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# Forecasting using different forecasting methods

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1. Sales for the past 12 months at Dalworth Company are given here.

Month Sales (\$ millions) Month Sales (\$ millions)
January 20 July 53
February 24 August 62
March 27 September 54
April 31 October 36
May 37 November 32
June 47 December 29

a. Use a three-month moving average to forecast the sales for the months May through December.

b. Use a four-month moving average to forecast the sales for the months May through December.

c. Compare the performance of the two methods by using the mean absolute deviation as the performance criterion. Which method would you recommend?

d. Compare the performance of the two methods by using the mean absolute percent error as the performance criterion. Which method would you recommend?

2. Karl's Copiers sells and repairs photocopy machines. The manager needs weekly forecasts of service calls so that he can schedule service personnel. Use the actual demand in the first period for the forecast for the first week so error measurement begins in the second week. The manager uses exponential smoothing with a = 0.20. Forecast the number of calls for week 6, which is next week.

Week Actual Service Calls
1 24
2 32
3 36
4 23
5 25

3. The demand for Krispee Crunchies, a favorite breakfast cereal of people born in the 1940s, is experiencing a decline. The company wants to monitor demand for this product closely as it nears the end of its life cycle. The following table shows the actual sales history for January - October. Generate forecasts for November - December, using the trend projection by regression method.

Month Sales Month Sales
January 890,000 July 710,000
February 800,000 August 730,000
March 825,000 September 680,000
April 840,000 October 670,000
May 730,000 November
June 780,000 December

4. The manager of Snyder's Garden Center must make the annual purchasing plans for rakes, gloves, and other gardening items. One of the items the company stocks is Fast-Grow, a liquid fertilizer. The sales of this item are seasonal, with peaks in the spring, summer, and fall months. Quarterly demand (in cases) for the past 2 years follows:

Quarter Year 1 Year 2
1 40 60
2 350 440
3 290 320
4 210 280
Total 890 1,100

If the expected sales for Fast-Grow are 1,150 cases for year 3, use the multiplicative seasonal method to prepare a forecast for each quarter of the year.

5. The manager of a utility company in the Texas panhandle wants to develop quarterly forecasts of power loads for the next year. The power loads are seasonal, and the data on the quarterly loads in megawatts (MW) for the last 4 years are as follows:

Quarter Year 1 Year 2 Year 3 Year 4
1 103.5 94.7 118.6 109.3
2 126.1 116.0 141.2 131.6
3 144.5 137.1 159.0 149.5
4 166.1 152.5 178.2 169.0

The manager estimates the total demand for the next year at 600 MW. Use the multiplicative seasonal method to develop the forecast for each quarter.

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#### Solution Preview

Dear Student:

1. Dalworth Company

a. Use a three-month moving average to forecast the sales for the months May through December.

(a) See Excel column C

A 3-month moving average (MA) for April is calculated by summing sales of months 1, 2, and 3, and dividing by 3. For May: drop the oldest month (January) and sum months 2, 3, and 4, and divide by 3, etc.

b. Use a four-month moving average to forecast the sales for the months May through December.

Use 4-months of data instead of 3 months; otherwise the same as in 3-mo MA.

(b) See Excel column D

c. Compare the performance of the two methods by using the mean absolute deviation as the performance criterion. Which method would you recommend?

(c) See Excel cells E19 and F19 and pick the lower MAD = 13.33 and choose 3-month MA

d. Compare the performance of the ...

#### Solution Summary

Part 1 of this solution shows how to calculate sales forecast at Dalworth Company using a 3-month and 4-month moving averages, and comparing the two methods. Part 2 of this solution calculates the forecast of weekly service calls at Karl's Copiers using exponential smoothing. Part 3 of this solution shows how to forescast sales at Krispee Crunchies using trend projection (regression). Part 4 of this solution shows how to forecast seasonal sales of a liquid fertilizer at Snyder's Garden Center. Part 5 of this solution shows how to forecast power loads at a utility company using the multiplicative seasonal method. A detailed Excel worksheet is included in all parts of the solution.

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