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# Forecasting and Economic Order Quantity problems

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Problem Set 4

Instructions
Solve problems 5-12, 5-14, and 5-18. Save your responses in a Word file.

5-12:
Develop a four-month moving average forecast for Wallace Garden Supply and compute the MAD. A three-month moving average forecast was developed in the section on moving averages in Table 5.3.

see attached for data

5-14:
Data collected on the yearly demand for 50-pound bags of fertilizer at Wallace Garden Supply are shown in the following table. Develop a three-year moving average to forecast sales. Then estimate demand again with a weighted moving average in which sales in the most recent year are given a weight of 2 and sales in the other two years are each given a weight of 1. Which method do you think is best?

Year Scale Fertilizer Demand
1 4
2 6
3 4
4 5
5 10
6 8
7 7
8 9
9 12
10 14
11 15

5-18:
Sales of Cool-Man air conditioners have grown steadily during the past five years:

Year Sales
1 450
2 495
3 518
4 563
5 584
6 ?

The sales manager had predicted, before the business started, that year 1's sales would be 410 air conditioners. Using exponential smoothing with a weight of &#1113093; = 0.30, develop forecasts for years 2 through 6

Problem Set 5

6-18:
Lila Battle has determined that the annual demand for number 6 screws is 100,000 screws. Lila, who works in her brother's hardware store, is in charge of purchasing. She estimates that it costs \$10 every time an order is placed. This cost includes her wages, the cost of the forms used in placing the order, and so on. Furthermore, she estimates that the cost of carrying one screw in inventory for a year is one-half of 1 cent. Assume that the demand is constant throughout the year.
(a) How many number 6 screws should Lila order at a time if she wishes to minimize total inventory cost? (b) How many orders per year would be placed?
What would the annual ordering cost be? (c) What would the average inventory be? What
would the annual holding cost be?

#### Solution Preview

Attached in the file are the detailed step-by-step and guided instruction on solving the problems. Please study them and you can quickly answer similar management worded problems that you will encounter.

5-12 Four Month Moving average

Month Actual SHED Sales Four-month moving average
January 10
February 12
March 13
April 16
May 19 =(10+12+13+16)/4 12.75
June 23 =(12+13+16+19)/4 15.00
July 26 =(13+16+19+23)/4 17.75
August 30 =(16+19+23+26)/4 21.00
September 28 =(19+23+26+30)/4 24.50
October 18 =(23+26+30+28)/4 26.75
November 16 =(26+30+28+18)/4 25.50
December 14 =(30+28+18+16)/4 23.00
January =(28+18+16+14)/4 19.00

5-14 Three (3) period moving averages without Weights

Year Demand Formula Forecast Error Absolute error
1 4
2 6
3 4
4 5 (4+6+4)/3 4.67 0.33 0.33
5 10 (6+4+5)/3 5.00 5.00 5
6 8 (4+5+10)/3 6.33 1.67 1.67
7 7 ...

#### Solution Summary

This solution contains step-by-step solution to forecasting problems and Economic Order Quantity (EOQ). The forecasting method discussed are the moving average with and without weights, and forecasting using exponential smoothing method.

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