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Introduction to Management Science, 11e (Taylor)

Chapter 15 Forecasting

1) A trend is a gradual, long-term, up-or-down movement of demand.


Answer: TRUE
Diff: 1 Page Ref: 690
Section Heading: Forecasting Components
Keywords: trend, forecasting components

2) A seasonal pattern is an up-and-down repetitive movement within a trend occurring periodically.


Answer: TRUE
Diff: 1 Page Ref: 690
Section Heading: Forecasting Components
Keywords: seasonal pattern, forecasting components

3) Random variations are movements that are not predictable and follow no pattern.
Answer: TRUE
Diff: 2 Page Ref: 690
Section Heading: Forecasting Components
Keywords: random variations, forecasting components

4) The basic types of forecasting methods include time series, regression, and qualitative methods.
Answer: TRUE
Diff: 2 Page Ref: 691
Section Heading: Forecasting Components
Keywords: types of forecasting methods

5) Time series is a category of statistical techniques that uses historical data to predict future behavior.
Answer: TRUE
Diff: 1 Page Ref: 691
Section Heading: Forecasting Components
Keywords: time series analysis

6) Regression methods attempt to develop a mathematical relationship between the item being forecast
and factors that cause it to behave the way it does.
Answer: TRUE
Diff: 2 Page Ref: 691
Section Heading: Forecasting Components
Keywords: regression methods

7) Qualitative methods use management judgment, expertise, and opinion to make forecasts.
Answer: TRUE
Diff: 2 Page Ref: 691
Section Heading: Forecasting Components
Keywords: qualitative methods

1
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
8) Qualitative methods are the least common type of forecasting method for the long-term strategic
planning process.
Answer: FALSE
Diff: 1 Page Ref: 691
Section Heading: Forecasting Components
Keywords: qualitative methods

9) A cycle is an up-or-down movement in demand that repeats itself in less than 1 year.
Answer: FALSE
Diff: 1 Page Ref: 690
Section Heading: Forecasting Components
Keywords: regression methods

10) Seasonal patterns are observed only during the four seasons - winter, spring, summer, and fall.
Answer: FALSE
Diff: 1 Page Ref: 690
Section Heading: Forecasting Components
Keywords: time series methods

11) The Delphi method develops a consensus forecast about what will occur in the future.
Answer: TRUE
Diff: 2 Page Ref: 693
Section Heading: Forecasting Components
Keywords: Delphi method, qualitative methods

12) Technological forecasting helps determine the technological feasibility of new products by
surveying large numbers of consumers.
Answer: FALSE
Diff: 1 Page Ref: 693
Section Heading: Forecasting Components
Keywords: technological forecasting

13) Irregular variations exhibit no pattern.


Answer: TRUE
Diff: 1 Page Ref: 690
Section Heading: Forecasting Components
Keywords: forecasting components, irregular variation

14) Data cannot exhibit both trend and cyclical patterns.


Answer: FALSE
Diff: 1 Page Ref: 690
Section Heading: Forecasting Components
Keywords: forecasting components, trend, cyclical

15) Time series methods assume that what has occurred in the past will continue to occur in the future.
Answer: TRUE
Diff: 1 Page Ref: 693
Section Heading: Time Series Methods
Keywords: time series methods

2
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
16) Moving averages are good for stable demand with no pronounced behavioral patterns.
Answer: TRUE
Diff: 2 Page Ref: 693
Section Heading: Time Series Methods
Keywords: moving averages

17) Longer-period moving averages react more slowly to recent demand changes than do shorter-period
moving averages.
Answer: TRUE
Diff: 2 Page Ref: 695
Section Heading: Time Series Methods
Keywords: moving averages
AACSB: Analytic skills

18) Shorter-period moving averages react more slowly to recent demand changes than do longer-period
moving averages.
Answer: FALSE
Diff: 2 Page Ref: 695
Section Heading: Time Series Methods
Keywords: moving averages
AACSB: Analytic skills

19) In a weighted moving average, weights must sum to 1.


Answer: TRUE
Diff: 1 Page Ref: 696
Section Heading: Time Series Methods
Keywords: moving averages, weighted moving average, time series methods

20) Adjusted exponential smoothing is an exponential smoothing forecast adjusted for seasonality.
Answer: FALSE
Diff: 1 Page Ref: 700
Section Heading: Time Series Methods
Keywords: adjusted exponential smoothing

21) If average forecast error is positive, it indicates that the forecast is biased high.
Answer: FALSE
Diff: 2 Page Ref: 708
Section Heading: Forecast Accuracy
Keywords: forecast error
AACSB: Analytic skills

22) Regression is used to relate one variable to one or more variables.


Answer: TRUE
Diff: 1 Page Ref: 713
Section Heading: Regression Methods
Keywords: regression methods, linear regression

3
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
23) The dependent variable in linear regression is usually designated as the x variable.
Answer: FALSE
Diff: 2 Page Ref: 713
Section Heading: Regression Methods
Keywords: regression methods, linear regression

24) In the regression equation y=a+bx, the slope of the equation is x.


Answer: FALSE
Diff: 2 Page Ref: 713
Section Heading: Regression Methods
Keywords: regression methods, linear regression

25) Correlation measures the strength of relationship between the x and y variables and the closer it is to
1 or -1, the greater the proof that the level of x determines the level of y.
Answer: FALSE
Diff: 2 Page Ref: 715
Section Heading: Regression Methods
Keywords: regression methods, linear regression

26) The coefficient of determination provides a measure of how the level of the independent variable in
a regression equation explains the level of the dependent variable in the equation.
Answer: TRUE
Diff: 2 Page Ref: 713
Section Heading: Regression Methods
Keywords: regression methods, linear regression

27) ________ is a gradual, long-term, upward or downward movement of demand.


Answer: Trend
Diff: 2 Page Ref: 690
Section Heading: Forecasting Components
Keywords: trend

28) A(n) ________ forecast typically encompass a period longer than one year.
Answer: long-range
Diff: 2 Page Ref: 690
Section Heading: Forecasting Components
Keywords: long range forecasts

29) Daily operations are assisted by ________-range forecasting


Answer: short
Diff: 1 Page Ref: 690
Section Heading: Forecasting Components
Keywords: short range forecasts

30) Unpredictable movements in demand that follow no pattern are ________.


Answer: random variations
Diff: 1 Page Ref: 690
Section Heading: Forecasting Components
Keywords: forecasting components, irregular variation

4
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
31) The major types of forecasting methods are ________, ________, and ________.
Answer: time series, regression, qualitative
Diff: 1 Page Ref: 691
Section Heading: Forecasting Components
Keywords: forecasting methods

32) Knowledgeable individuals bring their opinions to bear in ________, a qualitative method of
forecasting.
Answer: the Delphi method
Diff: 1 Page Ref: 693
Section Heading: Forecasting Components
Keywords: Delphi method, qualitative methods

33) A long-term wave in a demand pattern that undulates gracefully over a period of greater than a year
is a(n) ________.
Answer: cycle
Diff: 1 Page Ref: 690
Section Heading: Forecasting Components
Keywords: forecasting components, trend, cyclical

34) ________ error is the sum of the forecast errors.


Answer: Cumulative
Diff: 2 Page Ref: 708
Section Heading: Forecast Accuracy
Keywords: medium range forecasts

35) A(n) ________ forecast encompasses the immediate future, is concerned with daily activities of the
firm and does not go beyond one or two months in to the future.
Answer: short-range
Diff: 2 Page Ref: 690
Section Heading: Forecasting Components
Keywords: short range forecasts

36) A(n) ________ is an up-and-down repetitive movement within a trend occurring periodically.
Answer: seasonal pattern
Diff: 2 Page Ref: 690
Section Heading: Forecasting Components
Keywords: seasonal pattern, forecasting components

37) ________ relates demand to two or more independent variables.


Answer: Multiple regression
Diff: 2 Page Ref: 719
Section Heading: Regression Methods
Keywords: multiple linear regression analysis

5
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
38) One problem with multiple regression is ________, which is a measure of the amount of
"overlapping" information about the dependent variable that's provided by several independent
variables.
Answer: multicollinearity
Diff: 2 Page Ref: 722
Section Heading: Regression Methods
Keywords: simple exponential smoothing

39) Exponential smoothing forecasts are more sensitive or reactive to the changes in demand as the
value of the smoothing constant, α, ________.
Answer: increases
Diff: 2 Page Ref: 698
Section Heading: Time Series
Keywords: simple exponential smoothing
AACSB: Analytic skills

40) The closer the value of α is to zero, the ________ will be the dampening or smoothing effect.
Answer: greater
Diff: 2 Page Ref: 698
Section Heading: Time Series
Keywords: simple exponential smoothing
AACSB: Analytic skills

41) ________ measures the strength of the relationship between two variables.
Answer: Correlation
Diff: 2 Page Ref: 716
Section Heading: Regression Methods
Keywords: correlation, regression methods, linear regression model

42) The ________ is the percentage of variation in the dependent variable that results from the
independent variable.
Answer: coefficient of determination
Diff: 2 Page Ref: 716
Section Heading: Regression Methods
Keywords: coefficient of determination, reg methods, linear reg model
AACSB: Analytic skills

43) Longer-period moving averages react more ________ to recent demand changes than do shorter
period moving averages.
Answer: slowly
Diff: 2 Page Ref: 694
Section Heading: Time Series
Keywords: moving average method
AACSB: Analytic skills

6
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
44) ________ are the movements or fluctuation in demand that exhibit no pattern and occur on a random
basis.
Answer: Random variations
Diff: 2 Page Ref: 690
Section Heading: Time Series
Keywords: forecasting components, irregular variation

45) The ________ is the sum of the absolute value of forecasting errors divided by the number of
periods in which a forecast was made.
Answer: MAD or mean absolute deviation
Diff: 1 Page Ref: 706
Section Heading: Forecast Accuracy
Keywords: forecast error, MAD

46) The ________ is the average of the sum of the squared errors.
Answer: MSE or mean squared error
Diff: 1 Page Ref: 708
Section Heading: Forecast Accuracy
Keywords: forecast error, MSE

47) MAPD measures ________.


Answer: the absolute error as a percentage of the actual (demand) data
Diff: 2 Page Ref: 707
Section Heading: Forecast Accuracy
Keywords: forecast error, MAPD

48) ________ is a type of exponential smoothing that can also include trend.
Answer: Adjusted exponential smoothing
Diff: 1 Page Ref: 700
Section Heading: Time Series
Keywords: adjusted exponential smoothing

Given the following data on the number of pints of ice cream sold at a local ice cream store for a 6-
period time frame:

49) Compute a 3-period moving average for period 4.


Answer: 211.67
Diff: 2 Page Ref: 694
Section Heading: Time Series
Keywords: moving averages, time series methods
AACSB: Analytic skills
7
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
50) Compute a 3-period moving average for period 6.
Answer: 246.67
Diff: 2 Page Ref: 694
Section Heading: Time Series
Keywords: moving averages, time series methods
AACSB: Analytic skills

51) Compute a 3-period moving average for period 7.


Answer: 283.33
Diff: 2 Page Ref: 694
Section Heading: Time Series
Keywords: moving averages, time series methods
AACSB: Analytic skills

52) Compute a 5-period moving average for period 6.


Answer: 237
Diff: 3 Page Ref: 694
Section Heading: Time Series
Keywords: moving averages, time series methods
AACSB: Analytic skills

53) Compute a 5-period moving average for period 7.


Answer: 257
Diff: 3 Page Ref: 694
Section Heading: Time Series
Keywords: moving averages, time series methods
AACSB: Analytic skills

54) Daily highs in Sacramento for the past week (from least to most recent) were:
95, 102, 101, 96, 95, 90 and 92. Develop a forecast for today using a 2-day moving average.
Answer: 91
Diff: 1 Page Ref: 694
Section Heading: Time Series
Keywords: moving average method
AACSB: Analytic skills

55) Daily highs in Sacramento for the past week (from least to most recent) were:
95, 102, 101, 96, 95, 90 and 92. Develop a forecast for today using a 3-day moving average.
Answer: 92.3
Diff: 1 Page Ref: 694
Section Heading: Time Series
Keywords: moving average method, forecast error
AACSB: Analytic skills

8
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
56) Daily highs in Sacramento for the past week (from least to most recent) were:
95, 102, 101, 96, 95, 90 and 92. Develop a forecast for today using a weighted moving average, with a
weights of .6, .3, and .1, where the highest weights are applied to the most recent data.
Answer: 91.7 = .6(92) + .3(90) + .1(95)
Diff: 2 Page Ref: 696
Section Heading: Time Series
Keywords: weighted moving average
AACSB: Analytic skills

Given the following data on hotel check-ins for a 6-month period:

July: 70 rooms
August: 105 rooms
September: 90 rooms
October: 120 rooms
November: 110 rooms
December: 115 rooms

57) What is the 3-month moving average forecast for January?


Answer: 115
Diff: 2 Page Ref: 694
Section Heading: Time Series
Keywords: moving averages, time series methods
AACSB: Analytic skills

58) With alpha = 0.2, what is the simple exponential smoothing forecast for October? Assume the
forecast for July was 80 rooms.
Answer: Demand Forecast
July 70 80
Aug 105 78
Sept 90 83.4
Oct 120 84.72
Nov 110 91.776
Dec 115 95.421

October forecast is 84.72


Diff: 2 Page Ref: 697
Section Heading: Time Series
Keywords: simple exponential smoothing, exponential smoothing
AACSB: Analytic skills

59) Using a 3-month moving average, how many check-ins can be forecasted for January?
Answer: 115
Diff: 1 Page Ref: 694
Section Heading: Time Series
Keywords: moving averages
AACSB: Analytic skills

9
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
60) Using the exponential smoothing factor 0.3, how many check-ins can be forecasted for January?
Assume the forecast for December was 122 rooms.
Answer: 119.9
Diff: 3 Page Ref: 697
Section Heading: Time Series
Keywords: exponential smoothing
AACSB: Analytic skills

61) The following data summarizes the historical demand for a product.

Actual
Month
Demand
March 20
April 25
May 40
June 35
July 30
August 45

Use exponential smoothing with α = .2 and a smoothed forecast for July of 32 to determine August and
September's smoothed forecasts.
Answer: FAugust = 31.6, FSeptember = 34.28
Diff: 2 Page Ref: 697
Section Heading: Time Series
Keywords: simple exponential smoothing
AACSB: Analytic skills

62) If the forecast is 33 and the actual value is 44, then the error this period is ________.
Answer: 11
Diff: 1 Page Ref: 706
Section Heading: Forecast Accuracy
Keywords: forecast accuracy
AACSB: Analytic skills

63) If the forecast is 25 and the actual value is 25, then the error this period is ________.
Answer: 0
Diff: 1 Page Ref: 706
Section Heading: Forecast Accuracy
Keywords: forecast accuracy
AACSB: Analytic skills

10
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
64) The following sales data are available for 2003-2008:

Determine a 4-year moving average forecast for 2008 and 2009.


Answer: F2008 = 15.5, F2009 = 18.75
Diff: 2 Page Ref: 694
Section Heading: Time Series
Keywords: moving average method
AACSB: Analytic skills

65) The following sales data are available for 2003-2008:

Year Sales Forecast


2003 7 9
2004 12 10
2005 14 15
2006 20 22
2007 16 18
2008 25 21

Calculate the average error.


Answer: = -0.167
Diff: 2 Page Ref: 707
Section Heading: Forecast Accuracy
Keywords: moving average method
AACSB: Analytic skills

66) If the forecast is 14 and the actual value is 15, then the error this period is
Answer: 1
Diff: 1 Page Ref: 706
Section Heading: Time Series
Keywords: forecast accuracy
AACSB: Analytic skills

67) If the absolute errors were calculated for 5 periods and the sum of the absolute deviation is 60, what
is the value of the MAD?
Answer: 12
Diff: 2 Page Ref: 707
Section Heading: Forecast Accuracy
Keywords: Mean Absolute Deviation
AACSB: Analytic skills
11
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
68) Assume that the forecasted demand for 2006 is 15. Use the following data set and exponential
smoothing with α = 0.4 and determine the forecasted demand for 2009.

Answer: F2007 = 15.4, F2008 = 17.24, F2009 = 17.544


Diff: 2 Page Ref: 698
Section Heading: Time Series
Keywords: simple exponential smoothing
AACSB: Analytic skills

69) Given the following data, compute the MAD for the forecast.

Year Demand Forecast


2001 16 18
2002 20 19
2003 18 24

Answer: MAD = 3
Diff: 2 Page Ref: 707
Section Heading: Forecast Accuracy
Keywords: simple exponential smoothing, forecast error, forecast accuracy
AACSB: Analytic skills

70) The following sales data are available for 2003-2008.

Determine a 4-year weighted moving average forecast for 2009, where weights are
W1 = .1, W2 = .2, W3 = .2 and W4 = .5.
Answer: F2009 = 21.1
Diff: 2 Page Ref: 696
Section Heading: Time Series
Keywords: weighted moving average
AACSB: Analytic skills

12
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
71) Quarterly sales is given for the past 3 years. Determine the seasonal factors for each quarter.

Winter Spring Summer Fall


Year 1 4800 4500 4100 5500
Year 2 5700 3800 4500 6000
Year 3 6000 4600 4900 6500

Answer: Swinter = .27, Sspring = .2118, Ssummer = .2217, Sfall = .2956


Diff: 2 Page Ref: 704
Section Heading: Time Series
Keywords: seasonal factors
AACSB: Analytic skills

Recent past demand for product ZXT is given in the following table.

Actual
Month
Demand
February 20
March 22
April 33
May 35
June 31
July 48
August 41

72) Determine the forecasted demand for April and May based on adjusted exponential smoothing with
α = .2, β = .3, a February forecast of 20, and T=0.
Answer: AFApril =20.52, AFMay = 23.884
Diff: 3 Page Ref: 700
Section Heading: Time Series
Keywords: adjusted exponential smoothing method
AACSB: Analytic skills

73) Base on a three-month weighted moving average with weights w1 = .1, w2 = .4, and w3 = .5 (most
recent), determine the forecasted demand for August and September. What is the forecast error in
August?
Answer: FAugust = 39.9, FSeptember = 42.8, eAugust = 1.1
Diff: 2 Page Ref: 706
Section Heading: Time Series
Keywords: moving avg method, weighted moving avg method, forecast error
AACSB: Analytic skills

74) Use simple exponential smoothing with alpha = .4 and determine the forecasted demand for August
and September. Assume that the smoothed forecast for July is 38.
Answer: FAugust = 42, FSeptember = 41.6
Diff: 2 Page Ref: 697
Section Heading: Time Series
Keywords: simple exponential smoothing
AACSB: Analytic skills
13
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
75) Simple exponential smoothing is being used to forecast demand. The previous forecast of 66 turned
out to be four units less than actual demand. If the next forecast is 66.6, what is the value of the
smoothing constant, α?
Answer: 0.15
Diff: 2 Page Ref: 697
Section Heading: Time Series
Keywords: exponential smoothing
AACSB: Analytic skills

76) Robert wants to know if there is a relation between money spent on gambling and winnings.

What is the coefficient of determination?


Answer: 0.94117
Diff: 3 Page Ref: 716
Section Heading: Regression Models
Keywords: regression models, coefficient of determination
AACSB: Analytic skills

Robert has the following accounts on money spent on gambling and winnings:

77) Develop a regression equation that relates the money Robert spends and the money he wins.
Answer: Y = 2613.3 + 0.8383 X, where Y = money won
Diff: 3 Page Ref: 714
Section Heading: Regression Models
Keywords: linear regression models, regression analysis
AACSB: Analytic skills

14
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
78) Determine the correlation coefficient and the coefficient of determination.
Answer: r2 =.835 and r = .913
Diff: 3 Page Ref: 716
Section Heading: Regression Models
Keywords: linear regression models, regression analysis
AACSB: Analytic skills

Sally has been running the following number of ads in the local newspaper to help attract customers into
her store. She has also been keeping track of customers who have come into the store as a result of the
ads, as well as the amount of money they spend.

This is the data from the last 4 weeks:

79) Determine the equation that relates ads and increased sales.
Answer: Y = 50 + 18X
Diff: 3 Page Ref: 715
Section Heading: Regression Models
Keywords: regression analysis, linear regression models
AACSB: Analytic skills

80) If Sally runs 15 ads, how much will sales increase?


Answer: Y = 50 + 18(15) = 320
Diff: 3 Page Ref: 715
Section Heading: Regression Models
Keywords: regression analysis, linear regression models
AACSB: Analytic skills

81) If Sally runs 10 ads, how much will sales increase?


Answer: Cannot say, because 10 it outside the range of values for the independent variable. However, a
student using the regression equation may suggest that a sales increase of $230 is reasonable.
Diff: 3 Page Ref: 706
Section Heading: Regression Models
Keywords: regression analysis, linear regression models
AACSB: Analytic skills

15
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
Consider the following annual sales data for 2001-2008:

Year Sales
2001 2
2002 4
2003 10
2004 8
2005 14
2006 18
2007 17
2008 20

82) Use the linear regression method and determine the estimated sales equation.
Answer: Y = -.2143 + 2.6309 X. This equation is appropriate if years are treated as 1, 2, 3, etc.
Y = -5262.12 + 2.6309 X. This equation is appropriate if years are treated as 2001, 2002, 2003, etc.
Diff: 2 Page Ref: 716
Section Heading: Regression Models
Keywords: regression analysis, linear regression method
AACSB: Analytic skills

83) Calculate the coefficient of determination.


Answer: r2 = .93217
Diff: 2 Page Ref: 716
Section Heading: Regression Models
Keywords: correlation coefficient and the coefficient of determination
AACSB: Analytic skills

84) Calculate the correlation coefficient.


Answer: r = .96548
Diff: 2 Page Ref: 716
Section Heading: Regression Models
Keywords: correlation coefficient and the coefficient of determination
AACSB: Analytic skills

16
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
A rendering plant wishes to use the data (sales records from a few local businesses and the month of the
year) to help determine their supply level for the coming months. The records shown in the table provide
an excellent opportunity for you to assist them with their forecasting.

Month Sales Pounds


January 45 54.3
February 57 63.8
March 32 39.5
April 44 49.8
May 51 52.3
June 34 39.9

85) What is the regression equation resulting from using Sales to forecast Pounds?
Answer: Pounds = 9.52 + 0.922 ∗ Sales
Diff: 2 Page Ref: 713
Section Heading: Regression Methods
Keywords: regression methods
AACSB: Analytic skills

86) What is the regression equation resulting from using the month, where January=1, February=2, etc.)
to forecast Pounds?
Answer: Pounds = 59.55 -2.74 ∗ Month
Diff: 2 Page Ref: 713
Section Heading: Regression Methods
Keywords: regression methods
AACSB: Analytic skills

87) What is the regression equation resulting from using both the month (where January=1, February=2,
etc.) and the level of Sales to forecast Pounds?
Answer: Pounds = 17.76 + 0.84 ∗ Sales - 1.29 ∗ Month
Diff: 2 Page Ref: 719
Section Heading: Regression Methods
Keywords: multiple linear regression analysis
AACSB: Analytic skills

88) What are the salient performance statistics for the simple regression of Pounds on Sales? Provide an
interpretation.
Answer: The coefficient of determination for this equation is 0.922, which means that 92% of the
variation in Pounds can be explained by the value of the independent variable Sales. The correlation
between the two variables is 0.96, which is virtually a straight line.
Diff: 2 Page Ref: 713
Section Heading: Regression Methods
Keywords: regression methods
AACSB: Analytic skills

17
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
89) What are the salient performance statistics for the simple regression model that predicts the level of
Pounds by the number of the month the company is in (with January=1)? Provide an interpretation.
Answer: The coefficient of determination is 0.31, meaning that knowledge of the month can determine
about 31% of the variation in the Pounds variable. The correlation coefficient between the two variables
is -0.55, so as the month number increases, the level of Pounds decreases.
Diff: 2 Page Ref: 713
Section Heading: Regression Methods
Keywords: regression methods
AACSB: Analytic skills

The following data summarizes the historical demand for a product:

Actual
Month Demand
March 20
April 25
May 40
June 35
July 30
August 45

90) Use a four-period moving average to determine the forecasted demand for July, August, and
September.
Answer: July forecast = 30; August forecast = 32.5; September forecast = 37.5
Diff: 2 Page Ref: 694
Section Heading: Time Series Methods
Keywords: moving avg method, forecast accuracy/error, MAPD, MAD, MSE
AACSB: Analytic skills

91) If the forecasted demand for June, July, and August is 32, 38 and 42, respectively, what is MAD?
Answer: MAD = 4.67
Diff: 2 Page Ref: 706
Section Heading: Forecast Accuracy
Keywords: moving avg method, forecast accuracy/error, MAPD, MAD, MSE
AACSB: Analytic skills

92) If the forecasted demand for June, July, and August is 32, 38 and 42, respectively, what is MSE?
Answer: MSE = 27.33
Diff: 2 Page Ref: 708
Section Heading: Forecast Accuracy
Keywords: moving avg method, forecast accuracy/error, MAPD, MAD, MSE
AACSB: Analytic skills

93) If the forecasted demand for June, July, and August is 32, 38 and 42, respectively, what is MAPD?
Answer: MAPD = .127 or 12.7%
Diff: 2 Page Ref: 707
Section Heading: Forecast Accuracy
Keywords: moving avg method, forecast accuracy/error, MAPD, MAD, MSE
AACSB: Analytic skills

18
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
94) A manager uses the following equation to predict monthly receipts: Yt = 4,000 + 30t. What is the
forecast for July of next year if t = 0 in April of this year?
Answer: t = 15, so Yt = 4450
Diff: 2 Page Ref: 716
Section Heading: Regression Models
Keywords: regression analysis
AACSB: Analytic skills

95) A local gym has discovered that their demand for personal trainers (measured in hours) is related not
only to their own advertising expenditures in the prior month, but also to the demand for doughnuts and
swim gear in the prior month at neighboring stores. The gym has developed the following regression
model to forecast demand for personal trainers:

Demand = 185 + (0.15∗advertising expenditures) - (0.05∗doughnuts) + (0.23∗swim gear sales)

What is the forecast for October, given advertising expenditures of 1000, doughnut sales of 2450, and
swim gear sales of 782 in September?
Answer: 392.4
Diff: 2 Page Ref: 712
Section Heading: Time Series Forecasting Using Excel
Keywords: multiple linear regression analysis
AACSB: Analytic skills

96) A ________ is a gradual, long-term, up-or-down movement of demand.


A) seasonal pattern
B) cycle
C) trend
D) prediction
Answer: C
Diff: 1 Page Ref: 690
Section Heading: Forecasting Components
Keywords: trend, forecasting components

97) A ________ is an up-and-down repetitive movement that repeats itself over a time span of more
than 1 year.
A) prediction
B) seasonal pattern
C) trend
D) cyclical pattern
Answer: D
Diff: 1 Page Ref: 690
Section Heading: Forecasting Components
Keywords: seasonal pattern

19
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
98) ________ methods are the most common type of forecasting method for the long-term strategic
planning process.
A) Regression
B) Qualitative
C) Time series
D) Queuing
Answer: B
Diff: 2 Page Ref: 691
Section Heading: Forecasting Components
Keywords: qualitative methods

99) ________ is a category of statistical techniques that uses historical data to predict future behavior.
A) Qualitative methods
B) Regression
C) Time series
D) Quantitative methods
Answer: C
Diff: 2 Page Ref: 691
Section Heading: Forecasting Components
Keywords: time series analysis

100) ________ use management judgment, expertise, and opinion to make forecasts.
A) Qualitative methods
B) Regression
C) Time series
D) Quantitative methods
Answer: A
Diff: 2 Page Ref: 691
Section Heading: Forecasting Components
Keywords: qualitative methods

101) The ________ is a procedure for developing a consensus forecast about what will occur in the
future.
A) Delphi method
B) quantitative method
C) regression equation
D) time series forecasting method
Answer: A
Diff: 3 Page Ref: 693
Section Heading: Forecasting Components
Keywords: Delphi method

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Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
102) ________ has become increasingly crucial to compete in the modern international business
environment.
A) The Delphi method
B) Technological forecasting
C) Prediction
D) Exponential smoothing
Answer: B
Diff: 2 Page Ref: 693
Section Heading: Forecasting Components
Keywords: technological forecasting

103) Consider the following graph of sales.

Which of the following characteristics is exhibited by the data?


A) trend only
B) trend plus seasonal
C) trend plus random
D) none of the above
Answer: D
Diff: 2 Page Ref: 691
Section Heading: Forecasting Components
Keywords: forecasting components, trend, cyclical, seasonal

21
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
104) Consider the following graph of sales.

Which of the following characteristics is exhibited by the data?


A) trend only
B) trend plus seasonal
C) trend plus random
D) seasonal only
Answer: B
Diff: 2 Page Ref: 691
Section Heading: Forecasting Components
Keywords: forecasting components, trend, random, seasonal

22
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
105) Consider the following graph of sales.

Which of the following characteristics is exhibited by the data?


A) trend only
B) trend plus seasonal
C) trend plus irregular
D) seasonal
Answer: C
Diff: 2 Page Ref: 691
Section Heading: Forecasting Components
Keywords: forecasting components, trend, seasonal, irregular

106) ________ moving averages react more slowly to recent demand changes than do ________ moving
averages.
A) Longer-period, shorter-period
B) Shorter-period, longer-period
C) Longer-period, longer-period
D) Shorter-period, shorter-period
Answer: A
Diff: 2 Page Ref: 695
Section Heading: Time Series Methods
Keywords: moving averages, time series analysis

107) ________ are good for stable demand with no pronounced behavioral patterns.
A) Longer-period moving averages
B) Shorter-period moving averages
C) Moving averages
D) Weighted moving averages
Answer: C
Diff: 2 Page Ref: 693
Section Heading: Time Series Methods
Keywords: moving averages, time series analysis

23
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
108) ________ methods assume that what has occurred in the past will continue to occur in the future.
A) Time series
B) Regression
C) Quantitative
D) Qualitative
Answer: A
Diff: 2 Page Ref: 693
Section Heading: Time Series Methods
Keywords: time series analysis

109) In exponential smoothing, the closer alpha is to ________, the greater the reaction to the most
recent demand.
A) -1
B) 0
C) 1
D) -1 or 1
Answer: C
Diff: 2 Page Ref: 697
Section Heading: Time Series Methods
Keywords: exponential smoothing

110) In adjusted exponential smoothing, the closer beta is to ________, the stronger a trend is reflected.
A) -1 or 1
B) -1
C) 0
D) 1
Answer: D
Diff: 2 Page Ref: 700
Section Heading: Time Series Methods
Keywords: adjusted exponential smoothing

111) ________ is a linear regression model relating demand to time.


A) Linear trend
B) Linear regression
C) Forecast demand
D) Linear equation
Answer: A
Diff: 2 Page Ref: 703
Section Heading: Time Series Methods
Keywords: linear regression model, regression analysis

24
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
112) Which of the following possible values of alpha would cause exponential smoothing to respond the
most slowly to sudden changes in forecast errors?
A) .01
B) .50
C) .90
D) 3.14
Answer: A
Diff: 2 Page Ref: 697
Section Heading: Time Series Methods
Keywords: simple exponential smoothing

113) Given an actual demand of 59, a previous forecast of 64, and an alpha of .3, what would the
forecast for the next period be using simple exponential smoothing?
A) 36.9
B) 57.5
C) 60.5
D) 62.5
Answer: D
Diff: 2 Page Ref: 697
Section Heading: Time Series Methods
Keywords: simple exponential smoothing
AACSB: Analytic skills

114) ________ is the difference between the forecast and actual demand.
A) Forecast mistake
B) Forecast error
C) MAD
D) Forecast accuracy
Answer: B
Diff: 2 Page Ref: 705
Section Heading: Forecast Accuracy
Keywords: forecast error, forecast accuracy

115) ________ is absolute error as a percentage of demand.


A) Cumulative error
B) MAD
C) MAPD
D) Average error
Answer: C
Diff: 3 Page Ref: 707
Section Heading: Forecast Accuracy
Keywords: MAPD, forecast accuracy

25
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
116) ________ indicates a forecast is biased high.
A) Large +
B) Large -
C) Large :
D) Large x
Answer: B
Diff: 2 Page Ref: 706
Section Heading: Forecast Accuracy
Keywords: cumulative error, average error
AACSB: Analytic skills

117) ________ is a measure of the strength of the relationship between independent variable(s) and a
dependent variable.
A) Correlation
B) Linear regression
C) Coefficient of determination
D) Regression
Answer: A
Diff: 2 Page Ref: 715
Section Heading: Regression Methods
Keywords: correlation, regression methods, linear regression model

118) ________ is the percentage of the variation in the dependent variable that results from the
independent variable.
A) Regression
B) Coefficient of determination
C) Correlation
D) Linear regression
Answer: B
Diff: 2 Page Ref: 716
Section Heading: Regression Methods
Keywords: coefficient of determination, reg methods, linear reg model

119) Coefficient of determination is the percentage of the variation in the ________ variable that results
from the ________ variable.
A) dependent, dependent
B) independent, dependent
C) dependent, independent
D) independent, independent
Answer: C
Diff: 3 Page Ref: 716
Section Heading: Regression Methods
Keywords: coefficient of determination, linear reg model, reg methods

26
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
120) Consider the following demand and forecast.

Period Demand Forecast


1 7 10
2 12 15
3 18 20
4 22

If MAD = 2 for the four periods under consideration, what is the forecast for period 4?
A) 19
B) 20
C) 21
D) 22
Answer: D
Diff: 2 Page Ref: 699
Section Heading: Forecast Accuracy
Keywords: forecast error, MAD
AACSB: Analytic skills

Given the following data on the number of pints of ice cream sold at a local ice cream store for a 6-
period time frame:

121) Use a 2-period moving average to forecast demand for period 7.


A) 227.5
B) 275
C) 280
D) 290
Answer: D
Diff: 2 Page Ref: 686
Section Heading: Time Series Methods
Keywords: moving average method
AACSB: Analytic skills

27
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
122) Use a 3-period moving average to forecast demand for period 7.
A) 283.33
B) 280
C) 290
D) 310
Answer: A
Diff: 2 Page Ref: 686
Section Heading: Time Series Methods
Keywords: moving average method
AACSB: Analytic skills

123) If the forecast for period 5 is equal to 275, use exponential smoothing to compute a forecast for
period 7 if α = .40.
A) 273
B) 277
C) 267.8
D) 286.2
Answer: D
Diff: 2 Page Ref: 689
Section Heading: Time Series Methods
Keywords: exponential smoothing
AACSB: Analytic skills

The following data represents quarterly sales of lawnmowers.

Year Quarter 1 Quarter 2 Quarter 3 Quarter 4


1 150 140 190 165
2 160 148 210 175

124) What is the seasonal index for the third quarter? (Round to the nearest hundredth.)
A) .20
B) .22
C) .26
D) .30
Answer: D
Diff: 2 Page Ref: 697-698
Section Heading: Forecasting Components
Keywords: seasonal factors
AACSB: Analytic skills

125) What is the seasonal index for the fourth quarter? (Round to the nearest hundredth.)
A) .20
B) .23
C) .25
D) .30
Answer: C
Diff: 2 Page Ref: 697-698
Section Heading: Forecasting Components
Keywords: seasonal factors
AACSB: Analytic skills
28
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
126) The manager of "Skis 4 U" is preparing a forecast for February of 2010. Demand exhibits both
trend and seasonality. The trend equation for monthly demand is y = 4375 + 80t, where t = 1 for January
2009. The seasonal index for February is 1.25. The forecast for February is:
A) 4575
B) 4583
C) 5668
D) 6769
Answer: D
Diff: 2 Page Ref: 697-698
Section Heading: Time Series Methods
Keywords: seasonal factors
AACSB: Analytic skills

127) Given forecast errors of 6, 4, 0 and -2, what is the mean absolute deviation?
A) 2
B) 3
C) 4
D) 2.67
E) none of the above
Answer: B
Diff: 2 Page Ref: 699
Section Heading: Forecast Accuracy
Keywords: forecast error, MAD

128) Given forecast errors of 6, 4, 0 and -2, what is the mean squared error?
A) 14
B) 18.67
C) 16
D) 12
E) none of the above
Answer: A
Diff: 2 Page Ref: 698
Section Heading: Forecast Accuracy
Keywords: forecast error, MSE
AACSB: Analytic skills

29
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
A rendering plant wishes to use the data (sales records from a few local businesses and the month of the
year) to help determine their supply level for the coming months. The records shown in the table provide
an excellent opportunity for you to assist them with their forecasting.

Month Sales Pounds


January 45 54.3
February 57 63.8
March 32 39.5
April 44 49.8
May 51 52.3
June 34 39.9

129) What is a three-period moving average forecast for the month of July?
A) 47.33
B) 46.10
C) 45.38
D) 44.29
Answer: A
Diff: 2 Page Ref: 694
Section Heading: Time Series Methods
Keywords: moving averages
AACSB: Analytic skills

130) What is the three-period weighted moving average for July using the weights 0.5 (most recent), 0.3,
and 0.2?
A) 48.99
B) 45.6
C) 49.51
D) 46.09
Answer: B
Diff: 2 Page Ref: 696
Section Heading: Time Series Methods
Keywords: weighted moving average method
AACSB: Analytic skills

131) Using 1 to represent January, 2 to represent February, and so on, what is the intercept for the
regression equation that predicts the pounds of supplies available?
A) 0.55
B) -2.74
C) 59.55
D) 8.87
Answer: C
Diff: 2 Page Ref: 716-719
Section Heading: Regression Methods
Keywords: regression analysis
AACSB: Analytic skills

30
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall
132) What is the forecast for July if exponential smoothing with an alpha=.04 generated a forecast of
43.0 for June?
A) 41.25
B) 40.64
C) 43.16
D) 42.88
Answer: D
Diff: 2 Page Ref: 697
Section Heading: Time Series Methods
Keywords: exponential smoothing
AACSB: Analytic skills

133) What is the slope of the regression equation developed when the Sales data are used to predict the
Pounds?
A) 0.92
B) 0.86
C) 0.80
D) 0.71
Answer: A
Diff: 2 Page Ref: 715
Section Heading: Regression Methods
Keywords: linear regression
AACSB: Analytic skills

31
Copyright © 2013 Pearson Higher Education, Inc. Publishing as Prentice Hall

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