Mohammad Imad Shahid Khan, Alliance University

Find the Trend Projection through Statistical Method:

YEAR SALES
2007 40
2008 48
2009 42
2010 55
2011 62

We also have to forecast the estimated sales for 2012 and 2013.

Sol:

We will add three more columns to this table - named X, X
2
and XY. Here X is
just a column having numbers either from -2, -1,0,1,2 or 2,1,0,-1,-2. Here there
are n=5 number of items (Years) therefore we will put 0 on the middle item ie
the 3
rd
item (Year 2009); if suppose there are 7 items we will take the 4
th
item as
the middle one for putting X=0. The rest X
2
and XY are the squares and the
product of Y Column with X respectively. This all may sound confusing but
you will understand during Problem-solving.

As said, adding the three columns:

Year Sales
(Y)
X X
2
XY Est. Sales
(Yc)
2007 40 2 4 80
2008 48 1 1 48
2009 42 0 0 0
2010 55 -1 1 -55
2011 62 -2 4 -124
Y=247 X=0 X
2
=10 XY=-51


Mohammad Imad Shahid Khan, Alliance University
I am leaving the Estimated Sales column deliberately blank because that is
what we have to calculate right now, using the following two equations:

Y = na + bX
XY = aX + bX
2

And Yc = a + bX (Yc is the Estimated Sales)

Taking the first eqtn and putting the values from the table:
Y = na + bX
247 = 5 (a) + b (0)
247 = 5a + 0
a = 247/5
a = 49.4

Now taking the other eqtn and putting the values from the table:

XY = aX + bX
2

-51 = a (0) + b (10)
b = -51/10
b = -5.1

Now since we have got the values of a and b, we will put in use the third eqtn:
Yc = a + bX where X will be the respective value of the Year concerned.

Suppose for 2007 we want to determine the estimated sales, we will calculate Y
taking the Xs value for the 2007 data i.e. X=2,
So for 2007
Yc = a + bX
Y
c
= (49.4) + (-5.1) (2)
Y
c
=

(49.4) + (-10.2)
Mohammad Imad Shahid Khan, Alliance University
Y
c
= 49.4-10.2
Yc = 39.2

So, Yc = 38.8 is the Estimated Sales for 2007 and so for finding the same for the
year 2008 you will apply the same eqtn again but this time it will be X=1,

Therefore, for year 2008 the eqtn will be:

Yc = a + bX
Y
c
= (49.4) + (-5.1) (1) = 44.3 , the estimated sales for year 2008. And so
on you can go on to find the Estimated Sales for any year.

Calculate putting the respective values of X in each eqtn for every year now
when it comes to finding for 2012 and 2013 we will extend the table like
this:

Year Sales (Y) (X)
2007 40 2
2008 48 1
2009 42 0
2010 55 -1
2011 62 -2
2012 -3
2013 -4



For the future (2012 and 2013) we extend the X value in the progression it goes.
If we are writing -2,-1,0,1,2 as X then we have to write X=3 and X=4 for the
respective years.

So for 2012,
Mohammad Imad Shahid Khan, Alliance University

Yc = a + bX
Y
c
= (49.4) + (-5.1) (-3)
Y
c
= 64.7, estimated sales for 2012.

And similarly, for 2013

Yc = a + bX
Y
c
= (49.4) + (-5.1) (-4)
Y
c
= 69.8, the estimated sales for 2013.

Therefore our table will be completed like this:

Year Sales
(Y)
X X
2
XY Est. Sales
(Yc)
2007 40 2 4 80 39.2
2008 48 1 1 48 44.3
2009 42 0 0 0 49.4
2010 55 -1 1 -55 54.5
2011 62 -2 4 -124 59.6
Y=247 X=0 X
2
=10 XY=-51









Mohammad Imad Shahid Khan, Alliance University
Plot the graph between Y and Y
c.




Series 1 is your Sales Graph.
Series 2 is your Estimated Sales Graph.

Note: In the notes, the data may vary a little because sir assumed 49.4 to be only
49 (because of me only). Thats not a big deal.

Hope it helps!
40
48
42
55
62
39.2
44.3
49.4
54.5
59.6
0
10
20
30
40
50
60
70
2007 2008 2009 2010 2011
S
A
L
E
S
YEARS
Series1 Series2