Chapter 8: Forecasting and Demand Printing

Multiple Choice

1. Forecasting is not a function which contributes to:

a) deciding which business market to pursue
b) deciding which product to produce
c) deciding how bonuses should be allocated
d) deciding how much inventory to carry
e) deciding how many people to hire

Ans: c
Section Ref: Introduction
Level: easy

2. When evaluating forecasting models it is accurate to say:

a) they all rely on the same data sets
b) they will provide the same results
c) they are usually accurate
d) they differ in their degree of complexity
e) they do not differ in their degree of complexity

Ans: d
Section Ref: Principles of Forecasting
Level: moderate

3. Which of the following is not a feature common to all forecasting models?

a) This period’s forecast error is needed to compute next period’s forecast.
b) Forecasts are rarely perfect.
c) Forecasts are more accurate for groups of items rather than for individual items.
d) Forecasts are more accurate for shorter rather than for longer time horizons.
e) All of the above features are common to all forecasting models.

Ans: a
Section Ref: Principles of Forecasting
Level: moderate

4. The first step in forecasting is:

a) determine what data is available
b) decide what to forecast
c) evaluate and analyze appropriate data
d) select and test the forecast model
e) establish the forecast accuracy requirements

Ans: b
Section Ref: Steps in the Forecasting Process
Level: moderate

5. Which of the following companies helps businesses use weather data to make their business
plans?
a) i2 technologies
b) Manugistics
c) Planalytics
d) Algorithmics
e) SAP

Ans: c
Section Ref: Types of Forecasting Methods
Level: hard

6. Qualitative forecasting methods

a) are made objectively by the forecaster
b) are made subjectively by the forecaster
c) are made using existing data sources
d) are based on mathematical models
e) are only used in parallel with quantitative models

Ans: b
Section Ref: Types of Forecasting Methods
Level: moderate

7. Under which forecasting method does a group of managers meet to generate a

forecast?
a) Market research
b) Executive opinion
c) Delphi method
d) Naïve method
e) Gamma method

Ans: b
Section Ref: Types of Forecasting Methods
Level: easy

8. Which forecasting method seeks to develop a consensus among a group of experts?

a) Market research
b) Executive opinion
c) Delphi method
d) Naïve method
e) Gamma method

Ans: c
Section Ref: Types of Forecasting Methods
Level: easy

9. One quantitative forecasting models limitation is

a) it is objective
b) they are consistent
c) they are based on mathematical formulas
d) they are limited on the quality of available data
e) they can work around bad data

Ans: d
Section Ref: Types of Forecasting Methods
Level: moderate

10. Which forecasting method is particular good for predicting technological changes and
scientific advances?
a) Market research
b) Executive opinion
c) Delphi method
d) Naïve method
e) Gamma method

Ans: c
Section Ref: Types of Forecasting Methods
Level: moderate

11. Which forecasting method is particularly good for determining customer preferences?
a) Market research
b) Executive opinion
c) Delphi method
d) Naïve method
e) Gamma method

Ans: a
Section Ref: Types of Forecasting Methods
Level: moderate
12. Which forecasting method suffers from the possibility of having one person’s opinion
dominate the forecast?
a) Market research
b) Executive opinion
c) Delphi method
d) Naïve method
e) Gamma method

Ans: b
Section Ref: Types of Forecasting Methods
Level: moderate

13. Which of the following forecasting methods is most likely to be implemented to

change an existing quantitative forecast to account for a new competitor in the
marketplace?
a) Market research
b) Executive opinion
c) Delphi method
d) Naïve method
e) Gamma method

Ans: b
Section Ref: Types of Forecasting Methods
Level: moderate

14. Which of the following forecasting methods is specifically designed to go through

several rounds of modification before generating a final forecast?
a) Exponential smoothing
b) Executive opinion
c) Delphi method
d) Naïve method
e) Gamma method

Ans: c
Section Ref: Types of Forecasting Methods
Level: moderate

15. What are the two categories of quantitative models?

a) Delphi and non-causal
b) Causal and non-causal
c) Delphi and time series
d) Causal and time series
e) Causal and Delphi
Ans: d
Section Ref: Types of Forecasting Methods
Level: easy

16. A causal research model is based on the assumption that

a) the independent variable is related to the dependent variable
b) there is a relationship between the time series and the dependent variable
c) the variable being forecast is related to other variables in the environment
d) there is a relationship between the time series and the independent variable
e) the information is contained in a time series of data

Ans: c
Section Ref: Types of Forecasting Methods
Level: moderate

17. Which of the following is a causal forecasting method?

a) Naïve
b) Moving average
c) Weighted moving average
d) Trend adjusted exponential smoothing
e) Linear regression

Ans: e
Section Ref: Types of Forecasting Methods
Level: easy

18. Which of the following is the least useful sales forecasting model to use when sales
are increasing?
a) Trend adjusted exponential smoothing
b) Simple mean
c) Exponential smoothing
d) Weighted moving average
e) Naïve

Ans: b
Section Ref: Types of Forecasting Methods
Level: hard

19. Over the long term, which of the following forecasting models will likely require
carrying the least amount of data?
a) Naïve
b) Simple mean
c) Exponential smoothing
d) Weighted moving average
e) Moving average

Ans: a
Section Ref: Types of Forecasting Methods
Level: moderate

20. In looking at seasonal indexes one weakness to watch for is

a) use of the wrong alpha
b) incorrect selection of weights
c) a clear lack of linear relationship
d) seasonality is not present
e) significant increase in computational requirements

Ans: d
Section Ref: Types of Forecasting Methods
Level: easy

21. Which of the following is not considered to be one of the four basic patterns of time
series data?
a) Horizontal
b) Trend
c) Vertical
d) Seasonality
e) Cycle

Ans: c
Response: See pages 259-260
Level: easy

22. Which is typically the most difficult data pattern to predict?

a) Horizontal
b) Trend
c) Level
d) Seasonality
e) Cycle

Ans: e
Section Ref: Time Series Models
Level: moderate

23. Which forecasting method assumes that next period’s forecast is equal to this period’s
actual value?
a) Simple mean
b) Ignorant
c) Basic
d) Naïve
e) Nescient

Ans: d
Section Ref: Time Series Models
Level: easy

24. The OM supervisor informs you, the researcher, that the data has a large standard
deviation. What data pattern would you expect to observe once you generated a time
series trend?
a) horizontal
b) seasonal
c) positive/negative trend
d) cycle
e) insufficient information to derive a valid response

Ans: e
Section Ref: Time Series Models
Level: moderate

25. Suppose that you are using the naïve forecasting method with trend to forecast sales.
If sales have been declining by 20% per week, and this week’s sales amounted to $200,
what would your forecast be for next week?
a) $200
b) $ 40
c) $240
d. $180
e) $160

Ans: e
Section Ref: Time Series Models
Level: moderate

26. Suppose that you are using the simple mean to make a forecast. This period’s
forecast was equal to 100 units, and it was based on 6 periods of demand. This period’s
actual demand was 86 units. What is your forecast for next period?
a) 98
b) 100
c) 93
d) 86
e) Not enough information is given to answer the question.
Ans: a
Section Ref: Time Series Models
Level: hard

27. Suppose that you are using the four-period simple moving average method to forecast
sales, and sales have been decreasing by 10% every period. How will your forecasts
perform?
a) Forecasts will be lower than actual.
b) Forecasts will be higher than actual.
c) Forecasts will equal actual.
d) Forecasts will be increasing.
e) Forecasts will be decreasing by 2.5% every period.

Ans: b
Section Ref: Time Series Models
Level: hard

28. Suppose that you are using the four-period weighted moving average forecasting
method to forecast sales and you know that sales will be increasing every period for the
foreseeable future. What of the following would be the best set of weights to use (listed
in order from the most recent period to four periods ago, respectively)?
a) 0.25, 0.25, 0.25, 0.25
b) 0.40, 0.30, 0.20, 0.10
c) 1.00, 0.00, 0.00, 0.00
d) 0.10, 0.20, 0.30, 0.40
e) 0.00, 0.00, 0.00, 1.00

Ans: c
Section Ref: Time Series Models
Level: hard

29. The following sales figures show actual sales over the identified time period. What
can be determined by comparing a simple mean forecast and a six month moving average
forecast
December 4,000
January 5,000
February 4,000
March 4,500
April 5,500
May 5,000

a) moving average develops a smoother forecast

b) 4.7, 5
c) 4.7, 4
d) 4,4
e) 4, 4.7

Ans: d
Section Ref: Time Series Models
Level: moderate

30. What are the most frequently used forecasting techniques?

a) Linear regression
b) Simple mean
c) Exponential smoothing
d) Weighted moving average
e) Econometric models

Ans: c
Section Ref: Time Series Models
Level: moderate

31. In exponential smoothing, what values can the smoothing constant, , have?
a) [ 1, 1]
b) [1, ]
c) [0, ]
d) [0, 1]
e) [ , ]

Ans: d
Section Ref: Time Series Models
Level: easy

32. In exponential smoothing, which of the following values for would generate the
most stable forecast?
a) 0.10
b) 0.25
c) 0.50
d) 0.75
e) 1.00

Ans: a
Section Ref: Time Series Models
Level: moderate

33. Suppose that you are interested in trend-adjusted exponential smoothing. Which of
the following values of the trend smoothing constant, , would most likely be seen in
practice?
a) 0.10
b) 0.50
c) 0.75
d) 0.90
e) 1.00

Ans: a
Section Ref: Time Series Models
Level: moderate

34. In linear regression, what are we trying to forecast?

a) Beta parameter
b) Dependent variable
c) Independent variable
d) Y-intercept of the line
e) Slope of the line

Ans: b
Section Ref: Causal Models
Level: moderate

35. What does the linear regression line do?

a) Minimizes sum of errors
b) Minimizes product of squared errors
c) Minimizes sum of squared errors
d) Minimizes product of errors
e) Minimizes sum of absolute value of errors

Ans: c
Section Ref: CausalCausal Models
Level: moderate

36. What value of the correlation coefficient implies that there is a perfect positive linear
relationship between the two variables of a linear regression model?
a) 1
b) 0
c) 0.5
d) 1
e)

Ans: d
Section Ref: CausalCausal Models
Level: easy
37. In linear regression, an r2 of .984 implies what?
a) 98.4% of the variability of the independent variable is explained by the dependent variable
b) 98.4% of the variability of the dependent variable is explained by the independent variable
c) 1.6% of the variability of the independent variable is explained by the dependent variable
d) 1.6% of the variability of the dependent variable is explained by the independent variable
e) 99.2% of the variability of the dependent variable is explained by the independent variable

Ans: b
Section Ref: CausalCausal Models
Level: moderate

38. What value of the correlation coefficient implies that there is no relationship between
the two variables of a linear regression model?
a) 1
b) 0
c) 0.5
d) 1
e)

Ans: b
Section Ref: CausalCausal Models
Level: easy

39. What is the statistic that measures the direction and strength of the linear relationship
between two variables?
a) r2
b) Coefficient of variation
c) Variance
d) Coefficient of kurtosis
e) Correlation coefficient

Ans: e
Section Ref: CausalCausal Models
Level: moderate

40. Which of the following is true with respect to the correlation coefficient r?
a) r2 r
b) r2 | r |
c) r2 r
d) r2 | r |
e) r2 can never equal r

Ans: b
Section Ref: CausalCausal Models
Level: moderate

41. Which of the following values of the correlation coefficient implies that the value of
the dependent variable decreases as the value of the independent variable increases?
a) 0.2
b) 0
c) 0.2
d) 1
e) 0.5

Ans: a
Section Ref: CausalCausal Models
Level: easy

42. The following correlation coefficient values come from five different linear
regression models. Which model “fits” the data the best?
a) 0.99
b) 0.5
c) 0
d) 0.8
e) 1

Ans: e
Section Ref: CausalCausal Models
Level: moderate

43. For what is a tracking signal used?

a) To identify trends in actual data
b) To identify seasonality in actual data
c) To identify the effect of business cycles on actual data
d) To compute the value of the smoothing constant, , for exponential smoothing
e) To identify forecast bias

Ans: e
Section Ref: Selecting The Right Forecasting Model
Level: moderate

44. Suppose that Sally’s company uses exponential smoothing to make forecasts. Further
suppose that last period’s demand forecast was for 20,000 units, and last period’s actual
demand was 21,000 units. Sally’s company uses a smoothing constant (α) equal to 40%.
What should be the forecast for this period?
a) 20,000
b) 21,000
c) 20,600
d) 20,400
e) 19,600

Ans: d
Section Ref: Time Series Models
Level: moderate

45. Suppose that Jane’s company uses exponential smoothing to make forecasts. Further
suppose that last period’s demand forecast was for 500 units, and last period’s actual
demand was 480 units. In addition, yesterday Jane found out that this period’s actual
demand will be for 550 units. Jane’s company uses an α value of .20. Today Jane’s boss
asked her to prepare a forecast for this period. What should that forecast be?
a) 504
b) 496
c) 510
d) 484
e) 550

Ans: c
Section Ref: Time Series Models
Level: hard

46. A firm has the following order history over the last 6 months.

January 120
February 95
March 100
April 75
May 100
June 50

What would be a 3-month weighted moving average forecast for July, using weights of
40% for the most recent month, 30% for the month preceding the most recent month, and
30% for the month preceding that one?

a) 75
b) 72.5
c) 50
d) 90
e) 106.5
Answer: b
Section Ref: Time Series Models
Level: moderate
47. What is the mean absolute deviation of the following forecasts?

Month Actual Sales Forecast

Jan. 614 600
Feb. 480 480
Mar. 500 550
Apr. 500 600
a) 3174
b) 164
c) 41
d) 136
e) -34

Ans: c
Section Ref: Measuring Forecast Accuracy
Level: moderate

48. What is the mean absolute deviation and mean squared error of the following forecast
Day Sale
Sales Forecast
24 37
31 41
27 46
29 47
25 50

a) 13, 157
b) 14, 321
c) 16, 312
d) 17, 313
e) 18, 321

Ans: d
Section Ref: Measuring Forecast Accuracy
Level: moderate

49. When is exponential smoothing equivalent to the “naïve” approach to forecasting?

a) When the smoothing constant is chosen randomly
b) α = 0
c) α = 1
d) α = .5
e) When next month’s forecast equals this month’s forecast

Ans: c
Section Ref: Time Series Models
Level: hard
50. Consider the demand data listed below. What is the 4-month moving average
forecast for June?

Month Actual Demand

Jan. 10,000
Feb. 12,000
Mar. 24,000
Apr. 8,000
May 14,000
a) 14,000
b) Not enough information is given to answer the question.
c) 14,500
d) 13,500
e) 15,333

Ans: c
Section Ref: Time Series Models
Level: moderate

51. Suppose that you want to set up a 3-month weighted moving average forecasting
system. You want the weights to be percentages (that add to 100%). Furthermore, you
want weights for the most recent two months to be equal but you want each of those
weights to be twice as large as the weight for the oldest month. What should the weight
be for the oldest month?
a) 33%
b) 25%
c) 80%
d) 50%
e) 20%

Ans: e
Section Ref: Time Series Models
Level: hard

52. Given the following data, use exponential smoothing (α = .2) to develop a demand
forecast for period 3. Assume the forecast for the initial period is 5. What is the
forecast?

Period Demand
1 7
2 9
a) 9.00
b) 3.72
c) 9.48
d) 5.00
e) 6.12

Ans: e
Section Ref: Time Series Models
Level: moderate

53. Which of the following forecasting methods would be best (most accurate) if demand
were rapidly decreasing?
a) 3-month moving average
b) 6-month moving average
c) 12-month moving average
d) Simple mean
e) Exponential smoothing with = 0.001

Ans: a
Section Ref: Types of Forecasting Methods
Level: hard

54. Suppose that you are using the exponential smoothing forecasting method, and this
period’s forecast (Ft) was 100% accurate (i.e., no error). If α = .5, which of the following
is definitely true?
a) Next period’s forecast will also be 100% accurate.
b) Next period’s forecast equals this period’s actual.
c) This period’s forecast must be thrown out, and next period’s forecast equals
Ft-1 + α (At-1 t-1).
d) Next period’s forecast equals 50% of this period’s forecast.
e) Next period’s forecast equals 50% more than this period’s forecast.

Ans: b
Section Ref: Time Series Models
Level: hard

55. A firm has had the following order history over the last 4 months:

November 140
December 80
January 100
February 150

What is the weighted moving average forecast for March, assuming a weight of 60% for
the most recent month, 30% for the month preceding the most recent month, and 10% for
the month preceding that one?
a) 117.5
b) 228.1
c) 118.0
d) 128.0
e) 132.4

Ans: d
Section Ref: Time Series Models
Level: moderate

56. What is the mean absolute deviation of the following forecasts?

Month Actual Sales Forecast

January 68 60
February 48 50
March 50 60
April 30 30
a) 1
b) 5
c) 20
d) 1
e) 42

Ans: b
Section Ref: Selecting the Right Forecasting Model
Level: moderate

57. What is the mean squared error of the following forecasts?

Month Actual Sales Forecast

Jan. 614 600
Feb. 480 480
Mar. 500 450
Apr. 500 600
a) 3174
b) 164
c) 41
d) 136
e) 12,696

Ans: a
Section Ref: Selecting the Right Forecasting Model
Level: moderate

58. What is the mean squared error of the following forecasts?

Month Actual Sales Forecast

Jan. 68 60
 Feb. 48 50
Mar. 50 60
Apr. 30 30
a) 168
b) 5
c) 20
d) 1
e) 42

Ans: e
Section Ref: Selecting the Right Forecasting Model
Level: moderate

59. Suppose that you are using exponential smoothing with = 0.5, and your initial
forecast 5 months ago was for 100 units. If the actual demand last month was 0 units,
which of the following is definitely true?
a) The forecast for this month should be 0.
b) The model blew up. You can’t use exponential smoothing anymore.
c) The forecast for last month was 0.
d) The forecast for this month should be 50.
e) We need more information to determine this month’s forecast.

Ans: e
Section Ref: Time Series Models
Level: hard

60. Suppose that you are using the four-period simple moving average method to forecast
sales, and sales have been increasing by 20% every period. How will your forecasts
perform?
a) Forecasts will be lower than actual.
b) Forecasts will be higher than actual.
c) Forecasts will equal actual.
d) Forecasts will be decreasing.
e) Forecasts will be increasing by 5.0% every period.

Ans: a
Section Ref: Time Series Models
Level: hard

61. Suppose that you are using the four-period simple moving average method to forecast
sales, and sales have been increasing by 40% every period. How will your forecasts
perform?
a) Forecasts will be increasing by 40.0% every period.
b) Forecasts will be higher than actual.
c) Forecasts will equal actual.
d) Forecasts will be decreasing.
e) Forecasts will be increasing by 10.0% every period.

Ans: a
Section Ref: Time Series Models
Level: hard

62. Suppose that you are using the naïve forecasting method with trend to forecast sales.
If sales have been increasing by 40% per month, and this month’s sales amounted to
$1200, what would your forecast be for next month?
a) $1200
b) $ 480
c) $1680
d. $ 720
e) $1600

Ans: c
Section Ref: Time Series Models
Level: moderate

63. Suppose that you are using the naïve forecasting method with trend to forecast sales.
Sales have been increasing by 10% per week. Two weeks ago, sales amounted to $100.
What should your forecast be for this week?
a) $100
b) $ 10
c) $110
d. $121
e) $120

Ans: d
Section Ref: Time Series Models
Level: moderate

64. Suppose that you are using the simple mean to make a forecast. This period’s
forecast was equal to 200 units, and it was based on 5 periods of demand. This period’s
actual demand was 300 units. What is your forecast for next period?
a) 217
b) 250
c) 260
d) 300
e) 200

Ans: a
Section Ref: Time Series Models
Level: hard
65. Suppose that you are using the simple mean to make a forecast. This period’s
forecast was equal to 1000 units, and it was based on 99 periods of demand. This
period’s actual demand was 0 units. What is your forecast for next period?
a) 1000
b) 990
c) 0
d) 1010
e) 999

Ans: b
Section Ref: Time Series Models
Level: hard

66. A firm has the following order history over the last 6 months.

January 120
February 95
March 100
April 75
May 100
June 50

67. What would be the 4-month simple moving average forecast for July?
a) 97.5
b) 325
c) 90
d) 81.25
e) 50

Ans: d
Section Ref: Time Series Models
Level: moderate

68. Given the following data, use exponential smoothing (α = .1) to develop a demand
forecast for period 3. Assume the forecast for the initial period is 500. What is the
forecast?

Period Demand
1 600
2 200
a) 569
b) 470
c) 541
d) 551
e) 479

Ans: e
Section Ref: Time Series Models
Level: moderate

69. Which of the following is the simplest forecasting method?

a) Naïve
b) Moving average
c) Weighted moving average
d) Trend adjusted exponential smoothing
e) Linear regression

Ans: a
Section Ref: Types of Forecasting Methods
Level: easy

70. Which of the following would NOT be a consideration for selecting a forecasting
software package?
a) How easy is the package to learn
b) Is it possible to implement new methods
c) Do you require repetitive forecasting
d) Does the supplier support a local conference
e) Is there any local support

Ans: d
Section Ref: Forecasting Software
Level: moderate

71. Combined forecasting involves a rule that

a) you must work with different vendors
b) you need different forecasters
c) you must always use a quantitative and qualitative method
d) the results are not comparable to a single forecast
e) the forecasting methods should be different

Ans: e
Section Ref: Combining Forecasts
Level: easy

72. Which of the following is not typically done jointly by CPFR trading partners?
a) set forecasts
b) plan production
c) replenish inventories
d) raise capital
e) evaluate their success in the marketplace

Ans: d
Section Ref: Collaborative Planning, Forecasting, and Replenishment (CPFR)
Level: hard

73. ___________________________ is a collaborative process between two trading partners that

establishes formal guidelines for joint forecasting and planning.
a) Collaborative Planning Forecasting and Replenishment (CPFR)
b) Supply Chain Planning Forecasting and Replenishment (SCPFR)
c) Supply Chain Optimization (SCO)
d) Collaborative Creation of Guidelines (CCG)
e) Joint Planning and Forecasting (JPP)

Ans: a
Section Ref: Collaborative Planning, Forecasting, and Replenishment (CPFR)
Level: moderate

74. “Inside information” is most likely garnered through which of the following
forecasting methods?
a) exponential smoothing
b) seasonal indexes
c) naïve
d) Delphi
e) multiple regression

Ans: d
Section Ref: Types of Forecasting Methods
Level: hard

75. Which of the following is not one of the nine steps utilized in the most complete form
of CPFR?
a) identify exceptions for order forecasts
b) create a sales forecast
c) create order forecast
d) create separate business plans
e) generate order

Ans: d
Section Ref: Collaborative Planning, Forecasting, and Replenishment (CPFR)
Level: hard
True/False

1. Forecasts are more accurate for individual items than for groups or families of items.

Ans: False
Section Ref: Principles of Forecasting
Level: moderate
2. Forecasting demand and forecasting sales are the same thing.

Ans: False
Section Ref: Steps in the Forecasting Process
Level: moderate

3. A qualitative forecast is made subjectively by the forecaster.

Ans: True
Section Ref: Types of Forecasting Methods
Level: easy

4. Planalytics is a company that helps businesses use weather data to make their business plans.

Ans: True
Section Ref: Types of Forecasting Methods
Level: hard

5. Executive opinion is a forecasting method designed to preserve anonymity among the

forecasters.

Ans: False
Section Ref: Types of Forecasting Methods
Level: easy

6. With the Delphi method, a group of managers meets and collectively generates a
forecast.

Ans: False
Section Ref: Types of Forecasting Methods
Level: easy
7. The Delphi method of forecasting is preferred to the executive opinion method if an
important consideration is eliminating any one person’s dominant opinion.

Ans: True
Section Ref: Types of Forecasting Methods
Level: moderate

8. Time series models are generally more difficult to use than causal models.

Ans: False
Section Ref: Types of Forecasting Methods
Level: moderate

9. A cycle is any data pattern that regularly repeats itself and is constant in length.

Ans: False
Section Ref: Time Series Models
Level: moderate

10. A cycle is typically the most difficult data pattern to predict.

Ans: True
Section Ref: Time Series Models
Level: moderate

11. The naïve forecasting method assumes that next period’s actual value will be equal to
this period’s forecast.

Ans: False
Section Ref: Time Series Models
Level: hard

12. The naïve forecasting method assumes that next period’s actual value will be equal to
this period’s actual value.

Ans: True
Section Ref: Time Series Models
Level: hard
13. The simple moving average forecasting method uses fewer periods of data than the
simple mean forecasting method does.

Ans: True
Section Ref: Time Series Models
Level: moderate

14. Suppose that you are using the three-period simple moving average method to
forecast sales, and sales have been increasing by 10% every period. Then your forecasts
will be increasing by 10% every period.

Ans: True
Section Ref: Time Series Models
Level: hard

15. Suppose that you are using the three-period simple moving average method to
forecast sales, and sales have been increasing by 10% every period. Then your forecasts
will be lower than the actual sales.

Ans: True
Section Ref: Time Series Models
Level: moderate

16. Moving average forecasts with a larger number of observations are more responsive than
those with a smaller number of observations.

Ans: False
Section Ref: Time Series Models
Level: moderate

17. Moving average forecasts with a smaller number of observations are more subject to random
changes in the data than those with a larger number of observations.

Ans: True
Section Ref: Time Series Models
Level: moderate

18. The MSE is always greater than or equal to the MAD.

Ans: False
Section Ref: Selecting the Right Forecasting Model
Level: hard

19. Exponential smoothing forecasting methods requires a small amount of historical data.

Ans: True
Section Ref: Selecting the Right Forecasting Model
Level: hard

20. Studies have shown that combining forecasts can lead to forecast accuracy that is better than
that of the individual forecasts.

Ans: True
Section Ref: Collaborative Planning, Forecasting, and Replenishment (CPFR)
Level: moderate

21. Focus forecasting needs to test the rule set once for the highest level of accuracy.

Ans: False
Section Ref: Focus Forecasting
Level: moderate

22. CPFR is an iterative process.

Ans: True
Section Ref: Collaborative Planning, Forecasting, and Replenishment (CPFR)
Level: moderate

23. Forecasting only impacts the business functions.

Ans: False
Section Ref: Forecasting Within OM: How It All Fits Together

24. Economics relies on forecasting to predict the duration of economic turning points.

Ans: True
Section Ref: Forecasting Across the Organization
Level: easy
Essay

1. Why are forecasts more accurate for groups or families of items rather than for
individual items?

Ans: individual high and low values can cancel each other out (offset each other), i.e.,
“risk pooling”
Section Ref: Principles of Forecasting
Level: moderate

2. What are the five basic steps in the forecasting process?

Ans: 1. Decide what to forecast, 2. Evaluate and analyze appropriate data, 3. Select and
test the forecasting model, 4. Generate the forecast, 5. Monitor forecast accuracy
Section Ref: Principles of Forecasting
Level: moderate

3. What is the objective of the Delphi method?

Ans: It’s a forecasting method that has an objective to reach a consensus among a
group of experts while maintaining their anonymity.
Section Ref: Types of Forecasting Methods
Level: moderate

4. What are the two categories of quantitative models?

Ans: time series and causal

Section Ref: Types of Forecasting Methods
Level: easy

5. Describe a data pattern with seasonality.

Ans: It regularly repeats itself and is constant in length.

Section Ref: Time Series Models
Level: moderate

6. Describe the naïve forecasting method.

Ans: It assumes that next period’s forecast is equal to this period’s actual value.
Section Ref: Time Series Models
Level: moderate

7. Explain the impact on forecasting that the number of observations used in a simple moving
average has.

Ans: The smaller the number of observations in the moving average, the more responsive the
forecast is to changes in demand. However, the forecast is also more subject to the random
changes in the data. If the data contain a lot of randomness, high responsiveness could lead
to greater errors. On the other hand, the larger the number of observations in the moving
average the less responsive the forecast is to changes in the demand, but also to the
randomness. These forecasts are more stable. One is not better than the other.
Section Ref: Time Series Models
Level: moderate

8. What is a correlation coefficient?

Ans: It is the statistic that measures the direction and strength of the linear
relationship between two variables.
Section Ref: CausalCausal Models
Level: moderate

9. Discuss why the degree of accuracy is important in selecting the right forecasting
model.

Ans: Depending on the situation some forecast estimates require general results or rough
forecast estimates. Often, higher levels of accuracy are required, which creates the need
for more advanced forecasting models.
Section Ref: Selecting the Right Forecasting Model
Level: moderate

10 Describe the idea behind focus forecasting.

Ans: Focus forecasting is based on the concept that simple rules have worked well in developing
good forecasts. The idea behind focus forecasting is to test these rules on past data and
evaluate how they perform. New rules can be added at any time, and old ones that have not
performed well can be eliminated.

Section Ref: Focus Forecasting

Level: moderate
11. What is one of the simplest ways to combine forecasts?

Ans: Use a simple average of the individual forecasts.

Section Ref: Collaborative Planning, Forecasting, and Replenishment (CPFR)
Level: moderate

12. What are the 9 steps utilized in the most complete form of CPFR?

Ans: (1) establish collaborative relationships, (2) create a joint business plan, (3) create a
sales forecast, (4) identify exceptions for sales forecasts, (5) resolve/collaborate on
exception items, (6) create order forecast, (7) identify exceptions for order forecast, (8)
resolve/collaborate on exception items, and (9) generate order
Section Ref: Collaborative Planning, Forecasting, and Replenishment (CPFR)
Level: hard

Problems

1. Hoops, Inc. produces videos on the art of shooting in basketball. The firm has
experienced the following demand for the first 6 months of the year.

Month Demand
Jan. 4,000
Feb. 6,000
Mar. 10,000
Apr. 2,000
May 20,000
June 30,000

What is the forecast for July using a 5-month simple moving average forecast?

Ans: 13,600
Section Ref: Time Series Models
Level: moderate

2. Hoops, Inc., produces videos on the art of shooting in basketball. The firm has
experienced the following demand for the first 6 months of the year.

Month Demand
Jan. 4,000
Feb. 6,000
Mar. 10,000
Apr. 2,000
 May 20,000
June 30,000

What is the forecast for July using a 4-month weighted moving average forecast, where
(1) the weight for the most recent month is three times more than the weight for the
period that’s four months in the past, (2) the weight for two periods ago is the same as the
weight for the most recent period, (3) the weight for three periods ago is the same as the
weight for the demand four periods ago, and (4) the weights sum to 100%?

Ans: 20,250 units

Section Ref: Time Series Models
Level: hard

3. Hoops, Inc., produces videos on the art of shooting in basketball. The firm has
experienced the following demand for the most recent four months.

Month Demand
Mar. 10,000
Apr. 2,000
May 20,000
June 30,000

Prepare an exponential smoothing forecast for July, using an value of .40. Initiate the
process by assuming that the forecast for March is 8,000 units.

Ans: 18,989
Section Ref: Time Series Models
Level: hard

4. The Freewheel motorcycle dealer in the Chicago area wants to be able to forecast
accurately the demand for the Freewheel Super Z12 motorcycle. From sales records, the
dealer has accumulated the following data for the second half of 2000.

Month Sales
July 10
August 15
September 23
October 44
November 54
December 36

a. Compute a 3-month moving average forecast of demand for January 2001.

b) Compute a 5-month moving average forecast of demand for January 2001.

Ans: a. 44.67, (FT+1 = ∑AT / n = (36 + 54 + 44)/3 = 44.67)

b. 34.4 (FT+1 = ∑ AT / n = (36 + 54 + 44 + 23 + 15)/5 = 34.4)
Section Ref: Time Series Models
Level: moderate

5. John’s Office Supply Company has the following order history over the last 7 months.

April 65
May 180
June 30
July 90
August 120
September 190
October 70

Compute an exponential smoothing forecast for November, with a smoothing constant of

α = .25. To start the procedure, assume that the forecast for April was 100. Round each
forecast to two decimal places.

Ans: 108.79
Section Ref: Time Series Models
Level: hard

6. John’s Office Supply Company has the following order history over the last 8 months.

April 50
May 75
June 160
July 120
August 80
September 120
October 180
November 90

Compute a 3-month weighted moving average forecast for December, with a weight of
65% for the most recent month, 25% for the month preceding the most recent month, and
10% for the month preceding that one.

Ans: 115.5 (FT+1 = ∑ CT AT / n = (.65 * 90 + .25 * 180 + .1 * 120)/3 = 115.5)

Section Ref: Time Series Models
Level: moderate

7. Steve’s Steak House uses exponential smoothing with trend (alpha = .10 and beta =
.40) to forecast its weekly demand for chopped steak in the metro area. Average sales
have been 1000 steaks per week, and the recent trend has been an increase of 20 steaks
per week. Actual demand last week was for 1040 steaks. What should the forecast be for
this week?
Ans: 1042.8
Section Ref: Time Series Models
Level: hard

8. Joe’s Equipment Distributors sells “Low and Loud” brand lawnmowers. Total demand
in 2002 is expected to be 2000 units. Given the historical sales figures listed below,
derive a forecast for each quarter in 2002.

1999 2000 2001

Fall 50 80 120
Winter 150 450 510
Spring 500 600 700
Summer 400 490 610

Ans: Fall = 104.5, Winter = 451, Spring = 790.5, Summer = 654

Section Ref: Time Series Models
Level: hard

9. Central Heating needs to forecast the number of boilers they will sell in April. Using
the following data and an alpha of .3 how many boilers should they have on hand?
Boilers
sold forecast
Nov 12 13
Dec 13.5 12
Jan 14 14
Feb 16 15
Mar 17 18

Ans: 18 Ft+1=αAt+(1-α)Ft = .3*17+(1-.3)*18) = 17.7, must round up to 18 as you cannot

buy a .7 boiler
Section Ref: Time Series Models
Level: moderate

10. Cover Me, Inc. sells umbrellas in three cities. Management assumes that annual
rainfall is the primary determinant of umbrella sales, and it wants to generate a linear
regression equation to estimate potential sales in other cities. Given the data below, what
is the regression equation?

Rainfall Sales
X Y
City A 36 in. 2300
City B 30 in. 2000
City C 12 in. 800

Ans: Y = 50.04 + 63.46X

Section Ref: Causal Models
Level: hard

11. Hoops, Inc. has the following actual demand and forecasted demand data.

Month Actual Demand Forecast

Jan. 1000 800
Feb. 200 880
Mar. 2000 600
Apr. 3000 1100

Calculate the mean squared error of those forecasts.

Ans: 1,518,100
Section Ref: Measuring Forecast Accuracy
Level: moderate

12. Annie’s Smart Dog annual fair concession stand operates for five days. Last year they sold
the following number of supreme smart dogs. Calculate (a) MAD, (MSE) and using a tracking
signal of+/- 8 determine if the forecast should be reviewed.

Day Sale
Sales Forecast

24 27
31 31
27 36
29 37
25 35

Ans: (a) 6, (b) 51 and (c) forecast should be reviewed as signal exceeds the +/- 8 range on day 5
 Cumulative
Day Sale Deviation Tracking
Sales Forecast Error MAD MSE Deviation Signal
8 1.33
24 27 -3 3 9 -3 5 0.83
31 31 0 0 0 -3 2 0.33
27 36 -9 9 81 -12 -10 -1.67
29 37 -8 8 64 -20 -30 -5.00
25 35 -10 10 100 -30 -60 -10.00
6 51

Section Ref: Measuring Forecasts Accuracy

Level: moderate

Short Answer

1. An observation's residual error is the ________________________ distance between

itself and the linear regression line.

Ans: vertical
Section Ref: Time Series Models
Level: moderate

2. Unlike MAD and MSE, the tracking signal's numerator allows positive and negative
forecast errors to ________________________

Ans: cancel each other.

Section Ref: Measuring Forecast Accuracy
Level: hard

3. Developing a single forecast from several methods is called

________________________

Ans: combining forecasting

Section Ref: Combining Forecasts
Level: easy

4. Companies that use collaborative planning, forecasting, and replenishment repeat its
steps ________________________ and ________________________ annually.

Ans: weekly or monthly (both required), evaluate their agreement

Section Ref: Collaborative Planning, Forecasting, and Replenishment (CPFR)
Level: hard

5. The basic principles of forecasting are: ________________________ ,

________________________ , and ________________________ .

Ans: forecasts are rarely perfect, more accurate for groups than individual items, and for
shorter than longer time horizons
Section Ref: Collaborative Planning, Forecasting, and Replenishment (CPFR)
Level: moderate

6. What is the exponential smoothing formula? ________________________

Ans: (formula)
Section Ref: Time Series Models
Level: moderate

7. The most frequently used forecasting model is the _______

Ans: exponential smoothing

Section Ref: Time Series Models
Level: moderate

8. The first round of an exponential smoothing process is often begun by setting the
second period forecast equal to ________________________

Ans: the first period's actual observation, an example of naive forecasting.

Section Ref: Time Series Models
Level: moderate

9. The difference between MSE and 2 is that ________________________

Ans: MSE uses the sample size, n, in the denominator while 2 corrects for the bias
inherent in small samples by using n-1.
Section Ref: Measuring Forecast Accuracy
Level: hard

10. The number of future periods forecast is called the ________________________

Ans: forecast or time horizon

Section Ref: Principles of Forecasting
Level: easy

11. Nearly all other business decisions depend on ________________________

Ans: forecasting
Section Ref: Principles of Forecasting
Level: easy

12. When developing the linear trend line you must calculate ____ before _____.

Ans. coefficient b, coefficient a

Section Ref: Time Series Models
Difficulty: hard

13. Multiple regression is an _____ of linear regression.

Ans: extension
Section Ref: Measuring Forecast Accuracy
Level: moderate