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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