Question

In: Operations Management

PROBLEM 1: Sales records for the last six quarters for Howard Bakery which is famous for...

PROBLEM 1:


Sales records for the last six quarters for Howard Bakery which is famous for its multi-grain bread are given below: (Sales data are in thousands of pounds, but ignore the last three zeros for ease of computation.)

Quarter                             Sales ($)

  1. 240
  2. 260
  3. 300
  4. 280
  5. 320
  6. 360
  1. Using a three-quarter simple moving average method, forecast sales for each

successive quarter.

  1. Using a three-quarter weighted moving average method, forecast sales for each successive quarter. (Use weights of 0.1, 0.3 and 0.6 for each quarter where 0.1 is for the most distant quarter, 0.3 for the next most distant quarter, and 0.6 for the most recent quarter.)  
  2. Evaluate the two forecasts using the Cumulative Forecast Error (CFE) method (also called Bias or Arithmetic Sum of Forecast Error). Which of the two forecasts above—(a) or (b) is better based on the CFE test? Note: Show your computations.

Solutions

Expert Solution

Formulae to be used:

Error = Actual- Forecast

CFE= Sum of errors

  • Forecast of a period with n period moving average = average of last n periods demand
  • Weighted Forecast of July period = (0.6*sales of most recent period + 0.3*sales of next most recent period+ 0.1*sales of third recent period)

a.

t Actual, At 3 period moving average forecast, Error= Actual- Forecast
q1 240
q2 260
q3 300
q4 280 266.67 13.3
q1 320 280.00 40.0
q2 360 300.00 60.0
q3 320.00
113.33
CFE

b.

t Actual, At Forecast weighted moving average(wts 0.6, 0.3,0.1) Error= Actual- Forecast
q1 240
q2 260
q3 300
q4 280 282.00 -2.0
q1 320 284.00 36.0
q2 360 306.00 54.0
q3 340.00
88.00
CFE

c. Weighted moving average forecast is better than moving average forecast because its CFE is less than the other.

keosha answered 1 year ago
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