Deck 8: Forecasting

Question 1

Draw a curve that represents four out of the five demand patterns for time series as discussed in this chapter. Clearly label both dependent and independent axis and the salient features of your graph that demonstrate your chosen patterns. Select a product or service and discuss what influences might cause it to exhibit each of these patterns.

Answer 1

Answers will vary depending on which patterns among horizontal, trend, seasonal, cyclical, and random patterns have been chosen.

Question 2

A systematic increase or decrease in the mean of the series over time is a(n) ________.

Answer 2

trend

Question 3

A regression equation with a coefficient of determination near one would be most likely to occur when the data demonstrated a:

A) seasonal demand pattern.
B) trend demand pattern.
C) cyclical demand pattern.
D) random demand pattern.

Answer 3

B

Question 4

The repeated observations of demand for a product or service in their order of occurrence form a pattern known as a time series.

Question 5

In the winter, Handyman Negri repaired snowblowers and in the summer he earned extra money by repairing lawnmowers, a classic example of:

A) promotional pricing.
B) complementary products.
C) mixed model service.
D) yield management.

Question 6

A weary traveler shows up at a hotel desk at midnight without a reservation. The desk clerk informs him that there is a room available, but sadly it is marked up 80% higher than the usual price. This is an example of:

A) promotional pricing.
B) yield management.
C) backlogs.
D) backorder.

Question 7

A weary traveler shows up at a hotel desk at midnight without a reservation. The desk clerk informs him that there is a room available, but sadly it is marked up 80% higher than the usual price. This is an example of promotional pricing.

Question 8

A water ski manufacturer believes they can double their sales by producing snow skis during the other half of the year. This approach to demand management is an example of complementary products.

Question 9

What is the difference between a reservation and an appointment?

A) There is no difference between the two terms.
B) The term reservation implies that the customer has paid in advance.
C) The term appointment implies that the customer has paid in advance.
D) The term reservation is issued when the customer occupies the facility to receive service.

Question 10

Which one of the following statements about the patterns of a demand series is False?

A) The five basic patterns of most business demand series are the horizontal, trend, seasonal, cyclical, and random patterns.
B) Estimating cyclical movement is difficult. Forecasters do not know the duration of the cycle because they cannot predict the events that cause it.
C) The trend, over an extended period of time, always increases the average level of the series.
D) Every demand series has at least a random component.

Question 11

Polly Prognosticator was the greatest quantitative forecaster in recorded history. A skillful user of all techniques in your chapter on forecasting, she knew better than to try and develop a forecast for data that exhibited a:

A) random pattern.
B) horizontal pattern.
C) seasonal pattern.
D) cyclical pattern.

Question 12

One aspect of demand that makes every forecast inaccurate is:

A) trend variation.
B) random variation.
C) cyclical variation.
D) seasonal variation.

Question 13

Which one of the following basic patterns of demand is difficult to predict because it is affected by national or international events or because of a lack of demand history reflecting the stages of demand from product development to decline?

A) horizontal
B) seasonal
C) random
D) cyclical

Question 14

Nathan managed to level the customer requests for his valuable services by offering reservations, deploying some promotional pricing, and engaging in yield management, all forms of ________.

Question 15

Professor Willis noted that the popularity of his office hours mysteriously rose in the middle and the end of each semester, falling off to virtually no visitors throughout the rest of the year. The demand pattern at work is:

A) cyclical.
B) random.
C) seasonal.
D) trend.

Question 16

Variations in demand that cannot be predicted are said to be a(n) ________ pattern.

Question 17

"Well if you're out of Duff I'll just take my business elsewhere!" the customer shouted as he stomped out of the Quickie Mart. This unfortunate incident could be described as:

A) a stockout.
B) a backorder.
C) a backlog.
D) yield management.

Question 18

There are historically three 32-month periods of generally rising prices in the stock market for every one 9-month period of falling prices. This observation leads you to conclude that the stock market exhibits a:

A) random pattern.
B) trend pattern.
C) seasonal pattern.
D) cyclical pattern.

Question 19

One of the basic time series patterns is random.

Question 20

The electricity bill at Padco was driven solely by the lights throughout the office; everything else was driven by alternative energy sources. The office was open roughly 8 hours a day, five days a week and the cleaning crew spent about the same amount of time in the offices each week night. The kilowatt hour usage for the office was best described as a:

A) horizontal demand pattern.
B) random demand pattern.
C) seasonal demand pattern.
D) cyclical demand pattern.

Question 21

Bias error causes the greatest disruption to planning efforts.

Question 22

Forecasts almost always contain errors.

Question 23

Which one of the following is most useful for measuring the bias in a forecast?

A) cumulative sum of forecast errors
B) standard deviation of forecast errors
C) mean absolute deviation of forecast errors
D) percentage forecast error in period t

Question 24

Assume that a time-series forecast is generated for future demand and subsequently it is observed that the forecast method did not accurately predict the actual demand. Specifically, the forecast errors were found to be: Mean absolute percent error = 10%
Cumulative sum of forecast errors = 0
Which one of the statements concerning this forecast is True?

A) The forecast has no bias but has a positive standard deviation of errors.
B) The forecast has a positive bias and a standard deviation of errors equal to zero.
C) The forecast has no bias and has a standard deviation of errors equal to zero.
D) The forecast has a positive bias and a positive standard deviation of errors.

Question 25

A tracking signal greater than zero and a mean absolute deviation greater than zero imply that the forecast has:

A) no bias and no variability of forecast error.
B) a nonzero amount of bias and a nonzero amount of forecast error variability.
C) no bias and a nonzero amount of forecast error variability.
D) a nonzero amount of bias and no variability of forecast error.

Question 26

Table 8.1
The management of an insurance company monitors the number of mistakes made by telephone service representatives for a company they have subcontracted with. The number of mistakes for the past several months appears in this table along with forecasts for errors made with three different forecasting techniques. The column labeled Exponential was created using exponential smoothing with an alpha of 0.30. The column labeled MA is forecast using a moving average of three periods. The column labeled WMA uses a 3-month weighted moving average with weights of 0.65, 0.25, and 0.10 for the most-to-least recent months.

Using Table 8.1, what is the CFE for months 6-10 for the exponential smoothing technique?

A) less than or equal to 120
B) greater than 120 but less than or equal to 123
C) greater than 123 but less than or equal to 126
D) greater than 126

Question 27

Which one of the following statements about forecasting is True?

A) The five basic patterns of demand are the horizontal, trend, seasonal, cyclical, and the subjective judgment of forecasters.
B) Judgment methods are particularly appropriate for situations in which historical data are lacking.
C) Casual methods are used when historical data are available and the relationship between the factor to be forecast and other external and internal factors cannot be identified.
D) Focused forecasting is a technique that focuses on one particular component of demand and develops a forecast from it.

Question 28

A bias error results from unpredictable factors that cause the forecast to deviate from actual demand.

Question 29

Why are forecasts for product families typically more accurate than forecasts for the individual items within a product family?

Question 30

Table 8.1
The management of an insurance company monitors the number of mistakes made by telephone service representatives for a company they have subcontracted with. The number of mistakes for the past several months appears in this table along with forecasts for errors made with three different forecasting techniques. The column labeled Exponential was created using exponential smoothing with an alpha of 0.30. The column labeled MA is forecast using a moving average of three periods. The column labeled WMA uses a 3-month weighted moving average with weights of 0.65, 0.25, and 0.10 for the most-to-least recent months.

Using Table 8.1, what is the MSE for months 6-10 for the exponential smoothing technique?

A) less than 591
B) greater than or equal to 591 but less than 595
C) greater than or equal to 595 but less than 599
D) greater than 599

Question 31

Aggregation is the act of clustering several similar products or services.

Question 32

When forecasting total demand for all their services or products, few companies err by more than:

A) one to four percent.
B) five to eight percent.
C) nine to twelve percent.
D) thirteen to sixteen percent.

Question 33

Table 8.1
The management of an insurance company monitors the number of mistakes made by telephone service representatives for a company they have subcontracted with. The number of mistakes for the past several months appears in this table along with forecasts for errors made with three different forecasting techniques. The column labeled Exponential was created using exponential smoothing with an alpha of 0.30. The column labeled MA is forecast using a moving average of three periods. The column labeled WMA uses a 3-month weighted moving average with weights of 0.65, 0.25, and 0.10 for the most-to-least recent months.

Using Table 8.1, what is the mean absolute percent error for months 6-10 using the exponential smoothing forecasts?

A) less than 22%
B) greater than or equal to 22% but less than 24%
C) greater than or equal to 24% but less than 26%
D) greater than 26%

Question 34

Aggregating products or services together generally decreases the forecast accuracy.

Question 35

Which one of the following statements about forecasting is False?

A) Causal methods of forecasting use historical data on independent variables (promotional campaigns, competitors' actions, etc.) to predict demand.
B) Three general types of forecasting techniques are used for demand forecasting: time-series analysis, causal methods, and judgment methods.
C) Time series express the relationship between the factor to be forecast and related factors such as promotional campaigns, economic conditions, and competitor actions.
D) A time series is a list of repeated observations of a phenomenon, such as demand, arranged in the order in which they actually occurred.

Question 36

________ methods use historical data on independent variables to predict demand.

Question 37

Table 8.1
The management of an insurance company monitors the number of mistakes made by telephone service representatives for a company they have subcontracted with. The number of mistakes for the past several months appears in this table along with forecasts for errors made with three different forecasting techniques. The column labeled Exponential was created using exponential smoothing with an alpha of 0.30. The column labeled MA is forecast using a moving average of three periods. The column labeled WMA uses a 3-month weighted moving average with weights of 0.65, 0.25, and 0.10 for the most-to-least recent months.

Using Table 8.1, what is the MAD for months 6-10 for the exponential smoothing technique?

A) less than 23
B) greater than or equal to 23 but less than 25
C) greater than or equal to 25 but less than 27
D) greater than or equal to 27

Question 38

________ methods of forecasting translate the opinions of management, experts, consumers, or salesforce into quantitative estimates.

Question 39

________ analysis is a statistical approach that relies heavily on historical demand data to project the future size of demand, and it recognizes trends and seasonal patterns.

Question 40

Forecast error is found by subtracting the forecast from the actual demand for a given period.

Question 41

Judgment methods of forecasting should never be used with quantitative forecasting methods.

Question 42

Technological forecasting is an application of executive opinion to keep abreast of the latest advances in technology.

Question 43

Judgment methods of forecasting are quantitative methods that use historical data on independent variables to predict demand.

Question 44

Two mercenary forecasters dueled for the lucrative Surreal Farms egg production forecasting job. The farmer provided them with output levels from ten day's production and had them forecast the next ten days. The combatant's forecasts and the actual egg production are shown in the table. Which forecaster was more accurate and should be hired as a result of his performance on this trial?

Question 45

The Delphi method of forecasting is useful when:

A) judgment and opinion are the only bases for making informed projections.
B) a systematic approach to creating and testing hypotheses is needed and the data are usually gathered by sending a questionnaire to consumers.
C) historical data are available and the relationship between the factor to be forecast and other external or internal factors can be identified.
D) historical data is available and the best basis for making projections is to use past demand patterns.

Question 46

Your team has been asked to develop a forecast for the need for storage in the company's communication devices ten years from now. What method would develop the best forecast? Why? How would you execute this method?

Question 47

It would be most appropriate to combine a judgment approach to forecasting with a quantitative approach by:

A) having a group of experts examine each historical data point to determine whether it should be included in the model.
B) combining opinions about the quantitative models to form one forecasting approach.
C) adjusting a forecast up or down to compensate for specific events not included in the quantitative technique.
D) developing a trend model to predict the outcomes of judgmental techniques in order to avoid the cost of employing the experts.

Question 48

Market research is a systematic approach to determine consumer interest by gaining consensus from a group of experts while maintaining their anonymity.

Question 49

Consider the following data concerning the performance of a forecasting method.

A) The CFE is greater than 100, and the MAD is less than 50.
B) The CFE is less than 100, and the MAD is less than 50.
C) The CFE is less than 100, and the MAD is greater than 50.
D) The CFE is greater than 100, and the MAD is greater than 50.

Question 50

What is the difference between mean absolute deviation (MAD) and mean squared error (MSE)?

Question 51

The Delphi method is a process of gaining consensus from a group of experts by face-to-face, non-anonymous, debate and voting throughout several rounds of group discussion led by a moderator.

Question 52

The dispersion of forecast errors is measured by both MAD and MSE, which behave differently in the way they emphasize errors. ________ gives larger weight to errors and ________ gives smaller weight to errors.

Question 53

The manufacturer developed and tested a questionnaire, designed to assist them in gauging the level of acceptance for their new product, and identified a representative sample as part of their:

A) salesforce estimate.
B) market research.
C) executive opinion.
D) Delphi method.

Question 54

________ is a systematic approach to determine consumer interest in a product or service by creating and testing hypotheses through data-gathering surveys.

Question 55

Ten months of data and the forecasts for those same periods are in the table below. Use mean bias, MAD, and MAPE to analyze the accuracy of the forecasts.

Question 56

The judgment methods of forecasting are to be used for purposes of:

A) making adjustments to quantitative forecasts due to unusual circumstances.
B) generating data for use in time-series approaches.
C) providing the calculations necessary for quantitative forecasts.
D) calculating the forecast error for quantitative methods.

Question 57

What are reasonable criteria for selecting one time-series method over another?

Question 58

The ________ is a process of gaining consensus from a group of experts while maintaining their anonymity.

Question 59

Using salesforce estimates for forecasting has the advantage that:

A) no biases exist in the forecasts.
B) statistical estimates of seasonal factors are more precise than any other approach.
C) forecasts of individual sales force members can be easily combined to get regional or national sales totals.
D) confusion between customer "wants" (wish list) and customer "needs" (necessary purchases) is eliminated.

Question 60

Which forecasting technique would you consider for technological forecasts?

Question 61

Table 8.4
The Furniture Super Mart is a furniture retailer in Evansville, Indiana. The Marketing Manager wants to prepare a media budget based on the next quarter's business plan. The manager wants to decide the mix of radio advertising and newspaper advertising needed to generate varying levels of Weekly Gross Revenue. The manager has collected data for the past five weeks, and has recorded the following average Weekly Gross Revenues and expenditures for Weekly Radio (X1) and Newspaper (X2) advertising:

The Manager uses the multiple regression model in OM Explorer and obtains the following results:

Use the information provided in Table 8.4. Adding $1,000 of Weekly Newspaper Advertising (X2) can be expected to increase Weekly Gross Revenues by what amount? (Assume all other variables are held constant.)

A) $20,500
B) $3,750
C) $6,500
D) $10,250

Question 62

A linear regression model is developed that has a slope of -2.5 and an intercept of 10. The sample coefficient of determination is 0.50. Which of the following statements is True?

A) The sample correlation coefficient must be 0.250.
B) The sample correlation coefficient must be -0.707.
C) The sample correlation coefficient must be -0.250.
D) The sample correlation coefficient must be 1.00.

Question 63

The closer the value of the sample correlation coefficient is to -1.00, the worse the predictive ability of the independent variable for the dependent variable.

Question 64

Table 8.3
A textbook publisher for books used in business schools believes that the number of books sold is related to the number of campus visits to decision makers made by their sales force. A sampling of the number of sales calls made and the number of books sold is shown in the following table.


Use the information provided in Table 8.3. If a sales representative makes 55 sales calls, the number of book sales the publisher should expect is:

A) 105.
B) 4,581.
C) 114.
D) 915.

Question 65

A linear regression model results in the equation Y = 15 - 23X. If the coefficient of determination is a perfect 1.0, the correlation coefficient must be -1.

Question 66

Table 8.2
The Agricultural Extension Agent's Office has tracked fertilizer application and crop yields for a variety of chickpea and has recorded the data shown in the following table. Their staff statistician developed the regression model and computed the performance statistics displayed below the data.

Use the information provided in Table 8.2. The value of Fertilizer required to generate 100 bushels yield must be:

A) 10.82.
B) 12.25.
C) 10.26.
D) 9.07.

Question 67

Table 8.4
The Furniture Super Mart is a furniture retailer in Evansville, Indiana. The Marketing Manager wants to prepare a media budget based on the next quarter's business plan. The manager wants to decide the mix of radio advertising and newspaper advertising needed to generate varying levels of Weekly Gross Revenue. The manager has collected data for the past five weeks, and has recorded the following average Weekly Gross Revenues and expenditures for Weekly Radio (X1) and Newspaper (X2) advertising:

The Manager uses the multiple regression model in OM Explorer and obtains the following results:

Use the information provided in Table 8.4. What amount of Weekly Gross Revenue can be expected for a week in which no radio or newspaper advertising is purchased? (Assume all other variables are held constant.)

A) $20,500
B) $3,750
C) $6,500
D) $10,250

Question 68

Table 8.3
A textbook publisher for books used in business schools believes that the number of books sold is related to the number of campus visits to decision makers made by their sales force. A sampling of the number of sales calls made and the number of books sold is shown in the following table.


Use the information provided in Table 8.3. What percent in the variation of the variable Books Sold is explained by the value of the variable Sales Calls Made?

A) 86.5%
B) 83.3%
C) 74.8%
D) 72.5%

Question 69

Which one of the following is an example of causal forecasting technique?

A) weighted moving average
B) linear regression
C) exponential smoothing
D) Delphi method

Question 70

Table 8.3
A textbook publisher for books used in business schools believes that the number of books sold is related to the number of campus visits to decision makers made by their sales force. A sampling of the number of sales calls made and the number of books sold is shown in the following table.


Use the information provided in Table 8.3. In order to realize the sale of 700 books, how many sales calls will the sales representative have to make?

A) 40.4
B) 45.9
C) 32.7
D) 37.6

Question 71

Table 8.2
The Agricultural Extension Agent's Office has tracked fertilizer application and crop yields for a variety of chickpea and has recorded the data shown in the following table. Their staff statistician developed the regression model and computed the performance statistics displayed below the data.

Use the information provided in Table 8.2. For every unit of fertilizer applied, the crop yield increases by:

A) 8.0 bushels.
B) 8.5 bushels.
C) 8.9 bushels.
D) 7.9 bushels.

Question 72

Table 8.2
The Agricultural Extension Agent's Office has tracked fertilizer application and crop yields for a variety of chickpea and has recorded the data shown in the following table. Their staff statistician developed the regression model and computed the performance statistics displayed below the data.

Use the information provided in Table 8.2. The value of Bushels when Fertilizer is 60 is:

A) 2520.
B) 490.
C) 390.
D) 518.

Question 73

Table 8.4
The Furniture Super Mart is a furniture retailer in Evansville, Indiana. The Marketing Manager wants to prepare a media budget based on the next quarter's business plan. The manager wants to decide the mix of radio advertising and newspaper advertising needed to generate varying levels of Weekly Gross Revenue. The manager has collected data for the past five weeks, and has recorded the following average Weekly Gross Revenues and expenditures for Weekly Radio (X1) and Newspaper (X2) advertising:

The Manager uses the multiple regression model in OM Explorer and obtains the following results:

Use the information provided in Table 8.4. What is the estimated Weekly Gross Revenue if $4,000 is spent on Radio Advertising (X1) and $7,000 is spent on Newspaper Advertising (X2)?

A) $52,250
B) $26,250
C) $72,750
D) $20,500

Question 74

Table 8.3
A textbook publisher for books used in business schools believes that the number of books sold is related to the number of campus visits to decision makers made by their sales force. A sampling of the number of sales calls made and the number of books sold is shown in the following table.


Use the information provided in Table 8.3. For every sale call made, the number of books sold increases by:

A) 14.74 books.
B) 104.6 books.
C) 83.30 books.
D) 7.25 books.

Question 75

Table 8.4
The Furniture Super Mart is a furniture retailer in Evansville, Indiana. The Marketing Manager wants to prepare a media budget based on the next quarter's business plan. The manager wants to decide the mix of radio advertising and newspaper advertising needed to generate varying levels of Weekly Gross Revenue. The manager has collected data for the past five weeks, and has recorded the following average Weekly Gross Revenues and expenditures for Weekly Radio (X1) and Newspaper (X2) advertising:

The Manager uses the multiple regression model in OM Explorer and obtains the following results:

Use the information provided in Table 8.4. Adding $1,000 of Weekly Radio Advertising (X1) can be expected to increase Weekly Gross Revenues by what amount? (Assume all other variables are held constant.)

A) $20,500
B) $3,750
C) $6,500
D) $10,250

Question 76

The number of #2 pencils the bookstore sells appears to be highly correlated with the number of student credit hours each semester. The bookstore manager wants to create a linear regression model to assist her in placing an appropriate order. In this scenario:

A) the dependent variable is student credit hours.
B) there are two independent variables.
C) there are two dependent variables.
D) the independent variable is student credit hours.

Question 77

Table 8.2
The Agricultural Extension Agent's Office has tracked fertilizer application and crop yields for a variety of chickpea and has recorded the data shown in the following table. Their staff statistician developed the regression model and computed the performance statistics displayed below the data.

Use the information provided in Table 8.2. What percent in the variation of the variable Bushels is explained by the value of the variable Fertilizer?

A) 89%
B) 79%
C) 71%
D) 50%

Question 78

Table 8.4
The Furniture Super Mart is a furniture retailer in Evansville, Indiana. The Marketing Manager wants to prepare a media budget based on the next quarter's business plan. The manager wants to decide the mix of radio advertising and newspaper advertising needed to generate varying levels of Weekly Gross Revenue. The manager has collected data for the past five weeks, and has recorded the following average Weekly Gross Revenues and expenditures for Weekly Radio (X1) and Newspaper (X2) advertising:

The Manager uses the multiple regression model in OM Explorer and obtains the following results:

Use the information provided in Table 8.4. What is the estimated Weekly Gross Revenue if $7,000 is spent on Radio Advertising (X1) and $4,000 is spent on Newspaper Advertising (X2)?

A) $45,500
B) $15,000
C) $60,500
D) $81,000

Question 79

The causal method of forecasting uses historical data on independent variables (such as promotional campaigns and economic conditions) to predict the demand of dependent variables (such as sales volume).

Question 80

Table 8.2
The Agricultural Extension Agent's Office has tracked fertilizer application and crop yields for a variety of chickpea and has recorded the data shown in the following table. Their staff statistician developed the regression model and computed the performance statistics displayed below the data.

Use the information in Table 8.2. If the correlation coefficient were negative, which of these statements would be True?

A) The coefficient of determination would also be negative.
B) An increase in fertilizer would result in a decrease in crop yield.
C) Applying no fertilizer would mean a negative crop yield.
D) The standard error would also be negative.