What is Forecasting Answer Key Part 1

What is Forecasting? 1) Forecasts may be influenced by a product's position in its life cycle. Answer: TRUE 2) Demand forecasts serve as inputs to financial, marketing, and personnel planning. Answer: TRUE 3) What two numbers are contained in the daily report to the CEO of Walt Disney Parks & Resorts regarding the six Orlando parks? 1. 2. A) yesterday's forecasted attendance and yesterday's actual attendance B) yesterday's actual attendance and today's forecasted attendance 3. 4. 5. error C) yesterday's forecasted attendance and today's forecasted attendance D) yesterday's actual attendance and last year's actual attendance E) yesterday's forecasted attendance and the year-to-date average daily forecast Answer: A 4) As compared to long-range forecasts, short-range forecasts: 1. A) are less accurate. 2. B) deal with less comprehensive issues supporting management decisions. 3. C) employ similar methodologies. 4. D) all of the above 5. E) none of the above Answer: B 5) One use of short-range forecasts is to determine: 1. 2. A) planning for new products. B) capital expenditures. 3. C) research and development plans. 4. D) facility location. 5. E) job assignments. Answer: E 6) Forecasts are usually classified by time horizon into which three categories? 1. A) short-range, medium-range, and long-range 2. B) finance/accounting, marketing, and operations 3. C) strategic, tactical, and operational 4. D) exponential smoothing, regression, and time series 5. E) departmental, organizational, and industrial Answer: A 7) A forecast with a time horizon of about 3 months to 3 years is typically called a: 1. A) long-range forecast. 2. B) medium-range forecast. 3. C) short-range forecast. 4. D) weather forecast. 5. E) strategic forecast. Answer: B 8) Forecasts used for new product planning, capital expenditures, facility location or expansion, and R&D typically utilize a: 1. A) short-range time horizon. 2. 3. B) medium-range time horizon. C) long-range time horizon. 4. D) naive method, because there is no data history. 5. E) trend extrapolation. Answer: C 9) The three major types of forecasts used by organizations in planning future operations are: 1. A) strategic, tactical, and operational. 2. B) economic, technological, and demand. 3. C) exponential smoothing, Delphi, and regression. 4. D) causal, time-series, and seasonal. 5. E) departmental, organizational, and territorial. Answer: B 10) Which of the following most requires long-range forecasting (as opposed to short-range or medium-range forecasting) for its planning purposes? 1. 2. 3. 4. 5. A) job scheduling B) production levels C) cash budgeting D) capital expenditures E) purchasing Answer: D 11) Short-range forecasts tends to ________ longer-range forecasts. 1. A) be less accurate than 2. B) be more accurate than 3. C) have about the same level of accuracy as 4. D) employ the same methodologies as 5. E) deal with more comprehensive issues than Answer: B 12) ________ forecasts are concerned with rates of technological progress, which can result in the birth of exciting new products, requiring new plants and equipment. Answer: Technological 13) ________ forecasts address the business cycle by predicting inflation rates, money supplies, housing starts, and other planning indicators. Answer: Economic 14) A skeptical manager asks what short-range forecasts can be used for. Give her three possible uses/purposes. Answer: Any three of: planning purchasing, job scheduling, workforce levels, job assignments, and production levels. 15) A skeptical manager asks what long-range forecasts can be used for. Give her three possible uses/purposes. Answer: Any three of: planning for new products, capital expenditures, facility location or expansion, and research and development. 16) Describe the three forecasting time horizons and their use. Answer: Forecasting time horizons are: short range–generally less than three months, used for planning purchasing, job scheduling, workforce levels, job assignments, and production levels; medium range–usually from three months up to three years, used for sales planning, production planning and budgeting, cash budgeting, analysis of various operating plans; long range–usually three years or more, used for planning for new products, capital expenditures, facility location or expansion, and R&D. 17) List and briefly describe the three major types of forecasts that organizations use in planning future operations. Answer: The three types are economic, technological, and demand. Economic forecasts address the business cycle by predicting inflation rates, money supplies, housing starts, and other planning indicators. Technological forecasts are concerned with rates of technological progress, which can result in the birth of exciting new products, requiring new plants and equipment. Demand forecasts are projections of demand for a company's products or services. Section 2 The Strategic Importance of Forecasting 1) What forecasting systems combine the intelligence of multiple supply chain partners? 1. 2. 3. A) FORE B) MULTISUP C) CPFR 4. D) SUPPLY 5. E) MSCP Answer: C Section 3 Seven Steps in the Forecasting System 1) Forecasts of individual products tend to be more accurate than forecasts of product families. Answer: FALSE 2) Most forecasting techniques assume that there is some underlying stability in the system. Answer: TRUE 3) Which of the following is NOT a step in the forecasting process? 1. 2. 3. A) Determine the use of the forecast. B) Eliminate any assumptions. C) Determine the time horizon of the forecast. 4. D) Select the forecasting model. 5. E) Validate and implement the results. Answer: B 4) Identify the seven steps involved in forecasting. Answer: 1. 2. 3. 4. 5. 6. Determine the use of the forecast. Select the items to be forecasted. Determine the time horizon of the forecast. Select the forecasting model(s). Gather the data needed to make the forecast. Make the forecast. 7. Validate and implement the results. 5) What are the three realities of forecasting that companies face? Answer: First, outside factors that we cannot predict or control often impact the forecast. Second, most forecasting techniques assume that there is some underlying stability in the system. Finally, both product family and aggregated forecasts are more accurate than individual product forecasts. Section 4 Forecasting Approaches 1) The sales force composite forecasting method relies on salespersons' estimates of expected sales. Answer: TRUE 2) A time-series model uses a series of past data points to make the forecast. Answer: TRUE Diff: 2 3) The quarterly "make meeting" of Lexus dealers is an example of a sales force composite forecast. Answer: TRUE 4) The two general approaches to forecasting are: 1. A) qualitative and quantitative. 2. B) mathematical and statistical. 3. C) judgmental and qualitative. 4. D) historical and associative. 5. E) judgmental and associative. Answer: A 5) Which of the following uses three types of participants: decision makers, staff personnel, and respondents? 1. 2. 3. 4. 5. A) jury of executive opinion B) sales force composite C) Delphi method D) associative models E) time series Answer: C 6) The forecasting technique that pools the opinions of a group of experts or managers is known as: 1. A) the expert judgment model. 2. B) multiple regression. 3. C) jury of executive opinion. 4. D) market survey. 5. E) management coefficients. Answer: C 7) Which of the following is not a type of qualitative forecasting? 1. A) jury of executive opinion 2. B) sales force composite 3. C) market survey 4. D) Delphi method 5. E) moving average Answer: E 8) Which of the following techniques uses variables such as price and promotional expenditures, which are related to product demand, to predict demand? 1. A) associative models 2. B) exponential smoothing 3. C) weighted moving average 4. D) moving average 5. E) trend projection Answer: A 9) ________ forecasts employ one or more mathematical models that rely on historical data and/or associative variables to forecast demand. Answer: Quantitative 10) ________ is a forecasting technique based upon salespersons' estimates of expected sales. Answer: Sales force composite 11) ________ forecasts use a series of past data points to make a forecast. Answer: Time-series 12) What are the differences between quantitative and qualitative forecasting methods? Answer: Quantitative methods use mathematical models to analyze historical data. Qualitative methods incorporate such factors as the decision maker's intuition, emotions, personal experiences, and value systems in determining the forecast. 13) Identify four quantitative forecasting methods. Answer: The list includes naive, moving averages, exponential smoothing, trend projection, and linear regression. 14) What is a time-series forecasting model? Answer: A time-series forecasting model uses a series of past data points to make a forecast. 15) What is the difference between an associative model and a time-series model? Answer: A time-series model uses only historical values of the quantity of interest to predict future values of that quantity. The associative model, on the other hand, incorporates the variables or factors that might influence the quantity being forecast. 16) Name and discuss three qualitative forecasting methods. Answer: Qualitative forecasting methods include: jury of executive opinion, where high-level managers arrive at a group estimate of demand; sales force composite, where salespersons' estimates are aggregated; Delphi method, which uses a group process that allows experts to make forecasts; and market survey, where consumers are queried about their future purchasing plans. Section 5 Time-Series Forecasting 1) A naïve forecast for September sales of a product would be equal to the forecast for August. Answer: FALSE 2) Cycles and random variations are both components of time series. Answer: TRUE 3) A naïve forecast for September sales of a product would be equal to the sales in August. Answer: TRUE 4) One advantage of exponential smoothing is the limited amount of record keeping involved. Answer: TRUE 5) The larger the number of periods in the simple moving average forecasting method, the greater the method's responsiveness to changes in demand. Answer: FALSE 6) Mean squared error and exponential smoothing are two measures of the overall error of a forecasting model. Answer: FALSE 7) In trend projection, the trend component is the slope of the regression equation. Answer: TRUE 8) In trend projection, a negative regression slope is mathematically impossible. Answer: FALSE Learning Outcome: Describe major approaches to forecasting 9) Seasonal indices adjust raw data for patterns that repeat at regular time intervals. Answer: TRUE 10) A trend projection equation with a slope of 0.78 means that there is a 0.78 unit rise in Y per period. Answer: TRUE 11) Demand for individual products can be driven by product life cycles. Answer: TRUE 12) Which of the following statements about time-series forecasting is true? 1. A) It is always based on the assumption that future demand will be the same as past demand. 2. B) It makes extensive use of the data collected in the qualitative approach. 3. C) It is based on the assumption that the analysis of past demand helps predict future demand. 4. D) Because it accounts for trends, cycles, and seasonal patterns, it is always more powerful than associative forecasting. 5. E) All of the above are true. Answer: C 13) Time-series data may exhibit which of the following behaviors? 1. A) trend 2. B) random variations 3. C) seasonality 4. D) cycles 5. E) They may exhibit all of the above. Answer: E 14) Gradual upward or downward movement of data over time is called: 1. A) seasonality. 2. B) a cycle. 3. C) a trend. 4. D) exponential variation. 5. E) random variation. Answer: C 15) Which of the following is not present in a time series? 1. A) seasonality 2. B) operational variations 3. C) trend 4. D) cycles 5. E) random variations Answer: B 16) The fundamental difference between cycles and seasonality is the: 1. A) duration of the repeating patterns. 2. B) magnitude of the variation. 3. C) ability to attribute the pattern to a cause. 4. D) all of the above 5. E) none of the above Answer: A 17) In time series, which of the following cannot be predicted? 1. A) large increases in demand 2. B) cycles 3. C) seasonal fluctuations 4. D) random variations 5. E) large decreases in demand Answer: D 18) What is the forecast for May using a four-month moving average? Nov. 39 Dec. 36 Jan. 40 Feb. 42 Mar. 48 April 46 1. 2. 3. A) 38 B) 42 C) 43 4. D) 44 5. E) 47 Answer: D 19) Which time-series model below assumes that demand in the next period will be equal to the most recent period's demand? 1. 2. 3. A) naïve approach B) moving average approach C) weighted moving average approach 4. D) exponential smoothing approach 5. E) trend projection Answer: A 20) John's House of Pancakes uses a weighted moving average method to forecast pancake sales. It assigns a weight of 5 to the previous month's demand, 3 to demand two months ago, and 1 to demand three months ago. If sales amounted to 1000 pancakes in May, 2200 pancakes in June, and 3000 pancakes in July, what should be the forecast for August? 1. A) 2400 2. 3. B) 2511 C) 2067 4. D) 3767 5. E) 1622 Answer: B 21) A six-month moving average forecast is generally better than a three-month moving average forecast if demand: 1. 2. 3. 4. A) is rather stable. B) has been changing due to recent promotional efforts. C) follows a downward trend. D) exceeds one million units per year. 5. E) follows an upward trend. Answer: A 22) Increasing the number of periods in a moving average will accomplish greater smoothing, but at the expense of: 1. 2. 3. A) manager understanding. B) accuracy. C) stability. 4. D) sensitivity to real changes in the data. 5. E) All of the above are diminished when the number of periods increases. Answer: D 23) Which of the following statements comparing exponential smoothing to the weighted moving average technique is TRUE? 1. A) Exponential smoothing is more easily used in combination with the Delphi method. 2. B) More emphasis can be placed on recent values using the weighted moving average. 3. 4. C) Exponential smoothing is considerably more difficult to implement on a computer. D) Exponential smoothing typically requires less record keeping of past data. 5. E) Exponential smoothing allows one to develop forecasts for multiple periods, whereas the weighted moving average technique does not. Answer: D 24) Which time-series model uses BOTH past forecasts and past demand data to generate a new forecast? 1. A) naïve 2. B) moving average 3. C) weighted moving average 4. D) exponential smoothing 5. E) trend projection Answer: D