Question & Answer: OBM (Obsolete Business Machines) Inc. wants to forecast 2017’s demand for manua…..

OBM (Obsolete Business Machines) Inc. wants to forecast 2017’s demand for manual typewriters based on the following historical data:

What is OBM’s forecast for 2017 using a linear trend equation?

Expert Answer

Answer

Linear trend y = a+bx

a = intercept

b = slope

x = time period

y = forecast for demand for period x

$b = (sum xy - nbar{x}bar{y})/(sum x^{2}-nbar{x}^{2})$

$a=bar{y}-bbar{x}$

n = no of peiods

$bar{x}=sum x/n$ = the mean of the x values

$bar{y}=sum y/n$ = the mean of the y values

Slope b

$b=frac{(585-(4*2.5*68.75))}{30-(4*2.5*2.5)}$

$b=frac{-102.5}{5}$

Slope b = -20.5

Intercept a

$a = 68.75 - (-20.5*2.5)$

a = 120

Y = 120 -20.5x

2017 forecast(x=5) = 120-(20.5*5) = 17.5(thousands)

2017 forecast = 17,500

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