Assignment 2: Business Forecasting

Assignment 2: Business Forecasting

Provide copies of your answers by Wednesday, November 18, 2015. You will be con-

tacted with the details on how, where and when to submit your answers. You can obtain

up to 5 marks counting towards the �nal mark for this semester. You should include your

student registration number on each page and the name of your tutor on the

top-right corner of the �rst page of your work.

Tip: Use Excel as much as possible for the following tasks.

Exercise 1: Monthly sales (� $100,000) of the South Pole Ice Cream Company are shown in the table below:

Month 1990 1991 1992

January 2.3 2.54 3.3

February 2.6 2.8 3.31

March 2.75 3 3.78

April 2.85 3.43 4.2

May 3.25 3.85 4.2

June 3.37 3.9 5

July 3.25 3.8 *

August 3.37 3.9 *

September 3.2 3.6 *

October 3.2 3.55 *

November 2.75 3.25 *

December 2.65 3.2 *

(a) Plot the data on a graph with time on the horizontal axis and sales on the vertical

axis.

(b) Fit a linear trend equation to the data.

(c) Introduce an appropriate number of (signi�cant) dummy variables and regress sales

on time and the dummy variables.

(d) On the basis of your model in part (c) forecast sales for the missing months in

the above table, and determine an approximate 95% con�dence interval for sales in

December 1992.

(e) Calculate seasonally adjusted monthly sales by the ratio to trend method for the last

six months of 1992. Bear in mind that you have to use the regression model of part

(b) for forecasting the sales that need to be adjusted.

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Exercise 2 : A �rm has experienced the demand shown in the table below over the past

ten years.

Year Demand

5-Year

Moving

Average

3-Year

Moving

Average

Exponential

Smoothing

w = 0:9

Exponential

Smoothing

w = 0:3

19X0 800 | | | |

19X1 925 | | ? ?

19X2 900 | | ? ?

19X3 1025 | ? ? ?

19X4 1150 | ? ? ?

19X5 1160 ? ? ? ?

19X6 1200 ? ? ? ?

19X7 1150 ? ? ? ?

19X8 1270 ? ? ? ?

19X9 1290 ? ? ? ?

19Y0 ??? ? ? ? ?

(a) Fill in the table above (at the \?") by preparing forecasts based on a �ve-year

moving average, a three-year moving average, and exponential smoothing forecasts

(with w = 0:9 and w = 0:3). Note: The exponential smoothing forecasts may be

begun by assuming Ŷt+1 = Yt.

(b) Using the forecasts from 19X5 to 19X9; compare the accuracy of each of the fore-

casting methods based on the RMSE criterion.

(c) Which forecast would you use for 19Y0? Why?

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