# Forecasting Methods

1. Keith has developed a simple linear analysis utilizing the number of tourists an as independent variable (predictor). Keith is predicting the sales volume for his retail store. The results of the regression analysis generated a correlation coefficient of (.85) and constants a=23000 and b=4. Three years from now the number of tourists is expected to be 500,000. Estimate the sales in his store for that time. Also comment on the forecast (can you tell something about how confident you are in the forecast, or how much the choice of tourists as an independent variable is affecting the forecast).

Comments: = 23000 + 4(500000) r-sqr = .72 so 72% of the variation is explained

2. A hardware store is investigating the moving averages forecasting method and is comparing AP=3 and AP=2 for the past five(5) periods of time. The following data was generated showing the period, actual, and what the forecast would have predicted. Based on these results, which AP would you select to forecast period #10? Using your selection, forecast period #10. (PERIOD , Actual Sales , AP=2 forecast, AP=3 forecast) (5, 8, 7, 6.67) (6, 10, 7.5, 7.33) (7, 11, 9, 8.33) (8, 9, 10.5, 9.67) (9, 12, 10,. 10)

Comments: calculate MAD for each ap=2 has the lowest mad so use it to forecast

3. Sam is forecasting sales using the exponential smoothing method. Using this method, he had forecasted sales of 645 units for last week. Checking with his supervisor revealed that only 618 units were actually sold last week. Sam was utilizing a smoothing constant of (.3)and now wants to forecast the upcoming week's sales. Using the exponential method with the above smoothing constant, what is the sales forecast for the next week?

Comments: 645 + .3)618-645)

4. A major food products manufacturer must increase its production capacity and is investigating two alternative processing methods. The business has prepared these estimates: Fixed Cost Variable Cost/case Alternative A $485,000 $23.50 Alternative B $555,000 $19.50 At what volume of output would the two alternatives have the same costs? For what range of volumes would Alternative A be preferred?____________ Alternative B be preferred?____________

Comments: solve 485000 + 23.5x = 555,000+19.50x

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#### Solution Summary

This posting provides solution to four problems on forecasting methods including moving averages forecasting, exponential smoothing and a problem on deicision making for evaluating cost.