4.

(i) We have to estimate the parameters a and b in the linear relationship

Yt = a + bT
Using the least squares method.
According to the least squares method the parameters are:

∑TY–nTY
b=
∑T2–nT2

a = Y – bT
The parameters are calculated below:
Calculations in the Least Squares Method
T Y TY T2
1 1,000 1,000 1
2 1,150 2,300 4
3 1,320 3,960 9
4 1,600 6,400 16
5 1,750 8,750 25
6 2,050 12,300 36
7 1,900 13,300 49
8 2,400 19,200 64
9 2,650 23,850 81
10 3,040 30,400 100
11 2,950 32,450 121
12 3,500 42,000 144
13 4,050 52,650 169
14 4,250 59,500 196
15 4,600 69,000 225
∑ T = 120 ∑ Y = 38,210 ∑ TY = 377,060 ∑ T = 1,240
2

T=8 Y = 2,547.33

∑TY–nTY 377,060 – 15 x 8 x 2,547.33

b= =
∑T2–nT2 1,240 – 15 x 8 x 8

71,380.4
= = 254.93
280
a = Y – bT
= 2,547.33 – 254.93 (8)
= 507.89
Thus, linear regression is
Y = 507.89 + 254.93 T
(ii) In general, in exponential smoothing the forecast for t + 1 is
Ft + 1 = Ft + α et

Where Ft + 1 = forecast for year t+1 α = smoothing parameter

et = error in the forecast for year t = St - Ft
F11 is given to be 3,250 and α is given to be 0.4
The forecasts for periods 12 to 15 are calculated below:

Period Data (St) Forecast Error Forecast for t + 1

t (Ft) (et = St -Ft) (Ft + 1 = Ft + 1 + α et)

1 1,000
2 1,150
3 1,320
4 1,600
5 1,750
6 2,050
7 1,900
8 2,400
9 2,650
10 3,040
11 2,950 3,250 -300 F12 = 3,250 + 0.4(-300) = 3,130
12 3,500 3,130 370 F13 = 3,130 + 0.4(370) = 3,278
13 4,050 3,278 772 F14 = 3,278 + 0.4(772) = 3,586.8
14 4,250 3,586.8 663.2 F15 = 3,586.8 + 0.4(663.2) = 3,852.08
15 4,600 3,852.08 747.92 F16 = 3,852.08 + 0.4(747.92) = 4,151.25
(iii) According to the moving average method
St + S t – 1 +…+ S t – n +1
Ft + 1 =
n
Where, Ft + 1 = forecast for the next period
St = sales for the current period
n = period over which averaging is done

Given n = 4, the forecasts for the periods 12 to 15 are given below:

Period Data (St) Forecast Forecast for t + 1

t (Ft) Ft + 1 = (St + S t – 1 + S t – 2 + S t – 3) / 4

1 1,000
2 1,150
3 1,320
4 1,600
5 1,750
6 2,050
7 1,900
8 2,400
9 2,650
10 3,040
11 2,950 F12 = (2,400 + 2,650 + 3,040 + 2,950)/ 4 = 2,760
12 3,500 2,760 F13 = (2,650 + 3,040 + 2,950 + 3,500)/ 4 = 3,035
13 4,050 3,035 F14 = (3,040 + 2,950 + 3,500 + 4,050) /4 = 3,385
14 4,250 3,385 F15 = (2,950 + 3,500 + 4,050 + 4,250) /4 = 3,687.5
15 4,600 3,687.5