Exam 6: Forecasting

Sales Forecast Modeling. Engineering Consultants, Inc., would like to generate a sales forecast based on the assumption that next year sales are a function of current income, advertising, and advertising by a competing manufacturer: A. Write an equation for predicting sales based on the assumption that the percentage change in sales is one-and-a-half as large as the percentage change in income and advertising; but only one-half as large as, and of the opposite sign of, the percentage change in competitor advertising. Use the symbols S = sales, Y = income, A = advertising, and CA = competitor advertising. B. During the current year, sales total $750,000, income is $71,750 per capita, advertising is $75,000, and competitor advertising is $100,000. Previous period levels were $70,000 (income), $60,000 (advertising), and $80,000 (competitor advertising). Forecast next year sales.

Annual Compounding. The following table shows annual sales data for Landrover, Inc., over the ten-year 1998-2008 period: A. Calculate the 1998-2008 growth rate in sales using the constant rate of change model with annual compounding. B. Calculate 5-year and 10-year sales forecasts.

Sales Forecast Modeling. Jeng-Mei Chen, Inc., an upscale Manhattan restaurant, would like to generate a sales forecast based on the assumption that next year sales are a function of current income, advertising, and advertising by a competing restaurant: A. Write an equation for predicting sales based on the assumption that the percentage change in sales is twice as large as the percentage change in income and advertising; but only one-fourth as large as, and of the opposite sign of, the percentage change in competitor advertising. Use the symbols S = sales, Y = income, A = advertising, and CA = competitor advertising. B. During the current year, sales total $2,000,000, income is $84,700 per capita, advertising is $500,000, and competitor advertising is $300,000. Previous period levels were $77,000 (income), $400,000 (advertising), and $400,000 (competitor advertising). Forecast next year sales.

Economic relations that are hypothesized to be true are called:

Which of the following forecasting methods is not qualitative?

The forecasting technique least-suited for short term projection is:

Continuous Compounding. Elizabeth Corday, a quality control supervisor for Surgery Products, Inc., is concerned about an increase in distribution costs for disposable syringes from $40 to $50 per case over the last five years. Corday feels that setting up a new direct-sales distribution network at a cost of $58.50 per unit may soon be desirable. A. Calculate the unit cost growth rate using the constant rate of change model with continuous compounding. B. Forecast when unit distribution costs will exceed the current cost of direct-sales distribution.

Simultaneous Equations. Macrosoft, Inc., based in Seattle, Washington, manufactures a wide range of parts for the aircraft, automotive, and agricultural equipment industries. The company is currently evaluating the merits of building a new plant in order to fulfill a new contract with the federal government. The alternative to expansion is to use additional overtime, reduce other production, or a combination of both. The company will add new capacity only if the economy appears to be expanding. Forecasting the general economic activity of the United States is therefore an important input to the decision making process. The firm has collected data and estimated the following relations for the U. S. economy:

Simultaneous Equations. Buckeye Cinema, Inc., which runs a chain of movie theaters in the state of Ohio, has had great success with a "Tuesday Night at the Movies" promotion. By offering half off its regular $8 admission price, average nightly attendance has risen from 400 to 800 persons. Popcorn (Pop) and other concession (C) revenues tied to attendance have also risen dramatically. Historically, Buckeye Cinema has found that 50% of all movie goers will buy a $4 cup of popcorn, whereas 25% of all movie goers plus 50% of those buying popcorn will spend $3 on soda and other concessions. A. Write an expression describing total revenue from tickets plus popcorn plus other concessions. B. Forecast total revenues for both regular and special Tuesday-night pricing. C. If the profit contribution is 25% on movie ticket revenues, and 75% on popcorn and other concession revenues, is the pricing promotion profitable?

Sales Forecast Modeling. Consulting Associates, Ltd., would like to generate a sales forecast based on the assumption that next year sales are a function of current income, advertising, and advertising by a competing retailer:

Simultaneous Equations. Gates Equipment, Inc., manufactures a wide range of parts for the agricultural equipment industry. The company is currently evaluating the merits of building a new plant in order to fulfill a new contract with a large export concern. The alternative to expansion is to use additional overtime, reduce other production, or a combination of both. The company will add new capacity only if the regional economy appears to be expanding. Forecasting the general economic activity of the United States is therefore an important input to the decision making process. The firm has collected data and estimated the following relations for the U. S. economy:

Sales Forecast Modeling. The change in the quantity of Cheez Sticks demanded in any given week is inversely proportional to the change in sales of Pretzel Q's in the previous week. That is, if sales of Pretzel Q's fell by X percent last week, sales of Cheez Sticks can be expected to rise by 2X percent this week. A. Write the equation for next week's sales of Cheez Sticks, using the symbols C = sales of Cheez Sticks, Q = sales of Pretzel Q's, and t = time. Assume there will be no shortages of either product. B. Last week 600 units of C and 350 units of Q were sold. Two weeks ago, 400 units of Q were sold. What would you predict the sales of C to be this week?

A rhythmic annual pattern in sales or profits is called:

Continuous Compounding. Abby Lockheart, a quality control supervisor for Intensive care, Inc., is concerned about an increase in distribution costs per unit from $3 to $3.27 over the last three years. Lockheart feels that setting up a new direct-sales distribution network at a cost of $3.56 per unit may soon be desirable. A. Calculate the unit cost growth rate using the constant rate of change model with continuous compounding. B. Forecast when unit distribution costs will exceed the current cost of direct-sales distribution.

Sales Forecasting. The World Bazaar, Ltd., must forecast sales for indoor electric grills in order to avoid stockouts or excessive inventory charges during the coming Christmas season. In percentage terms, the company estimates that electric grill sales fall at triple the rate of price increases and grow at three times the rate of customer traffic increases. Furthermore, these effects seem to be independent. A. Write an equation for estimating the Christmas season sales, using the symbols S = sales, P = price, T = traffic, and t = time. B. Forecast this season's sales if the World Bazaar sold 500,000 indoor electric grills last season at $40 each, this season's price is anticipated to be $45, and customer traffic is expected to rise by 15% over previous levels.

Cost Forecast Modeling. John Carter, an intern at Medical Products, Inc., is evaluating the cost effectiveness of a training program in his department. Carter believes that the monthly rejection rate is inversely related to the hours spent each month on worker training. A. Write an equation to predict next month's rejection rate using the symbols R = rejection rate, T = worker training, t = time, a0 = constant term, a1 = regression slope coefficient, and assuming that the rejection rate in the forecast month decreases by twice the percentage increase in worker training during the preceding month. B. If 40 hours were spent last month on worker training and this month's rejection rate was 60, what should the rejection rate be next month if worker training this month is 50 hours? Use the equation developed in part A.

Which of the following does not indicate the relative accuracy of an economic forecast?

Sales Forecast Modeling. The change in the quantity of product A demanded in any given week is inversely proportional to the change in sales of product B in the previous week. That is, if sales of B rose by X percent last week, sales of A can be expected to fall by X percent this week. A. Write the equation for next week's sales of A, using the symbols A = sales of Product A, B = sales of Product B, and t = time. Assume there will be no shortages of either product. B. Last week 500 units of A and 250 units of B were sold. Two weeks ago, 200 units of Product B were sold. What would you predict the sales of A to be this week?

Cost Forecast Modeling. Elliot Ness, manager of product packaging at Chicago Tool & Die, Inc., is evaluating the cost effectiveness of the preventive maintenance program in his department. Ness believes that the monthly downtime of the packaging line due to equipment breakdown is related to the hours spent each month on preventive maintenance. A. Write an equation to predict next month's downtime using the symbols D = downtime, M = preventive maintenance, t = time, a0 = constant term, a1 = regression slope coefficient, and assuming that downtime in the forecast month decreases by the same percentage as preventive maintenance increased during the preceding month. B. If 75 hours were spent last month on preventive maintenance and this month's downtime was 50 hours, what should downtime be next month if preventive maintenance this month is 90 hours? Use the equation developed in part A.

Which of the following is a leading economic indicator?