Exam 6: Forecasting

Cost Forecast Modeling. Robert Romano, CEO of Rocket Science, Inc., is evaluating the cost effectiveness of the preventive maintenance program. Romano believes that the monthly downtime of the accelerator 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 half of the percentage increase in preventive maintenance during the preceding month. B. If 60 hours were spent last month on preventive maintenance and this month's downtime was 40 hours, what should downtime be next month if preventive maintenance this month is 75 hours? Use the equation developed in part A.

Simultaneous Equations. The Metropolitan Symphony in Toledo, Ohio, has had great success with a "Senior Citizens' Night" promotion. By offering half off its regular $20 admission price, average nightly attendance has risen from 4,000 to 6,000 persons. Beverage (B) and other concession (C) revenues tied to attendance have also risen dramatically. Historically, Metropolitan Symphony has found that 75% of all concert goers will buy a $3 beverage, whereas 10% of all concert goers plus 40% of those buying beverages will spend $2 on hors d'oeuvres and other concessions. A. Write an expression describing total revenue from tickets plus beverage plus other concessions. B. Forecast total revenues for both regular and special senior citizens' night pricing. C. If the profit contribution is 25% on concert ticket revenues, and 75% on beverages and other concession revenues, is the pricing promotion profitable?

A forecast method based on the informed opinion of several individuals is called:

Unpredictable shocks to the economic system are called:

A leading economic indicator of business cycle peaks is given by:

Sales Forecast Modeling. Kerry Weaver, office manager for Pediatric Medicine, 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 local hospital: A. Write an equation for predicting sales based on the assumption that the percentage change in sales is three times 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 $1,000,000, local disposable income is $78,750 per household, advertising is $90,000, and competitor advertising is $100,000. Previous period levels were $75,000 (income), $80,000 (advertising), and $125,000 (competitor advertising). Forecast next year sales.

Econometric methods:

Econometric forecasting methods:

Continuous Compounding. Nicholas Nickelby, a quality control supervisor for Vinyl Windows, Inc., is concerned about an increase in distribution costs per unit from $10 to $13.80 over the last four years. Nickelby feels that setting up a new direct-sales distribution network at a cost of $17.50 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.

A secular trend is the: