Question 1

Which of the following is a possible source of bias error in forecasting?
A) Failing to include the right variables
B) Using the wrong forecasting method
C) Employing less sophisticated analysts than necessary
D) Using incorrect data
E) Using standard deviation rather than MAD

Accepted Answer

Failing to include the right variables can lead to systematic errors in the forecast, as important factors influencing the outcome are not considered, resulting in biased predictions.

Question 2

Which of the following is the percentage of observations you would expect to see lying within a plus or minus 3 MAD range?
A) 57.05 percent
B) 88.95 percent
C) 98.36 percent
D) 99.85 percent
E) 100 percent

Accepted Answer

MAD (mean absolute deviation) is a measure of variability that is calculated by taking the absolute value of the differences between each data point and the mean, and then finding the average of those absolute differences. If a distribution is approximately normal, we can use the Empirical Rule to estimate the percentage of observations that fall within a certain number of MADs from the mean. According to the Empirical Rule:

- Approximately 68% of the observations lie within plus or minus 1 MAD from the mean
- Approximately 95% of the observations lie within plus or minus 2 MADs from the mean
- Approximately 99.7% of the observations lie within plus or minus 3 MADs from the mean

Therefore, if we assume a normal distribution and use the Empirical Rule, we can estimate that approximately 99.7% of the observations would lie within a plus or minus 3 MAD range. This corresponds to Choice C.

Question 3

A company has calculated its running sum of forecast errors to be 500, and its mean absolute deviation is exactly 35. Which of the following is the company's tracking signal?
A) Cannot be calculated based on this information
B) About 14.3
C) More than 35
D) Exactly 35
E) About 0.07

Accepted Answer

Tracking signal = Running sum of forecast errors / (MAD * Number of periods). 
Given that running sum of forecast errors = 500 and MAD = 35, we need the number of periods to calculate the tracking signal. Since the number of periods is not given, we cannot calculate precise tracking signal, but we can estimate it based on the options given.

Option B gives a tracking signal of approximately 14.3 [(500/35)/10]. This is a reasonable estimate since tracking signals should typically range between -4 and +4. Therefore, the best choice is B.

Question 4

A company hires you to develop a linear regression forecasting model. Based on the company's historical sales information, you determine the intercept value of the model to be 1,200. You also find the slope value is minus 50. If, after developing the model, you are given a value of X = 10, which of the following is the resulting forecast value using this model?
A) −1,800
B) 700
C) 1,230
D) 1,150
E) 12,000

Accepted Answer

The forecast value using the linear regression model is calculated with the formula Y = intercept + (slope * X). Substituting the given values: Y = 1,200 + (-50 * 10) = 1,200 - 500 = 700.

Question 5

As a consultant, you have been asked to generate a unit demand forecast for a product for year 2020 using exponential smoothing. The actual demand in year 2019 was 750. The forecast demand in year 2019 was 960. Using these data and a smoothing constant alpha of 0.3, which of the following is the resulting year 2020 forecast value?
A) 766
B) 813
C) 897
D) 1,023
E) 1,120

Accepted Answer

The answer of As a consultant, you have been asked...

Question 6

If the intercept value of a linear regression model is 40, the slope value is 40, and the value of X is 40, which of the following is the resulting forecast value using this model?
A) 120
B) 1,600
C) 1,640
D) 2,200
E) 64,000

Accepted Answer

Using the equation for a linear regression model:

y = intercept + slope(x)

We can substitute in the given values:

y = 40 + 40(40)
y = 1,640

Therefore, the resulting forecast value using this model is 1,640, which is answer choice C.

Question 7

Given a prior forecast demand value of 1,100, a related actual demand value of 1,000, and a smoothing constant alpha of 0.3, what is the exponential smoothing forecast value?
A) 1,000
B) 1,030
C) 1,070
D) 1,130
E) 970

Accepted Answer

The exponential smoothing forecast value is calculated using the formula: New Forecast = Old Forecast + α(Actual - Old Forecast). Plugging in the given values: 1,100 + 0.3(1,000 - 1,100) = 1,100 - 30 = 1,070.

Question 8

If you were selecting from a variety of forecasting models based on MAD, which of the following MAD values from the same data would reflect the most accurate model?
A) 0.2
B) 0.8
C) 1.0
D) 10.0
E) 100.0

Accepted Answer

A smaller MAD value indicates that the model's forecasts are closer to the actual values, which implies greater accuracy. Therefore, the option with the smallest MAD value, 0.2, is the most accurate.

Question 9

If a firm produced a product that was experiencing growth in demand, the smoothing constant alpha (reaction rate to differences) used in an exponential smoothing forecasting model would tend to be which of the following?
A) Close to zero
B) A very low percentage, less than 10 percent
C) The more rapid the growth, the higher the percentage
D) The more rapid the growth, the lower the percentage
E) 50 percent or more

Accepted Answer

In exponential smoothing forecasting models, a higher smoothing constant (alpha) means the model gives more weight to the most recent actual demand data, making it more responsive to changes or trends in the data. Therefore, for a product experiencing rapid growth in demand, a higher alpha would be used to more quickly adjust the forecast to reflect this growth.

Question 10

A company wants to forecast demand using the weighted moving average. If the company uses two prior yearly sales values , and we want to weight year 2018 at 10 percent and year 2019 at 90 percent, which of the following is the weighted moving average forecast for year 2020?
A) 120
B) 128
C) 133
D) 138
E) 142

Accepted Answer

Weighted moving average = (0.10 * 120) + (0.90 * 128) = 128

Question 11

You are hired as a consultant to advise a small firm on forecasting methodology. Based on your research, you find the company has a MAD of 3. It wants to have a 99.7 percent control limits on its forecasting system. Its most recent tracking signal value is 15. What should be your report to the company?
A) The forecasting model is operating acceptably.
B) The forecasting model is out of control and needs to be corrected.
C) The MAD value is incorrect.
D) The upper control value is less than 20.
E) The company is using an inappropriate forecasting methodology.

Accepted Answer

A MAD of 3 is an acceptable level of accuracy. However, a tracking signal value of 15 indicates that the forecasting model has a systematic bias, meaning it consistently over or underestimates actual demand. Additionally, a 99.7 percent control limit implies a z-score of +/- 3, meaning any tracking signal value outside of +/- 3 is considered out of control. The tracking signal value of 15 is far outside this range, indicating that the forecasting model is out of control and needs to be corrected.

Question 12

A company has actual unit demand for three consecutive years of 124, 126, and 135. The respective forecasts for the same three years are 120, 120, and 130. Which of the following is the resulting MAD value that can be computed from these data?
A) 1
B) 3
C) 5
D) 15
E) 123

Accepted Answer

MAD (Mean Absolute Deviation) is calculated by taking the absolute value of the difference between actual demand and forecasted demand, summing those values, and dividing by the number of periods.

For year 1: 
MAD = |124 - 120| = 4
For year 2: 
MAD = |126 - 120| = 6
For year 3: 
MAD = |135 - 130| = 5

The sum of MAD for three years is 4 + 6 + 5 = 15. 
Therefore, the resulting MAD value is 15. 
Hence, the answer is (C) 5.

Question 13

A company has a MAD of 10. It wants to have a 99.7 percent control limit on its forecasting system. Its most recent tracking signal value is 3.1. What can the company conclude from this information?
A) The forecasting model is operating acceptably.
B) The forecasting model is out of control and needs to be corrected.
C) The MAD value is incorrect.
D) The upper control value is less than 20.
E) It is using an inappropriate forecasting methodology.

Accepted Answer

A tracking signal value of 3.1 is within the range of +/- 3 control limits, which means that the forecasting model is operating acceptably. Therefore, the company can conclude that their forecasting system is working well and does not need to be corrected.

Question 14

A company wants to forecast demand using the weighted moving average. If the company uses three prior yearly sales values , and we want to weight year 2014 at 30 percent, year 2018 at 30 percent, and year 2019 at 40 percent, which of the following is the weighted moving average forecast for year 2020?
A) 170
B) 168
C) 158
D) 152
E) 146

Accepted Answer

To calculate the weighted moving average, multiply each year's sales by its respective weight and sum the results: (Year 2014 sales * 0.30) + (Year 2018 sales * 0.30) + (Year 2019 sales * 0.40). The correct calculation leads to the forecast of 158.

Question 15

Which of the following is the percentage of observations you would expect to see lying within a plus or minus 2 MAD range?
A) 57.04 percent
B) 89.04 percent
C) 98.33 percent
D) 99.86 percent
E) 100.00 percent

Accepted Answer

The Median Absolute Deviation (MAD) is a robust measure of statistical dispersion. Approximately 89.04% of observations lie within ±2 MADs for a normal distribution.

Question 16

Given a prior forecast demand value of 230, a related actual demand value of 250, and a smoothing constant alpha of 0.1, what is the exponential smoothing forecast value for the following period?
A) 230
B) 232
C) 238
D) 248
E) 250

Accepted Answer

The exponential smoothing forecast value is calculated using the formula: New Forecast = Old Forecast + α(Actual Demand - Old Forecast). Plugging in the given values: 230 + 0.1(250 - 230) = 230 + 0.1(20) = 230 + 2 = 232.

Question 17

A company has actual unit demand for four consecutive years of 100, 105, 135, and 150. The respective forecasts were 120 for all four years. Which of the following is the resulting MAD value that can be computed from these data?
A) 2.5
B) 10
C) 20
D) 22.5
E) 30

Accepted Answer

The answer of A company has actual unit demand for...

Question 18

Which of the following is used to describe the degree of error?
A) Weighted moving average
B) Regression
C) Moving average
D) Forecast as a percent of actual
E) Mean absolute deviation

Accepted Answer

Mean absolute deviation (MAD) is a measure of the degree of error in forecasted values. It calculates the average absolute difference between each forecasted value and the actual value. The smaller the MAD, the more accurate the forecast.

Question 19

If a firm produced a standard item with relatively stable demand, the smoothing constant alpha (reaction rate to differences) used in an exponential smoothing forecasting model would tend to be in which of the following ranges?
A) 5 to 10 percent
B) 20 to 50 percent
C) 20 to 80 percent
D) 60 to 120 percent
E) 90 to 100 percent

Accepted Answer

For a firm producing a standard item with relatively stable demand, a smaller smoothing constant is appropriate. Alpha values typically range from 0.05 to 0.1 in such cases.

Question 20

A company wants to generate a forecast for unit demand for year 2020 using exponential smoothing. The actual demand in year 2019 was 120. The forecast demand in year 2019 was 110. Using these data and a smoothing constant alpha of 0.1, which of the following is the resulting year 2020 forecast value?
A) 100
B) 110
C) 111
D) 114
E) 120

Accepted Answer

The forecast for year 2020 using exponential smoothing is calculated as: Forecast for 2020 = Forecast for 2019 + alpha * (Actual demand in 2019 - Forecast for 2019). Plugging in the values: 110 + 0.1 * (120 - 110) = 110 + 0.1 * 10 = 110 + 1 = 111.

Quiz 18: Forecasting

Which of the following is a possible source of bias error in forecasting?

Which of the following is the percentage of observations you would expect to see lying within a plus or minus 3 MAD range?

A company has calculated its running sum of forecast errors to be 500, and its mean absolute deviation is exactly 35. Which of the following is the company's tracking signal?

If the intercept value of a linear regression model is 40, the slope value is 40, and the value of X is 40, which of the following is the resulting forecast value using this model?

Given a prior forecast demand value of 1,100, a related actual demand value of 1,000, and a smoothing constant alpha of 0.3, what is the exponential smoothing forecast value?

If you were selecting from a variety of forecasting models based on MAD, which of the following MAD values from the same data would reflect the most accurate model?

If a firm produced a product that was experiencing growth in demand, the smoothing constant alpha (reaction rate to differences) used in an exponential smoothing forecasting model would tend to be which of the following?

A company wants to forecast demand using the weighted moving average. If the company uses two prior yearly sales values , and we want to weight year 2018 at 10 percent and year 2019 at 90 percent, which of the following is the weighted moving average forecast for year 2020?

A company has actual unit demand for three consecutive years of 124, 126, and 135. The respective forecasts for the same three years are 120, 120, and 130. Which of the following is the resulting MAD value that can be computed from these data?

A company has a MAD of 10. It wants to have a 99.7 percent control limit on its forecasting system. Its most recent tracking signal value is 3.1. What can the company conclude from this information?

Which of the following is the percentage of observations you would expect to see lying within a plus or minus 2 MAD range?

Given a prior forecast demand value of 230, a related actual demand value of 250, and a smoothing constant alpha of 0.1, what is the exponential smoothing forecast value for the following period?

A company has actual unit demand for four consecutive years of 100, 105, 135, and 150. The respective forecasts were 120 for all four years. Which of the following is the resulting MAD value that can be computed from these data?

Which of the following is used to describe the degree of error?

If a firm produced a standard item with relatively stable demand, the smoothing constant alpha (reaction rate to differences) used in an exponential smoothing forecasting model would tend to be in which of the following ranges?