Problem 1 – Forecasting

Boca Electronics sells radio circuit protection fuses to radio manufactures, globally. Monthly sales for a seven-month period were as follows:

Month Sales
(000) units
Feb 19
Mar 18
Apr 15
May 20
Jun 18
Jul 22
Aug 20

Required:

1. Forecast September sales volume using each of the following:
a. A five-month moving average.
b. A weighted average using .60 for August, .30 for July, and .10 for June.
c. Exponential smoothing with a smoothing constant equal to .20, assuming a March forecast of 19(000).
2. Which method seems most appropriate? Why?
3. What does use of the term sales rather than demand presume?

Problem 2 – Forecast Error

Two different forecasting techniques (F1 and F2) were used to forecast demand for cases of bottled water. Actual demand and the two sets of forecasts are as follows:

Predicted Demand
Period Demand F1 F2
1 68 66 66
2 75 68 68
3 70 72 70
4 74 71 72
5 69 72 74
6 72 70 76
7 80 71 78
8 78 74 80

Required:

1. Compute MAD for each set of forecasts. Given your results, which forecast appears to be more accurate? Explain.

2. Compute the MSE for each set of forecasts. Given your results, which forecast appears to be more accurate?

3. In practice, either MAD or MSE would be employed to compute forecast errors. What factors might lead a manager to choose one rather than the other?

4. Compute MAPE for each data set. Which forecast appears to be more accurate?

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