Question

1. National Scan, Inc sells radio frequency inventory tags. Monthly sales for a seven-month period were as follows: 

Month Sales (000 units) 

Feb. 21 

Mar. 20 

Apr. 17 

May 22 

Jun. 20 

Aug. 22 

a. Plot the monthly data on a sheet of graph paper.

b. Forecast September sales volume using each of the following: 

(1) The naive approach 

(2) A five month moving average 

(3) A weighted average using 60 for August, 30 for July, and. 10 for June 

(4) Exponential smoothing with a smoothing constant equal to.20, assuming a March-forecast of 19(000) 

(5) A linear trend equation 

c. Which method seems least appropriate? Why? (Hint: Refer to your plot from part a.)

d. What does use of the term sales rather than demand presume?

Answer 1

1.

A.

MONTHLY SALES (,000) 30 y 0.5x+18.857 R2- 0.2426 25 20 15 10 0 0 1 2 4 5 6 7 8 MONTH LO LC LO SALES

B.

1.

Sep. Forecast on the basis of Naive approach = 22 (,000 units)

2.

Sep. Forecast on the basis of 5 Month MA approach = (17+22+20+24+22)/5 = 21 (,000 units)

3.

Sep. Forecast on the basis of 3 month WMA approach = .10*20 + .30*24 + .6*22 = 22.4

4.

Month	Sales	EMA with alpha = .2
Feb.	21
Mar	20	19
Apr	17	19.20
May	22	18.76
Jun	20	19.41
Jul	24	19.53
Aug	22	20.42
Sep		20.74

So,

Sep. Forecast with EMA =  20.74 (,000 units)

5.

A

Sep. Forecast with lineal trend equation = 0.5*8 + 18.857 = 22.86 (,000 units)

C.

Naive method is least appropriate, because it does not consider the past trends.

D.

Sales means actual revenue generated, and demand means market potential that can be realized into the sales. Sales are realized, and demand is forecasted.