How to develop a forecast by applying the critical ratio to a distribution?

Expert Solution

Critical Ratio is a ratio of Underage cost to the sum of Underage cost and Overage Cost. This ratio helps us conclude upon the demand probability we should profitably satisfy for a given Selling Price, Cost Price and Sunk Cost. In other words, it provides us with the statistics about the desired In-Stock Probability, we should target so as to remain profitable to great extent.

After getting this target service level, we can easily transfer that to a Z value and hence by using it along with the Average demand and standard deviation of demand, we can easily find the order/production quantity we should purchase/produce so as to maintain profitability of business, in spite of the highly variable demand.

Thus by using the critical ratio, we can forecast our distribution policy because it helps us plan our Order/Production size which would make our activity profitable in spite of the fluctuating demands.

Pleae Like & Provide your reviews in comments. :-)

keosha answered 5 months ago

Critical Sales Forecast Why is the sales forecast so important in short-term financial planning? How does...

Critical Sales Forecast Why is the sales forecast so important in short-term financial planning? How does it affect the key areas in a whole organization? Which area do you think is most affected by the sales forecast? Why?

(a) Develop a five month average forecast. Compute MSE and a forecast for month 13.

Consider the following time series data Month 1 2 3 4 5 6 7 8 9 10 11 12 Value 90 89 86 91 90 91 88 86 91 93 90 88 (a) Develop a five month average forecast. Compute MSE and a forecast for month 13. (b) Use α = 0.2 to compute the exponential smoothing values for the time series. Compute MSE and a forecast for month 13. ( c) Compare the result for the five month...

Describe the various forecasting methods. What are the steps needed to develop a forecast? Explain how...

Describe the various forecasting methods. What are the steps needed to develop a forecast? Explain how you could use Excel to help develop a forecast. Provide an example of an Excel forecast for a three year period on any one income statement or balance sheet account.

[Critical thinking] Critical thinking is the intellectually disciplined process of actively and skillfully conceptualizing, applying, analyzing,...

[Critical thinking] Critical thinking is the intellectually disciplined process of actively and skillfully conceptualizing, applying, analyzing, synthesizing, and/or evaluating information gathered from, or generated by, observation, experience, reflection, reasoning, or communication, as a guide to belief and action. In this regard, answer the following questions 1. What exactly is critical thinking? 2. What are the 5 critical thinking skills? 3. How to improve critical thinking? 4. briefly describe a situation where you applied critical thinking?

what are the factors that are critical to a professional auditor properly applying professional skepticism?

develop a? three-period moving average forecast for april 2019

A geneticist discovers a new mutation in Drosophila melanogaster that causes the flies to shake and quiver. She calls this mutation spastic (sps) and determines that it is due to an autosomal recessive gene. She wants to determine if the gene encoding spastic is linked to the recessive gene for vestigial wings (vg). She crosses a fly homozygous for spastic and vestigial traits with a fly homozygous for the wild-type traits and then uses the resulting F1 females in a...

How does the sense of self develop during preschool years? What are some critical variations in...

How does the sense of self develop during preschool years? What are some critical variations in how the self is defined and develop? How do children begin to develop a positive self-esteem? Provide examples to support your response.

What is critical thinking? What kind of mindset should you develop to become an effective critical...

What is critical thinking? What kind of mindset should you develop to become an effective critical thinker? Is it important to understand what an argument is to be an effective critical thinker? Why or why not? In your essay, touch on Socrates and independent thinking as well as concepts such as truth. Be sure to provide examples in your essay.

Develop a production plan and calculate the annual cost for a firm whose demand forecast is...

Develop a production plan and calculate the annual cost for a firm whose demand forecast is fall, 10,300; winter, 8,200; spring, 6,800; summer, 12,300. Inventory at the beginning of fall is 515 units. At the beginning of fall you currently have 30 workers, but you plan to hire temporary workers at the beginning of summer and lay them off at the end of summer. In addition, you have negotiated with the union an option to use the regular workforce on...

develop a working definition of technology and technological change applying the lens of interdisciplinary social science...

develop a working definition of technology and technological change applying the lens of interdisciplinary social science identify the changing patterns of social interaction and groupings in multiple settings including family, home, work, and leisure analyze the impact of the changing technological context on relationships and social lives to enhance learning, communication, decision-making, and privacy compare the choices and decisions that different contemporary societies face concerning technological development, technological equity, economics, and the environment investigate policy solutions to address individual and...

Question