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TRUE/FALSE
5.1
*5.2
5.3
*5.4
To make a forecast which is accurate over time requires that we collect data over time.
ANSWER: TRUE
5.5
One of the most popular qualitative forecasting methods is the Delphi technique.
ANSWER: TRUE
5.6
5.7
Often, a variety of dependent variables may be successfully used in a linear regression forecast of a
single independent variable.
ANSWER: FALSE
5.8
5.9
5.10
5.11
Tupperware International has successfully identified a single forecasting tool to predict their
companys product sales.
ANSWER: FALSE
5.12
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Forecasting l CHAPTER 5
5.13
5.14
Time-series models enable the forecaster to include specific representations of various qualitative
and quantitative factors.
ANSWER: FALSE
5.15
Qualitative models produce forecasts that are little better than simple guesses or coin tosses.
ANSWER: FALSE
5.16
If you need to develop a forecast in a hurry, you probably should not contemplate using the Delphi
method.
ANSWER: TRUE
5.17
If you need to develop a forecast of sales as a function of advertising expenditure and product
selling price, you should probably consider using one of the regression analysis models.
ANSWER: TRUE
5.18
One of the benefits of the Delphi method is that no one forecaster is able to unduly influence any
other forecaster.
ANSWER: TRUE
5.19
When one plots a scatter diagram, the independent variable (X) is always time.
ANSWER: FALSE
5.20
One of the benefits of using a causal forecasting model is that we are able to eliminate the impact
of random error.
ANSWER: FALSE
5.21
The fewer the periods over which one takes a moving average, the more accurately the resulting
forecast mirrors the actual data.
ANSWER: TRUE
5.22
5.23
5.24
The notion of a seasonal index can only be associated with time-series forecasting.
119
Forecasting l CHAPTER 5
ANSWER: FALSE
5.25
A correlation coefficient of +0.75 implies that the forecasted variable increases as the independent
variable increases.
ANSWER: TRUE
5.26
The purpose of a tracking signal is to help us estimate the forecast error at each data point.
ANSWER: FALSE
5.27
Adaptive smoothing is analogous to exponential smoothing where the coefficients and are
periodically updated to improve the forecast.
ANSWER: TRUE
*5.28
One of the advantages of using a scatter diagram is that it may suggest types of formatting
techniques that are appropriate.
ANSWER: TRUE
*5.29
One of the advantages of using a scatter diagram is that it may suggest types of formatting
techniques that are not appropriate.
ANSWER: TRUE
*5.30
MULTIPLE CHOICE
5.31
A weighted moving average having the early periods more heavily weighted
(a)
(b)
(c)
(d)
(e)
ANSWER: b
5.32
"eyeballing."
the exponential smoothing method.
the causal forecasting method.
the MAD technique.
least squares.
ANSWER: e
120
Forecasting l CHAPTER 5
5.33
smoothing constant.
Y-axis intercept.
slope of the regression line.
independent variable.
dependent variable.
ANSWER: c
5.34
exponential smoothing
Delphi
executive opinion
sales force composite
consumer market survey
ANSWER: a
5.35
ANSWER: d
5.36
5.37
BIOMED
SAS
SPSS
Minitab
all of the above
ANSWER: e
One thing not true about the coefficient of correlation is that it
(a)
(b)
(c)
(d)
(e)
ANSWER: d
5.38
If computing a causal linear regression model of Y = a + bX and the resultant r 2 is very near zero,
then one would be able to conclude that
121
Forecasting l CHAPTER 5
(a)
(b)
(c)
(d)
(e)
ANSWER: b
5.39
Daily demand for newspapers for the last 10 days has been as follows: 12, 13, 16, 15, 12, 18, 14,
12, 13, 15. Forecast sales for the next day using a 2-day moving average.
(a)
(b)
(c)
(d)
(e)
14
13
15
28
none of the above
ANSWER: a
5.40
Daily demand for newspapers for the last 10 days has been as follows: 12, 13, 16, 15, 12, 18, 14,
12, 13, 15. Forecast sales for the next day using a 3-day weighted moving average where the
weights are 3, 1, and 1 (the highest weight is for the most recent number).
(a)
(b)
(c)
(d)
(e)
12.8
13.0
70.0
14.0
none of the above
ANSWER: d
122
Forecasting l CHAPTER 5
5.41
Enrollment in a particular class for the last four semesters had been 120, 126, 110, and 130.
Develop a forecast of enrollment next semester using exponential smoothing with an alpha = 0.2.
Assume that an initial forecast for the first semester was 120 (so the forecast and the actual were
the same).
(a)
(b)
(c)
(d)
(e)
118.96
121.17
130
120
none of the above
ANSWER: b
5.42
Enrollment in a particular class for the last four semesters had been 120, 126, 110, and 130.
Suppose a 1-semester moving average was used to forecast enrollment (this is sometimes referred
to as a naive forecast). Thus, the forecast for the second semester would be 120, for the third
semester it would be 126, and for the last semester it would be 110. What would the MSE be for
this situation?
(a)
(b)
(c)
(d)
(e)
196.00
230.67
100.00
42.00
none of the above
ANSWER: b
5.43
A tracking signal was calculated for a particular set of demand forecasts. This tracking signal was
positive. This would indicate that
(a)
(b)
(c)
(d)
(e)
ANSWER: a
5.44
Regression was used to develop a model to predict sales based on advertising dollars spent. The
equation developed is Y = 1000 + 20X, where X is advertising dollars and Y is sales. If $300 is
spent on advertising, what would be the best prediction for sales?
(a)
(b)
(c)
(d)
(e)
$1,600
$7,000
$1,620
$6,000
none of the above
ANSWER: b
5.45
Regression was used to develop a model to predict sales based on advertising dollars spent. The
equation developed is Y = 1000 + 20X - 2Z, where X is advertising dollars spent by your company,
123
Forecasting l CHAPTER 5
Z is the price for the product, and Y is sales. If $800 is spent by your company on advertising, and
the price is set at $100, what would be the best prediction for sales?
(a)
(b)
(c)
(d)
(e)
$17,200
$6,800
$7,200
$16,800
none of the above
ANSWER: d
5.46
ANSWER: a
5.47
ANSWER: e
5.48
Mean deviation
Squared Average Error
Mean Absolute Percent Error
Delphi Method
none of the above
ANSWER: c
124
Forecasting l CHAPTER 5
5.49
exponential smoothing
time-series
seasonal
marginal
regression
ANSWER: e
5.50
5.51
As one increases the number of periods used in the calculation of a moving average,
(a)
(b)
(c)
(d)
(e)
ANSWER: b
5.52
125
Forecasting l CHAPTER 5
ANSWER: b
5.54
If computing a causal linear regression model, Y = a + bX, and the resultant r 2 is very near zero,
then one should conclude that
(a)
(b)
(c)
(d)
(e)
ANSWER: e
5.55
Enrollment in a particular class for the last four semesters had been 120, 126, 110, and 135. The
best forecast of enrollment next semester, based on a 3-semester moving average, would be
(a)
(b)
(c)
(d)
(e)
126.
135.
120.
123.
125.
ANSWER: d
126
Forecasting l CHAPTER 5
5.56
The correlation coefficient resulting from a particular regression analysis was 0.25. What was the
slope of the regression line?
(a)
(b)
(c)
(d)
(e)
0.5
-0.5
0.0625
There is insufficient information to answer the question.
none of the above
ANSWER: d
5.57
A tracking signal was calculated for a particular set of demand forecasts. This tracking signal was
negative. This would indicate that
(a)
(b)
(c)
(d)
(e)
ANSWER: a
5.58
Given that the MAD for the following forecast is 2.5, what is the actual value in period 2?
Period
1
2
3
4
(a)
(b)
(c)
(d)
(e)
Forecast
100
110
120
130
Actual
95
123
130
120
98
108
115
none
ANSWER: c
5.59
Given that the MSE for the following forecast is 9.5, what is the forecast value in period 3?
Period
1
2
3
4
Forecast
100
110
130
Actual
95
108
123
130
127
Forecasting l CHAPTER 5
(a)
(b)
(c)
(d)
(e)
108
118
128
115
none of the above
ANSWER: e
5.60
Assume that you have tried three different forecasting models. For the first, the MAD = 2.5, for
the second, the MSE = 10.5, and for the third, the MAPE = 2.7. We can then say:
(a)
(b)
(c)
(d)
(e)
ANSWER: e
*5.61
ANSWER: b
*5.62
In picking the smoothing constant for an exponential smoothing model, we should look for a value
which
(a)
(b)
(c)
(d)
(e)
ANSWER: c
128
Forecasting l CHAPTER 5
*5.63
Which of the following model types would likely be the best for predicting the number of
automobiles sold next year?
(a)
(b)
(c)
(d)
(e)
Delphi
Sales force composite
Regression
Multiple regression
none of the above
ANSWER: d
*5.64
For which of the following forecasts would you expect it to be most appropriate to use a multiple
regression model?
(a)
(b)
(c)
(d)
(e)
ANSWER: a
*5.65
When San Diego Hospital forecast the number of patient days for each upcoming month, they used
a simple regression model. Had they needed to forecast the number of available beds by day for
the upcoming months,
(a)
(b)
(c)
(d)
(e)
ANSWER: c
PROBLEMS
5.66
Automobile
Battery Sales
20
21
15
14
13
16
Month
July
August
September
October
November
December
129
Automobile
Battery Sales
17
18
20
20
21
23
Forecasting l CHAPTER 5
ANSWER:
Month
January
February
March
April
May
June
July
August
September
October
November
December
January
5.67
Automobile
Battery Sales
20
21
15
14
13
16
17
18
20
20
21
23
-
3-Month
Moving Avg.
18.67
18.67
14
14.33
15.33
17
18.33
19.33
20.33
21.33
Use exponential smoothing with = 0.2 to forecast the battery sales. Assume the forecast for
January was 22 batteries.
Month
January
February
March
April
Automobile
Battery Sales
20
21
15
14
ANSWER: Forecasts for January to April are 22, 21.6, 21.48, 20.184
5.68
Sales (units)
100
110
122
130
Year
1979
1980
1981
1982
Sales (units)
139
152
164
?
ANSWER:
(a) the least squares trend line Y = -20567.4 + 10.46X
(b) the predicted value for 1982 sales = 172.828
5.69
City government has collected the following data on annual sales tax collections and new car
registrations:
130
Forecasting l CHAPTER 5
Annual Sales
Tax Collections
($ millions)
1.0
1.4
1.9
2.0
New Car
Registrations
(thousands)
10
12
15
16
Annual Sales
Tax Collections
(millions)
1.8
2.1
2.3
New Car
Registrations
(thousands)
14
17
20
Let us hypothesize (imagine) that the number of automobile accidents in a certain region are related
to the regional number of registered automobiles in thousands (b1), alcoholic beverage sales in
$10,000 (b2), and decrease in the price of gasoline in cents (b3). Furthermore, imagine that the
regression formula has been calculated as:
Y = a + b1 X1 + b2 X2 + b3 X3
where Y = the number of automobile accidents, a = 7.5, b1 = 3.5, b2 = 4.5, and b3 = 2.5
Calculate the expected number of automobile accidents under the following conditions:
(a)
(b)
(c)
X1
2
3
4
X2
3
5
7
X3
0
1
2
ANSWER:
(a) 28
(b) 43
(c) 58
5.71
Calculate (a) MAD, (b) MSE, and (c) MAPE for the following forecast versus actual sales figures.
Forecast
100
110
120
Actual
95
108
123
131
Forecasting l CHAPTER 5
130
130
ANSWER:
(a) MAD = 10/4 = 2.5
(b) MSE = 38/4 = 9.5
(c) MAPE = (0.0956/4)100 = 2.39%
5.72
Demand for a particular type of battery fluctuates from one week to the next. A study of the last 6
weeks provides the following demands (in dozens): 4, 5, 3, 6, 7, 8 (last week).
(a) Forecast demand for the next week using a 2-week moving average.
(b) Forecast demand for the next week using a 3-week moving average.
ANSWER:
(a) (7+8)/2 = 7.5
(b) (6+7+8)/3 = 7
5.73
Daily high temperatures in the city of Houston for the last week have been as follows:
93, 94, 93, 95, 96, 88, 90 (yesterday).
(a) Forecast the high temperature today using a 3-day moving average.
(b) Forecast the high temperature today using a 2-day moving average.
(c) Calculate the mean absolute deviation based on a 2-day moving average.
ANSWER:
(a) (96+88+90)/3 = 91.3
(b) (88+90)/2 = 90
(c) MAD = 13.5/5 = 2.7
5.74
Average starting salaries for students using a placement service at a university have been steadily
increasing. A study of the last four graduating classes indicate the following average salaries:
$20,000, $22,000, $23,000, and $25,000 (last graduating class).
Predict the starting salary for the next graduating class using an exponential smoothing model with
= 0.2. Assume that the initial forecast was $20,000 (so that the forecast and the actual were the
same).
ANSWER: Forecast for next period = 21736
5.75
A firm conducted a careful analysis of the cost of operating an automobile. The following model
was developed:
Y = 4000 + 0.20X, where Y = annual cost, X = miles driven
(a) If a car is driven 15,000 miles this year, what is the forecasted cost of operating this
automobile?
132
Forecasting l CHAPTER 5
(b) If a car is driven 25,000 miles this year, what is the forecasted cost of operating this
automobile?
(c) Suppose that one car was driven 15,000 miles and the actual cost of operating was $6,000,
while a second car was driven 25,000 miles and the actual operating cost was $10,000.
Calculate the mean absolute deviation for this.
ANSWER:
(a) 4000 + 0.20(15000) = 7000
(b) 4000 + 0.20(25000) = 9000
(c) MAD = (1000 + 1000)/2 = 1000
5.76
The following multiple regression model was developed to predict job performance as measured by
a company job performance evaluation index based on a pre-employment test score and college
grade point average (GPA).
Y = 35 + 20X1 + 50X2, where Y = job performance evaluation index
X 1 = pre-employment test score
X 2 = college GPA
(a) Forecast the job performance index for an applicant who had a 3.0 GPA and scored 80 on the
pre-employment score.
(b) Forecast the job performance index for an applicant who had a 2.5 GPA and scored 70 on the
pre-employment score.
ANSWER:
(a) 35 + 20(80) + 50(3.0) = 1785
(b) 35 + 20(70) + 50(2.5) = 1560
133
Forecasting l CHAPTER 5
5.77
Given the following data, if MAD = 1.25, determine what the actual demand must have been in
period 2 (A2).
Time Period
1
2
3
4
Actual (A)
2
A2 = ?
6
4
Forecast (F)
3
4
5
6
|FA|
1
1
2
ANSWER:
A2 = 3 or A2 = 5
*5.78
Automobile
Tire Sales
80
84
60
56
52
64
Month
July
August
September
October
November
December
Automobile
Tire Sales
68
100
80
80
84
92
ANSWER:
Month
January
February
March
April
May
June
July
August
September
October
November
December
January
*5.79
Automobile
Tire Sales
80
84
60
56
52
64
68
100
80
80
84
92
-
3-Month Tire
Avg.
74.7
66.7
56.0
57.3
61.3
77.3
82.7
86.7
81.3
74.7
Use exponential smoothing with = 0.3 to forecast the battery sales. Assume the forecast for
January was 22 batteries.
134
Forecasting l CHAPTER 5
Month
January
February
March
April
Automobile
Tire Sales
20
21
15
14
ANSWER:
Automobile
Month
Tire Sales Forecasts
January
20
22.00
February
21
19.40
March
15
21.48
April
14
13.06
*5.80
Sales (units)
130
140
152
160
Year
1999
2000
2001
2002
Sales (units)
169
182
194
?
ANSWER:
(a) the least squares trend line Y = -20746.6
(b) the predicted value for 2002 sales = 202.8571
135
Forecasting l CHAPTER 5
*5.81
Automobile
Sales
116
105
29
59
108
94
27
Year
1987
1988
1989
1990
1991
1992
1993
Automobile
Sales
119
34
34
48
53
65
111
Number of
Automobiles Forecast
116
X
105
X
29
X
59
X
108
X
94
X
27
85.2
119
70.3
34
72.7
34
73.5
48
69.3
53
59.3
65
52.5
111
58.8
Error
|Error|
-58.2
48.7
-38.7
-39.5
-21.3
-6.3
12.5
52.2
58.2
48.7
38.7
39.5
21.3
6.3
12.5
52.2
MAD = 34.67
SHORT ANSWER/ESSAY
5.82
5.83
5.84
136
Forecasting l CHAPTER 5
5.85
5.86
5.88
5.89
5.90
5.91
5.92
5.93
5.94
*5.95
In what way might it be said that all forecasting models are subjective?
ANSWER: The forecaster always make a choice as to which variables to include, what data is
acceptable, which measurements appropriate, etc.
*5.96
Explain, briefly, why most forecasting error measures use either the absolute or the square of the
error.
ANSWER: A deviation is equally important whether it is above or below the actual. This also
prevents negative errors from canceling positive errors which would understate the true size of the
errors
137
Forecasting l CHAPTER 5
*5.97
Explain, briefly, why the larger number of periods included in a moving average forecast, the less
well the forecast identifies rapid changes in the variable of interest.
ANSWER: The larger the number of periods included in the moving average forecast, the less the
average is changed by the addition or deletion of a single number.
*5.98
Explain, briefly, why, in the exponential smoothing forecasting method, the larger the value of the
smoothing constant, , the better the forecast will be in allowing the user to see rapid changes in
the variable of interest.
ANSWER: The larger the value of , the greater is the weight placed on the most recent
occurrences.
*5.99
Explain, briefly, why the Delphi forecasting approach is probably the most useful of those
discussed when attempting to forecast fifty to one hundred years into the future.
ANSWER: (a) there is little or no useful quantitative data available, (b) the knowledge of several,
perhaps many, disciplines will be required, (c) you wish to be able to weight each of the sources
about equally.
*5.100 The decomposition approach to forecasting (using trend and seasonal components) may be helpful
when attempting to forecast a time-series. Could an analogous approach be used in multiple
regression analysis? Explain, briefly.
ANSWER: An analogous approach would be possible using time as one independent variable and
using a set of dummy variables to represent the seasons.
*5.101 What are some of the basic assumptions we make when using simple linear or multiple regression?
ANSWER: (1) independent errors, (2) random error, of mean zero, and more or less normally
distributed in nature.
*5.102 What is one advantage of using causal models over time-series or qualitative models?
ANSWER: Use of the causal model requires that the forecaster gain an understanding of the
causes, not merely the frequency of variations, i.e., gains a greater understanding of the problem,
than the other methods.
138