Question & Answer: Two independent methods of forecasting based on judgment and experience have been…..

Two independent methods of forecasting based on judgment and experience have been prepared each month for the past 10 months. The forecasts and actual sales are as follows:

Month	Sales	Forecast 1	Forecast 2
1	770	771	769
2	789	785	787
3	794	790	792
4	780	784	798
5	768	770	774
6	772	768	770
7	760	761	759
8	775	771	775
9	786	784	788
10	790	788	788

a. Compute a tracking signal for the 10th month for each forecast using the cumulative error for months 1 to 10. Use action limits of ± 4. Is there bias present? (Do not round your intermediate calculations. Round your answers to 2 decimal places. Negative amounts should be indicated by a minus sign.)

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Forecast	Tracking Signal	Bias
Method 1		Present
Method 2		Present

b. Compute 2s control limits for each forecast. (Do not round your intermediate calculations. Round your answers to 2 decimal places.)

Forecast	Control Limits
Method 1
Method 2

Expert Answer

Answer

(a)

Month	Sales	Forecast 1	Absolute Error	Error	Cumulative MAD	RSFE	TS =RSFE / MAD
1	770	771	1	-1	1.00	-1.00	-1.00
2	789	785	4	4	2.50	3.00	1.20
3	794	790	4	4	3.00	7.00	2.33
4	780	784	4	-4	3.25	3.00	0.92
5	768	770	2	-2	3.00	1.00	0.33
6	772	768	4	4	3.17	5.00	1.58
7	760	761	1	-1	2.86	4.00	1.40
8	775	771	4	4	3.00	8.00	2.67
9	786	784	2	2	2.89	10.00	3.46
10	790	788	2	2	2.80	12.00	4.29

Month	Sales	Forecast 2	Absolute Error	Error	Cumulative MAD	RSFE	TS =RSFE / MAD
1	770	769	1	1	1.00	1.00	1.00
2	789	787	2	2	1.50	3.00	2.00
3	794	792	2	2	1.67	5.00	3.00
4	780	798	18	-18	5.75	-13.00	-2.26
5	768	774	6	-6	5.80	-19.00	-3.28
6	772	770	2	2	5.17	-17.00	-3.29
7	760	759	1	1	4.57	-16.00	-3.50
8	775	775	0	0	4.00	-16.00	-4.00
9	786	788	2	-2	3.78	-18.00	-4.76
10	790	788	2	2	3.60	-16.00	-4.44

Forecast	Tracking Signal	Bias
Method 1	4.29	Present
Method 2	-4.44	Present

(b)

2s Control Limits = 0 +/- 2*√MSE

Month	Sales	Forecast 1	Error	Error^2
1	770	771	-1	1
2	789	785	4	16
3	794	790	4	16
4	780	784	-4	16
5	768	770	-2	4
6	772	768	4	16
7	760	761	-1	1
8	775	771	4	16
9	786	784	2	4
10	790	788	2	4
			MSE =	10.44
Month	Sales	Forecast 2	Error	Error^2
1	770	769	1	1
2	789	787	2	4
3	794	792	2	4
4	780	798	-18	324
5	768	774	-6	36
6	772	770	2	4
7	760	759	1	1
8	775	775	0	0
9	786	788	-2	4
10	790	788	2	4
			MSE =	42.44

Forecast	Control Limits
Method 1	(-6.46, 6.46)
Method 2	(-13.03, 13.03)

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