy
16 /es 5oderate /es
1> /es /es Easy
1A /es /es /es Easy
11 /es 5oderate
1@ /es 5oderate /es
2C /es /es /es 5oderate
21 /es Difficult
22 /es 5oderate
23 /es /es Easy
2! /es 5oderate
26 /es Difficult
2> /es 5oderate
2A /es 5oderate /es
2A /es Difficult /es
162
Chapter 13
1.
/ y
2
y
2
/ #y./$
2
1 !2CC !2CC 1 1A>!CCCC 3@61.@A 61C@3.3>C
2 !3CC 1>CC ! 11!@CCCC !161.21 2211A.C21
3 !CCC 12CCC @ 1>CCCCCC !3!3.6@ 111C63.@12
! !!CC 1A>CC 1> 1@3>CCCC !636.@C 11!>1.113
6 6CCC 26CCC 26 26CCCCCC !A21.21 A31A2.!62
> !ACC 212CC 3> 22C@CCCC !@2C.61 !1>26.@C!
A 63CC 3A1CC !@ 21C@CCCC 6112.12 36C3>.1>C
1 !@CC 3@2CC >! 2!C1CCCC 63C6.13 1>!121.1>3
@ 6!CC !1>CC 11 2@1>CCCC 6!@A.!! @!@3.A6!
1C 6ACC 6ACCC 1CC 32!@CCCC 6>1@.A! 1C6.1@!
11 >3CC >@3CC 121 3@>@CCCC 6112.C6 1A!>11.131
12 >CCC A2CCC 1!! 3>CCCCCC >CA!.3> 662@.26A
Total A1 >C2CC !111CC >6C 3C1C2CCCC A212C6.121
x F >.6
y F 6C1>.>>A
b F
2
2
x n x
y x n xy

F
1@2.3CAA
a F x b y F 3A>>.>>A
EI+E=T #5icrosoft Ecel function$ will produce the same results.
5onth 2orecast
13 >2>>.>A
1! >!61.@A
16 >>61.21
1> >1!3.6@
1A AC36.@C
11 A221.21
1@ A!2C.61
2C A>12.12
21 A1C6.13
22 A@@A.!3
23 111@.A!
2! 1312.C6
b.
2 12
121 . A212C6
2
$ #
2
1

=
n
Y y
S
i
n
i
i
xy
F 2>@.16
Therefore% 3 standard errors of the estimate would be 3#2>@.16$ F 1C@.66 or 11C
163
2orecastin"
2.
a. 2Huly F .>C#16$ G .3C#1>$ G .1C#12$ F 16.C
b. 2Huly F #16 G 1> G 12$ I 3 F 1!.3
c. 2Huly F 2Hune G #9Hune J 2Hune$ F 13 G .2#16.13$ F 13.!
d.
y y
2
1 12 12 1
2 11 22 !
3 16 !6 @
! 12 !1 1>
6 1> 1C 26
> 16 @C 3>
Total 21 11 2@A @1
x F 3.6
y F 13.6
b F
2
2
x n x
y x n xy

F C.AA
a F x b y F 1C.1
/ F a G b F 1C.1 G .AA
e. 2Huly% where Huly is the A
th
month.
/ F a G b F 1C.1 G .AA#A$ F 1>.2
3.
a. 2tG1 F 2t G #9t J 2t$% F .2C
5onth Demand 2orecast 9bsolute De*iation
Hanuary 1CC 1C 2C
2ebruary @! 1! 1C
5arch 1C> 1> 2C
9pril 1C @C 1C
5ay >1 11 2C
Hune @! 1! 1C
Total @C
b. 59D F @CI> F 16
16!
Chapter 13
!.
y
9*era"e
from same
)uarter
=easonal
factor
Deseasonali(ed
demand
2
Kdeseasonali(ed
demand
1 !1CC 3133.33 1.23 3@C2.>1 1 3@C2.>1
2 36CC 2A>>.>A C.1@ 3@!2.AA ! A116.6!
3 !3CC 36CC.CC 1.12 312@.C6 @ 11!1A.1!
! 3CCC 23>>.>A C.A> 3@6C.AC 1> 161C2.12
6 36CC 1.23 21!6.>6 26 1!221.2>
> 2ACC C.1@ 3C!1.6A 3> 112!@.!C
A 36CC 1.12 311>.>A !@ 2111>.>A
1 2!CC C.A> 31>C.6> >! 2621!.61
@ 32CC 1.23 2>C1.A! 11 23!16.>6
1C 21CC C.1@ 23>6.>> 1CC 23>6>.>3
11 2ACC 1.12 2!C!.2@ 121 2>!!A.1!
12 1ACC C.A> 2231.A3 1!! 2>1>!.A@
Total A1 3A!CC 3A!CC.CC >6C 21@C!1.2C
y F 311>.>A
x F >.6
b F
2
2
x n x
y x n xy
d d

F
.1>1.2!
a F x b y
d
F
!21C.26
3eriod #$ /d =easonal
factor
2orecast
#/dKseasonal
factor$
13 2C23.C1 1.23 2!11.21
1! 116!.1! C.1@ 1>!>.6!
16 1>1>.>C 1.12 11@!.C!
1> 1611.36 C.A> 1162.@A
166
2orecastin"
6.
16>
Chapter 13
b . d.
y
9*era"e
from same
bi.monthly
period
=easonal
factor
Deseasonali(ed
demand
2
-Ky
Kdeseasonali(ed
demand
1 1C@ 112.C C.1>6 126.@6 1 1C@ 126.@6
2 1C! 1C1.C C.136 12!.>2 ! 2C1 2!@.26
3 16C 16!.6 1.1@! 126.>6 @ !6C 3A>.@!
! 1AC 1A>.C 1.3>C 126.CC 1> >1C 6CC.C2
6 12C 123.C C.@6C 12>.2> 26 >CC >31.3C
> 1CC 1C3.C C.A@> 126.>6 3> >CC A63.11
A 116 C.1>6 132.11 !@ 1C6 @3C.11
1 112 C.136 13!.21 >! 1@> 1CA3.>1
@ 16@ 1.1@! 133.1@ 11 1!31 11@1.>1
1C 112 1.3>C 133.13 1CC 112C 1331.2@
11 12> C.@6C 132.6A 121 131> 1!61.31
12 1C> C.A@> 133.1@ 1!! 12A2 16@1.23
Total A1 1663 1663.CC >6C 1C26A 1C23!.AC
Deseaonali(ed =imple
y F 12@.!1>A
x F >.6
bF
2
2
x n x
y x n xy
d d

F
C.@1C!
1.136364
a F x b y
d
F
123.C! 122.0303
3eriod #$ =imple
2orecast
/d =easonal
factor
2orecast
#/dKseasonal
factor$
13 13>.1C 136.A@ C.1>6 11A.6
1! 13A.@! 13>.AA C.136 11!.1
16 13@.C1 13A.A6 1.1@! 1>!.!
1> 1!C.21 131.A3 1.3>C 111.A
1A 1!1.36 13@.A1 C.@6C 132.1
11 1!2.!1 1!C.>@ C.A@> 112.C
16A
2orecastin"
>. T= 1
T= 1& =ince there has been a rapid rise in the trend% the forecast will shortly be outside of the
limits. Therefore% the forecastin" model is poor.
T= 2
T= 2& This is within the limits. Therefore% the forecast is acceptable.
161
Chapter 13
T= 3
T= 3& This series is risin" rapidly% and is outside of the limits. Conse)uently% the model is poor.
16@
2orecastin"
A.


y
9*era"e from
same )uarterly
period
=easonal
factor
Deseasonali(ed
demand
2
Kdeseasonali(ed
demand
1 1>C 11A.6 1.CC3 16@.!A 1 16@.!A
2 1@6 21A.6 1.1>! 1>A.6! ! 336.C@
3 16C 1AA.6 C.@6C 16A.@2 @ !A3.AA
! 1!C 1>6.C C.113 161.6> 1> >3!.2!
6 216 1.CC3 21!.21 26 1CA1.!2
> 2!C 1.1>! 2C>.21 3> 123A.2!
A 2C6 C.@6C 216.13 !@ 161C.A@
1 1@C C.113 216.11 >! 1A21.62
Total 3> 1!@6 1!@6.CC 2C! A1!3.63
y F 11>.1A6
x F !.6
b F
2
2
x n x
y x n xy
d d

F
@.@1
a F x b y
d
F
1!2.3C
3eriod /d =easonal
factor
2orecast
@ 231.!6 1.CC3 232
1C 2!1.36 1.1>! 211
11 261.2> C.@6C 23@
12 2>1.1A C.113 231
1>C
Chapter 13
1. Two methods can be used to calculate the forecasts for the net four )uarters. The first fits a
line #the problem su""ests hand fittin"% but BE= re"ression was used here$ to the data and
then determinin" the seasonal factor. The second uses decomposition where re"ression is
performed on deseasonali(ed data.
2irst procedure&
y Trend
9ctualI
Trend =easonal factor
2
Ky
1 12 1>.1A C.A!2 C.A>> 1 12
2 11 1A.1@ 1.C!A 1.C1A ! 3>
3 2> 11.21 1.!2A 1.3!1 @ A1
! 1> 1@.2! C.132 C.1C2 1> >!
6 1> 2C.2> C.A@C 26 1C
> 2! 21.2@ 1.121 3> 1!!
A 21 22.31 1.266 !@ 1@>
1 11 23.33 C.AA1 >! 1!!
Total 3> 161 2C! A6!
y F 1@.A6
x F !.6
b F
2
2
x n x
y x n xy

F
1.C2
a F x b y F 16.1!
3eriod /
=easonal
factor 2orecast
@ 2!.3> C.A>> 11.>>
1C 26.31 1.C1A 2A.>C
11 2>.!C 1.3!1 36.!2
12 2A.!3 C.1C2 21.@@
1>1
2orecastin"
=econd procedure&
y
9*era"e
from same
)uarterly
period
=easonal
factor
Deseasonali(ed
demand
2
Kdeseasonali(ed
demand
1 12 1! C.A1 1>.@3 1 1>.@3
2 11 21 1.C> 1>.@3 ! 33.1>
3 2> 2A 1.3A 1@.C2 @ 6A.C>
! 1> 1A C.1> 11.6@ 1> A!.36
6 1> C.A1 22.6A 26 112.1>
> 2! 1.C> 22.6A 3> 136.!3
A 21 1.3A 2C.!1 !@ 1!3.3A
1 11 C.1> 2C.@1 >! 1>A.2@
Total 3> 161 161.CC 2C! A!1.1!
y F 1@.A6
x F !.6
b F
2
2
x n x
y x n xy
d d

F
C.A11
a F x b y
d
F
1>.62C
3eriod /d
=easonal
factor 2orecast
@ 22.@1 C.A1 1>.2@
1C 23.AC 1.C> 26.2C
11 2!.!2 1.3A 33.31
12 26.13 C.1> 21.>3
@. a. 26 F #ACC G >CC G !CC$I3 F 6>A
b. 2! F 23 G #93 J 23$ F 36C G .2C#>CC J 36C$ F !CC
26 F 2! G #9! J 2!$ F !CC G .2C#ACC J !CC$ F !>C
1>2
Chapter 13
1C.
Luarter
I II III I?
East year 3>C 6>C !2C >A6
This year 3@6 61C
Each strate"y is used to predict the second )uarter of this year. Then% the best one is used to
predict the third )uarter of this year.
=trate"y 9& Whate*er we sold in the past three months is what we will probably sell in the
net three months. Therefore% our forecast is 3@6. 9ctual was 61C. 3@6I61C F >1M.
=trate"y '& What we sold in the same three.month period last year% we will probably sell in
that three.month period this year. Therefore% our forecast is 6>C. 9ctual was 61C. 6>CI61C F
@AM
=trate"y C& We will probably sell 1C percent more in the net three months than we sold in
the past three months. Bur forecast is 1.1C#3@6$ F !3!.6. 9ctual was 61C. !3!.6I61C F A6M.
=trate"y D& We will probably sell 6C percent more o*er the net three months than we did for
the same three months of last year. The forecast would be 1.6C#6>C$ F 1!C. 9ctual was 61C.
1!CI61C F 1!6M.
=trate"y E& Whate*er percenta"e chan"e we had for the past three months this year compared
to the same three months last year will probably be the same percenta"e chan"e that we will
ha*e for the net three months of this year. The forecast would be #3@6I3>C$6>C F >1!.!.
9ctual was 61C. >1!.!I61C F 1C>M.
The best method was '. 9pplyin" it to third )uarter of this year results in a forecast of !2C.
1>3
2orecastin"
11. a.c. 2or the eponential smoothin" forecast we need a be"innin" forecast for 5arch and an
. 2or the be"innin" forecast use the a*era"e of the first three periods and select F .3C.
Bther choices will produce different answers.
5onth Demand
3.5o.
59
9bsolute
De*iation
Eponential
=moothin"
9bsolute
De*iation
Hanuary 11C
2ebruary 13C
5arch 16C 13C.CC
9pril 1AC 13C !C 13>.CC 3!.CC
5ay 1>C 16C 1C 1!>.2C 13.1C
Hune 11C 1>C 2C 16C.3! 2@.>>
Huly 1!C 1AC 3C 16@.2! 1@.2!
9u"ust 13C 1>C 3C 163.!A 23.!A
=eptember 1!C 16C 1C 1!>.!3 >.!3
59D 23.3 21.1
'ased upon 59D% the eponential smoothin" model appears to be the best.
12.
5onth 2orecast 9ctual De*iation N=2E
9bsolute
de*iation
=um of
absolute
de*iations 59D T=
9pril 26C 2CC .6C .6C 6C 6C 6C.C .1
5ay 326 26C .A6 .126 A6 126 >2.6 .2
Hune !CC 326 .A6 .2CC A6 2CC >>.A .3
Huly 36C 3CC .6C .26C 6C 26C >2.6 .!
9u"ust 3A6 326 .6C .3CC 6C 3CC >C.C .6
=eptember !6C !CC .6C .36C 6C 36C 61.3 .>
-8
-6
-4
-2
0
1 2 3 4 5 6
Period
T
S
2or =eptember% the 59D is 61.3 and the T= is J>. The model is performin" poorly since
the trac,in" si"nal is J> and mo*in" in a downward direction.
1>!
Chapter 13
13.
5onth 2orecast 9ctual De*iation N=2E
9bsolute
de*iation
=um of 9bsolute
de*iations 59D T=
1 1!C 13A .3 .3 3 3 3.CC .1.CC
2 1!C 133 .A .1C A 1C 6.CC .2.CC
3 1!C 16C 1C C 1C 2C >.>A C.CC
! 1!C 1>C 2C 2C 2C !C 1C.CC 2.CC
6 1!C 11C !C >C !C 1C 1>.CC 3.A6
> 16C 1AC 2C 1C 2C 1CC 1>.>A !.1C
A 16C 116 36 116 36 136 1@.2@ 6.@>
1 16C 2C6 66 1AC 66 1@C 23.A6 A.1>
-4
-2
0
2
4
6
8
1 2 3 4 5 6 7 8
Period
T
S
a. 2or month 1% the 59D is 23.A6
b. The trac,in" si"nal for month 1 is A.1>
c. The trac,in" si"nal is too lar"e% so the forecast should be considered poor.
1>6
2orecastin"
1!. a . c.
5onth Demand
Eponential
smoothin"
9bsolute
de*iation Tt 2t 2ITt
9bsolute
de*iation
1 31 31.CC 1.CC 3C.CC 31.CC
2 3! 31.CC 3.CC 1.CC 31.CC 32.CC 2.CC
3 33 31.@C 1.1C 1.11 32.>C 33.A1 C.A1
! 36 32.23 2.AA 1.11 33.66 3!.>> C.3!
6 3A 33.C> 3.@! 1.1! 3!.A> 36.@C 1.1C
> 3> 3!.2! 1.A> 1.2! 3>.23 3A.!A 1.!A
A 31 3!.AA 3.23 1.11 3A.C3 31.1! C.1!
1 !C 36.A! !.2> 1.1C 31.1C 3@.1@ C.11
@ !C 3A.C2 2.@1 1.1A 3@.!3 !C.>C C.>C
1C !1 3A.@1 3.C@ 1.11 !C.!2 !1.6! C.6!
59D 2.@C C.1>
'ased upon the 59D of each forecast% the eponential smoothin" with trend is the better
forecastin" model.
16.
Wee, 2orecast 9ctual De*iation N=2E 9bsolute
de*iation
=um of
9bsolute
de*iations
59D T=
1 1CC @CC 1CC 1CC 1CC 1CC 1CC 1.C
2 16C 1CCC 16C 26C 16C 26C 126 2.C
3 @6C 1C6C 1CC 36C 1CC 36C 11A 3.C
! @6C @CC .6C 3CC 6C !CC 1CC 3.C
6 1CCC @CC .1CC 2CC 1CC 6CC 1CC 2.C
> @A6 11CC 126 326 126 >26 1C! 3.1
0
1
2
3
4
1 2 3 4 5 6
Period
T
S
2or wee, >% the 59D is 1C!% and the trac,in" si"nal is 3.1. This is a fairly hi"h *alue%
which indicates the model is unacceptable.
1>>
Chapter 13
1>. a. 2=eptember F #1AC G 11C G 1!C$I3 F 1>3.3
b. 2=eptember F .6C#1AC$ G .3C#11C$ G .2C#1!C$ F 1>A.C
c. 2Huly F 2Hune G #9Hune J 2Hune$ F 13C G .3#1!C . 13C$ F 133.CC
29u"ust F 2Huly G #9Huly J 2Huly$ F 133.CC G .3#11C J 133.CC$ F 1!A.1C
2=eptember F 29u"ust G #99u"ust J 29u"ust$ F 1!A.1C G .3#1AC J 1!A.1C$ F 163.@A
1A. a. 2Bctober F #A6 G 1C G >C G A6$I! F A2.6
b. 2Bctober F 2=eptember G #9=eptember J 2=eptember$ F >6 G .2#A6 J >6$ F >A.C
c.
y F !C6I> F >A.6
x F 21I> F 3.6
b F
2 2
2
$ 6 . 3 # > @1
6 . >A $ 6 . 3 # > 1!16

x n x
y x n xy
F 3.1>
a F x b y F >A.6 J 3.1>#3.6$ F 6!.CC
/ F a G b F 6!.C G 3.1>
d. 2Bctober F 6!.CC G 3.1>#A$ F 11.C1
1>A
2orecastin"
11.
Luarter
I II III I?
East year 23%CCC 2A%CCC 11%CCC @%CCC
This year 1@%CCC 2!%CCC 16%CCC
Each strate"y is used to predict the third )uarter of this year. Then% the best one is used to
predict the fourth )uarter of this year.
=trate"y 9& Whate*er we sold in the past three months is what we will probably sell in the
net three months. Therefore% our forecast is 2!%CCC. 9ctual was 16%CCC. 2!%CCCI16%CCC F
1>CM.
=trate"y '& What we sold in the same three.month period last year% we will probably sell in
that three.month period this year. Therefore% our forecast is 11%CCC. 9ctual was 16%CCC.
11%CCCI16%CCC F 12CM.
=trate"y C& We will probably sell 1C percent more in the net three months than we sold in
the past three months. Bur forecast is 1.1C#2!%CCC$ F 2>%!CC. 9ctual was 16%CCC.
2>%!CCI16%CCC F 1A>M.
=trate"y D& We will probably sell 6C percent more o*er the net three months than we did for
the same three months of last year. The forecast would be 1.6C#11%CCC$ F 2A%CCC. 9ctual
was 16%CCC. 2A%CCCI16%CCC F 11CM.
=trate"y E& Whate*er percenta"e chan"e we had for the past three months this year compared
to the same three months last year will probably be the same percenta"e chan"e that we will
ha*e for the net three months of this year. The forecast would be #2!%CCCI2A%CCC$11%CCC F
1>%CCC. 9ctual was 16%CCC. 1>%CCCI16%CCC F 1CAM.
The best method is E. 9pply it to the fourth )uarter of this year.
#16%CCCI11%CCC$@%CCC F A%6CC
1>1
Chapter 13
1@.
3eriod 2orecast 9ctual De*iation N=2E
9bsolute
de*iation
=um of 9bsolute
de*iations 59D T=
1 16CC 166C 6C 6C 6C 6C 6C.C 1.CC
2 1!CC 16CC 1CC 16C 1CC 16C A6.C 2.CC
3 1ACC 1>CC .1CC 6C 1CC 26C 13.3 C.>C
! 1A6C 1>6C .1CC .6C 1CC 36C 1A.6 .C.6A
6 11CC 1ACC .1CC .16C 1CC !6C @C.C .1.>A
-2
-1
0
1
2
3
1 2 3 4 5
Period
T
S
a. 2or period 6% the 59D F @C.CC% and the T= F .1.>A
b. The model seems acceptable since the trac,in" si"nal is 1.>A off the mean and is
reasonable. 0owe*er% the downward trend in the "raph does present a concern.
1>@
2orecastin"
2C.
5onth
#t$ Demand
3.mo.
59
9bsolute
de*iation
3.mo
W59
9bsolute
de*iation 2t
9bsolute
de*iation Tt 2t 2ITt
9bsolute
de*iation
1 >2 >1.CC 1.1C >C.CC >1.1C
2 >6 >1.3C 1.12 >1.1> >3.>1
3 >A >2.!1 1.@! >!.CA >>.C1
! >1 >!.>A 3.33 >6.!C 2.>C >3.A@ !.21 2.C3 >>.31 >1.33 C.33
6 A1 >>.>A !.33 >A.1C 3.@C >6.C6 6.@6 2.CC >1.23 AC.23 C.AA
> A3 >1.>A !.33 >@.3C 3.AC >>.1! >.1> 2.CA AC.!> A2.63 C.!A
A A> AC.>A 6.33 A1.!C !.>C >1.>1 A.32 2.11 A2.>A A!.A1 1.22
1 A1 A3.33 !.>A A!.1C 3.@C AC.11 A.12 2.22 A6.1! AA.3> C.>!
@ A1 A6.>A 2.33 A>.!C 1.>C A3.C2 !.@1 2.21 AA.66 A@.13 1.13
1C 1C AA.33 2.>A AA.>C 2.!C A!.61 6.!@ 2.11 A@.21 11.3@ 1.3@
11 1! A1.>A 6.33 A@.CC 6.CC A>.1> A.1! 1.@@ 1C.@1 12.@> 1.C!
12 16 1C.>A !.33 11.>C 3.!C A1.61 >.!@ 2.C1 13.2A 16.36 C.36
59D !.CA 3.!> >.1A C.1@
'ased upon 59D% the eponential smoothin" with trend component appears to be the best
method.
21.
y
9*era"e
from same
)uarterly
period
=easonal
factor
Deseasonali(e
d demand
2
Kdeseasonali(ed
demand
1 2C6 3!C.C C.A3> 2A1.!1 1 2A1.!1
2 1!C 2CA.6 C.!!@ 311.>3 ! >23.26
3 3A6 63C.C 1.1!A 32>.1C @ @1C.!C
! 6A6 AAC.C 1.>>A 3!!.@1 1> 13A@.>3
6 !A6 C.A3> >!6.2A 26 322>.33
> 2A6 C.!!@ >12.12 3> 3>A2.A!
A >16 1.1!A 6@>.@6 !@ !1A1.>>
1 @>6 1.>>A 6A1.1! >! !>3C.A6
Total 3> 3>@6 3>@6.CC 2C! 11@AC.2!
y F !>1.11
x F !.6C
b F
2
2
x n x
y x n xy
d d

F
66.A1
a F x b y
d
F
21C.1A
1AC
Chapter 13
3eriod #$ /d
=easonal
factor
2orecast
#/dKseaso
nal factor$
@ A12.11 C.A3> 626
=ummer 8C> 1C A>1.>> C.!!@ 3!6
11 12!.!! 1.1!A @!>
12 11C.22 1.>>A 1!>A
22.
Luarter
I II III I?
2CC! 1%126 1%31C 1%CA6 1%66C
2CC6 1%CCC 1%1A6 @A6
Each strate"y is used to predict the third )uarter of this year. Then% the best one is used to
predict the fourth )uarter of this year.
=trate"y 9& Whate*er we sold in the past three months is what we will probably sell in the
net three months. Therefore% our forecast is 1%1A6. 9ctual was @A6. 1%1A6I@A6 F 121M.
=trate"y '& What we sold in the same three.month period last year% we will probably sell in
that three.month period this year. Therefore% our forecast is 1%CA6. 9ctual was @A6.
1%CA6I@A6 F 11CM.
=trate"y C& We will probably sell 1C percent more in the net three months than we sold in
the past three months. Bur forecast is 1.1C#1%1A6$ F 1%2@2.6. 9ctual was @A6. 1%2@2.6I@A6 F
133M.
=trate"y D& We will probably sell 6C percent more o*er the net three months than we did for
the same three months of last year. The forecast would be 1.6C#1%CA6$ F 1%>12.6. 9ctual was
@A6. 1>12.6I@A6 F 1>6M.
=trate"y E& Whate*er percenta"e chan"e we had for the past three months this year compared
to the same three months last year will probably be the same percenta"e chan"e that we will
ha*e for the net three months of this year. The forecast would be #1%1A6I1%31C$1%CA6 F @>!.
9ctual was @A6. @>!I@A6 F @@M.
If only the first three are used% the best method is '. Therefore% the forecast for the fourth
)uarter is 1%66C.
If all fi*e methods listed in the Tet are used% then the best method is E. 9pplyin" it to the
fourth )uarter of this yea produces a forecast of
#@A6I1%CA6$ 1%66C F 1%!C>.
1A1
2orecastin"
23.
a. 2 #this month$ F #326 G 36C G !CC$I3 F 361
b. 2 #net month$ F #3CC G 326 G 36C$I3 F 326
c. 2 #two months a"o$ F !6C G .2C#!CC J !6C$ F !!C
2 #one month a"o$ F !!C G .2C#36C J !!C$ F !22
2 #this month$ F !22 G .2C#326 J !22$ F !C3
2!.
5onth 2orecast 9ctual De*iation N=2E
9bsolute
de*iation
=um of
absolute
de*iations 59D T=
5ay !6C 6CC 6C 6C 6C 6C 6C.CC 1.CC
Hune 6CC 66C 6C 1CC 6C 1CC 6C.CC 2.CC
Huly 66C !CC .16C .6C 16C 26C 13.33 .C.>C
9u"ust >CC 6CC .1CC .16C 1CC 36C 1A.6C .1.A1
=eptember >6C >A6 26 .126 26 3A6 A6.CC .1.>A
Bctober ACC >CC .1CC .226 1CC !A6 A@.1A .2.1!
-4
-2
0
2
4
1 2 3 4 5 6
Period
T
S
The T= itself is acceptable. 0owe*er% you would li,e to see the T= "oin" bac, and forth
between positi*e and ne"ati*e. It currently is headed down #! consecuti*e point in a row
downward$. If this trend continues% the forecasts will be unacceptable. This forecast
should be closely monitored to see if the downward trend continues% or if this occurred by
random chance.
1A2
Chapter 13
26. a.
Company 9
3eriod E3=
2orecast
F C.1C
9bsolute
de*iation
2orecast
F C.3C
9bsolute
de*iation
2CC2.I 1.>A 1.>A 1.>A
II 2.36 1.>A C.>1 1.>A C.>1
III 1.11 1.A! C.>3 1.1A C.A>
I? 1.16 1.>1 C.63 1.>! C.!1
2CC3.I 1.6> 1.>2 C.C> 1.6C C.C>
II 2.C! 1.>2 C.!2 1.62 C.62
III 1.1! 1.>> C.62 1.>A C.63
I? C.31 1.>1 1.23 1.61 1.13
2CC!.I C.2@ 1.!1 1.1@ 1.1A C.11
II .C.11 1.3> 1.6! C.@1 1.C@
III .C.@A 1.21 2.11 C.61 1.66
I? C.2C C.@@ C.A@ C.12 C.C1
2CC6.I .1.6! C.@1 2.!6 C.1! 1.>1
II C.31 C.>A C.2@ .C.3> C.A!
III C.>! .C.1!
59D C.@> C.A@
Company '
3eriod Demand
2orecast
F C.1C
.
9bsolute
de*iation
2orecast
F C.3C
9bsolute
de*iation
2CC2.I C.1A C.1A C.1A
II C.2! C.1A C.CA C.1A C.CA
III C.2> C.11 C.C1 C.1@ C.CA
I? C.3! C.1@ C.16 C.21 C.13
2CC3.I C.26 C.2C C.C6 C.26 C.CC
II C.3A C.21 C.1> C.26 C.12
III C.3> C.22 C.1! C.2@ C.CA
I? C.!! C.2! C.2C C.31 C.13
2CC!.I C.33 C.2> C.CA C.36 C.C2
II C.!C C.2> C.1! C.3! C.C>
III C.!1 C.21 C.13 C.3> C.C6
I? C.!A C.2@ C.11 C.3A C.1C
2CC6.I C.3C C.31 C.C1 C.!C C.1C
II C.!A C.31 C.1> C.3A C.1C
III C.32 C.!C
59D C.12 C.C1
1A3
2orecastin"
59D
7oodyear Tire Cooper Tire
F C.1C .@> .12
F C.3C .A@ .C1
b. 'ased upon 59D% an of .3C performs better than .1C.
c.
Company 9
y
9*era"e
from same
)uarter
=easonal
factor
Deseasonali(ed
demand
2
K
deseasonali(ed
demand
1 1.>A C.!@6 C.A23 2.3C@ 1 2.3C@
2 2.36 1.1!1 1.>AA 1.!C1 ! 2.1C3
3 1.11 C.!2A C.>2! 1.A1C @ 6.3!1
! 1.16 C.6AA C.1!3 1.3>6 1> 6.!61
6 1.6> C.A23 2.16A 26 1C.A13
> 2.C! 1.>AA 1.21A 3> A.2@@
A 1.1! C.>2! 1.121 !@ 12.A@1
1 C.31 C.1!3 C.!61 >! 3.>CA
@ C.2@ C.A23 C.!C1 11 3.>C1
1C .C.11 1.>AA .C.1CA 1CC .1.CA3
11 .C.@A C.>2! .1.66> 121 .1A.113
12 C.2C C.1!3 C.23A 1!! 2.1!1
13 .1.6! C.A23 .2.12@ 1>@ .2A.>A>
1! C.31 1.>AA C.22A 1@> 3.1A2
Total 1C6 @.61 @.61C 1C16 1!.1>6
y F C.>1!
x F A.6
b F
2
2
x n x
y x n xy
d d

F .C.26!
a F x b y
d
F 2.61>A
1A!
Chapter 13
3eriod #$ /d
=easonal
factor
2orecast
#/dKseasonal
factor$
16 .1.21A C.>2! .C.A>
1> .1.!AC C.1!3 .1.2!
1A .1.A26 C.A23 .1.26
11 .1.@A1 1.>AA .3.32
1@ .2.232 C.>2! .1.3@
2C .2.!16 C.1!3 .2.C@
Company '
y
9*era"e
from same
)uarter
=easonal
factor
Deseasonali(ed
demand
2
K
deseasonali(ed
demand
1 C.1A C.2>3 C.A>! C.223 1 C.223
2 C.2! C.3AC 1.CAA C.223 ! C.!!>
3 C.2> C.3!3 C.@@@ C.2>C @ C.A11
! C.3! C.!1A 1.213 C.21C 1> 1.121
6 C.26 C.A>! C.32A 26 1.>3>
> C.3A 1.CAA C.3!! 3> 2.C>1
A C.3> C.@@@ C.3>C !@ 2.622
1 C.!! 1.213 C.3>3 >! 2.@C2
@ C.33 C.A>! C.!32 11 3.11A
1C C.!C 1.CAA C.3A1 1CC 3.A1!
11 C.!1 C.@@@ C.!1C 121 !.613
12 C.!A 1.213 C.311 1!! !.>61
13 C.3C C.A>! C.3@3 1>@ 6.1C!
1! C.!A 1.CAA C.!3> 1@> >.11C
Total 1C6 !.11 !.11C 1C16 3@.>A2
y F C.3!!
x F A.6
b F
2
2
x n x
y x n xy
d d

F C.C1>
a F x b y
d
F C.226
1A6
2orecastin"
3eriod #$ /d
=easonal
factor
2orecast
#/dKseasonal
factor$
16 C.!>2 C.@@@ C.!>
1> C.!A1 1.213 C.61
1A C.!@! C.A>! C.31
11 C.61C 1.CAA C.66
1@ C.626 C.@@@ C.63
2C C.6!1 1.213 C.>>
d. The results indicate that 7oodyear Tire8s E3= is on a downward trend% while Cooper
Tire8s E3= is "rowin".
2>. =ince we our interested in forecastin" the net four years% many of the procedures presented
in the Tet will not wor,. 2or eample% mo*in" a*era"e and eponential smoothin" will
only pro4ect one period into the future. Therefore% of the methods presented in the Tet%
re"ression appears to be the lo"ical approach.
4000
4500
5000
5500
6000
1 2 3 4 5 6 7 8 9 10 11
#ear
R
e
v
e
n
u
e
Eamination of the "raph of re*enue o*er time su""est that there maybe a sli"ht upward
trend. 9dditionally% there may be a cyclical component% possibly > or A years. With the
limited data% it is *ery difficult to determine the cycle. Conse)uently% simple re"ression
appears to be the a*ailable choice for the forecast.
1A>
Chapter 13
y y
2
y
2
1 !1>6.@ !1>6.@ 1 23>A>@12.1
2 6C>A.! 1C13!.1 ! 26>A16!2.1
3 6616.> 1>6!>.1 @ 3C!211!3.!
! 6A21.1 22@16.2 1> 3211@1!@.!
6 6!@A.A 2A!11.6 26 3C22!AC6.3
> 61@A.A 3111>.2 3> 2AC1>C16.3
A 6C@!.! 36>>C.1 !@ 26@62@11.!
1 61C1.1 !C1AC.! >! 2>C@@13A.!
@ 666C.> !@@66.! 11 3C1C@1>C.!
1C 6A31.@ 6A31@.C 1CC 32@3!@A3.2
11 61>C.C >!!>C.C 121 3!33@>CC.C
Total >> 6@226.1 3>1!A3.C 6C> 31@@A3A@1.C
x F >
y F 631!.1>!
b F
2
2
x n x
y x n xy

F
66.>2
a F x b y F 6C6C.!!!
EI+E=T&
b 66.>2
a 6C6C.!!!
3eriod 2orecast
12 6A11
13 6AA!
1! 612@
16 6116
1AA
2orecastin"
2A.
a. 9nswers usin" EI+E=T function in 5icrosoft Ecel.
=ales 3rice 9d*ertisin" 2itted ?alues
!CC 21C >CC !61.A2
ACC 216 136 @AA.21
@CC 211 11CC 1C@C.@1
13CC 21C 1!CC 11@6.!C
116C 216 12CC 1C@6.16
12CC 2CC 13CC 1231.@@
@CC 226 @CC @2@.26
11CC 2CA 11CC 1111.>2
@1C 22C ACC 1@1.A@
123! 211 @CC 1C26.@1
@26 22A ACC 16C.!2
1CC 2!6 >@C A22.1C
Constant 21@1.33A!
3rice .>.@C@!
9d*ertisin" C.326C
2 1 2 2 1 1
326C . @C@! . > 33A! . 21@1 x x x b x b a y + = + + =
Where
a F y intercept
1 F price
b1 F slope of price
2 F ad*ertisin"
b2 F slope of ad*ertisin"
b. 3rice has a lar"e effect on sales because it slope *alue is much hi"her #.>.@C@! *ersus .
326C$. 3rice actually has a ne"ati*e effect since raisin" price decreases sales.
c.
=ales F 21@1.33A! . >.@C@! #3CC$ G .326C #@CC$
=ales F !11.C!
1A1
Chapter 13
21.
> . 3CA > . 6 3C2
> . 6 ! . 2 1 $ 3C1 3C2 # ! . 1 $ #
3C2 > 3C1 $ 3C1 211 # 3 . 3C1 $ #
3C1 1 3CC
211
!C . 3C .
1 3CC
1 1 1
1 1
1
= + = + =
= = + = + =
= = + = + =
= + = + =
=
= =
= =
+ + +
+ +
+
t t t
t t t t
t t t t
t t t
t
t t
T F FIT
FIT F T T
FIT A FIT F
T F FIT
A
T F

1A@