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Forecasting
TEACHING SUGGESTIONS
Teaching Suggestion 5.1: Wide Use of Forecasting.
Forecasting is one of the most important tools a student can master because every firm needs to
conduct forecasts. Its useful to motivate students with the idea that obscure sounding techniques
such as exponential smoothing are actually widely used in business, and a good manager is
expected to understand forecasting. Regression is commonly accepted as a tool in economic and
legal cases.
Teaching Suggestion 5.2: Forecasting as an Art and a Science.
Forecasting is as much an art as a science. Students should understand that qualitative analysis
(judgmental modeling) plays an important role in predicting the future since not every factor can
be quantified. Sometimes the best forecast is done by seat-of-the-pants methods.
Teaching Suggestion 5.3: Use of Simple Models.
Many managers want to know what goes on behind the forecast. They may feel uncomfortable
with complex statistical models with too many variables. They also need to feel a part of the
process.
Teaching Suggestion 5.4: Management Input to the Exponential Smoothing Model.
One of the strengths of exponential smoothing is that it allows decision makers to input constants
that give weight to recent data. Most managers want to feel a part of the modeling process and
appreciate the opportunity to provide input.
Teaching Suggestion 5.5: Wide Use of Adaptive Models.
With todays dominant use of computers in forecasting, it is possible for a program to constantly
track the accuracy of a models forecast. Its important to understand that a program can
automatically select the best alpha and beta weights in exponential smoothing. Even if a firm has
10,000 products, the constants can be selected very quickly and easily without human
intervention.
51
ALTERNATIVE EXAMPLES
Alternative Example 5.1:
Moving average
Bicycle sales at Bowers Bikes are shown in the middle column of the following table. A 3-week
moving average appears on the right.
[ADDARROWSTOBELOWTABLE]
Actual
Three-Week
Week
Bicycle Sales
Moving Average
10
11
(8 + 10 + 9)/3 = 9
10
(10 + 9 + 11)/3 = 10
13
(9 + 11 + 10)/3 = 10
(11 + 10 + 13)/3 = 11 13
Bowers Bikes decides to forecast bicycle sales by weighting the past 3 weeks as follows:
Weights Applied
Period
Last week
Sum of weights
52
Week
1
2
3
4
5
6
7
Alternative Example 5.3: A firm uses simple exponential smoothing with = 0.1 to forecast
demand. The forecast for the week of January 1 was 500 units, whereas actual demand turned out
to be 450 units. The demand forecasted for the week of January 8 is calculated as follows.
Ft+1 = Ft + (Yt Ft)
= 500 + 0.1(450 500) = 495 units
Alternative Example 5.4: Exponential smoothing is used to forecast automobile battery sales.
Two values of are examined, = 0.8 and = 0.5. To evaluate the accuracy of each smoothing
constant, we can compute the absolute deviations and MADs. Assume that the forecast for
January was 22 batteries.
Month
January
February
March
April
May
June
Absolute
Actual
Forecast
Deviation
Battery
with
With
Sales
= 0.8
= 0.8
20
22
2
21
20.40
0.6
15
20.880
5.88
14
16.176
2.176
13
14.435
1.435
16
13.287
2.713
Sum of absolute deviations: 14.804
MAD:
2.467
Forecast
with
= 0.5
22
21
21
18
16
14.5
Absolute
Deviation
with
= 0.5
2
0
6
4
3
1.5
16.5
2.75
On the basis of this analysis, a smoothing constant of = 0.8 is preferred to = 0.5 because it
has a smaller MAD.
53
Alternative Example 5.5: Use the sales data given below to determine: (a) the least squares
trend line, (b) the predicted value for 2010 sales.
Time
Period
1
2
3
4
5
6
7
X = 28
Year
2003
2004
2005
2006
2007
2008
2009
X2
1
4
9
16
25
36
49
2
X = 140
XY
100
220
366
520
695
912
1,148
XY= 3,961
28
Y 917 131
4
Y
n
7
n
7
XY n X Y 3,961 7 4 131 293 10.464
b
2
28
140 7 42
X 2 nX
X
Sales
(Units)
100
110
122
130
139
152
164
Y = 917
Y b0 b1 X 89.14 10.464 X
To project demand in 2010, we denote the year 2010 as x = 8,
Sales in 2000 = 89.14 + 10.464(8) = 172.85
Alternative Example 5.6: The rated power capacity (in hours/ week) over the past 6 years is
shown in the table below.
Year
Capacity
(Y)
X2
XY
115
120
118
4
5
6
X = 21
124
123
130
Y = 730
16
25
36
X2 = 91
496
615
780
XY = 2600
54
X 21/ 6 3.5
Y 730 / 6 121.667
b1
b0
Y 112.67 2.57X
Forecast for year 7 = 112.67 + (2.57)(7)
=130.7
Alternative Example 5.7: The forecast demand and actual demand for 10-foot fishing boats are
shown below. We compute the tracking signal and MAD.
MAD
Tracking Signal
RSFE 24
2.1 MADs
MAD 11.7
Forecast Actual
Demand Demand
78
71
75
80
83
101
84
84
88
60
85
73
Error
7
5
18
0
28
12
RSFE
7
2
16
16
12
24
Forecast Cumulative
Error
Error
7
7
5
12
18
30
0
30
28
58
12
70
MAD
7.0
6.0
10.0
7.5
11.6
11.7
Tracking
Signal
1.0
0.3
+1.6
+2.1
1.0
2.1
55
56
5-10. If a seasonal index equals 1, that season is just an average season. If the index is less than 1,
that season tends to be lower than average. If the index is greater than 1, that season tends to be
higher than average.
5-11. If the smoothing constant equals 0, then
Ft+1 = Ft + 0(Yt Ft) = Ft
This means that the forecast never changes.
If the smoothing constant equals 1, then
Ft+1 = Ft + 1(Yt Ft) = Yt
This means that the forecast is always equal to the actual value in the prior period.
5-12. A centered moving average (CMA) should be used if trend is present in data. If an overall
average is used rather than a CMA, variations due to trend will be interpreted as variations due to
seasonal factors. Thus, the seasonal indices will not be accurate.
5-13.
Actual
Month
Shed Sales
Jan.
10
Feb.
12
Mar.
13
Apr.
16
May
19
June
23
July
26
Aug.
30
Sept.
28
Oct.
18
Nov.
16
Dec.
14
57
5-14.
Three-
Month
Four-
Three-
Month
Four-
Month
Actual
Month
Absolute
Month
Absolute
Shed Sales
Forecast
Deviation
Forecast
Deviation
Jan.
10
Feb.
12
Mar.
13
Apr.
16
11.67
4.33
May
19
13.67
5.33
12.75
6.25
June
23
16
15
July
26
19.33
6.67
17.75
8.25
Aug.
30
22.67
7.33
21
Sept.
28
26.33
1.67
24.5
3.5
Oct.
18
28
26.75
8.75
Nov.
16
25.33
9.33
25.5
9.5
Dec.
14
20.67
6.67
23
10
58.33
Three-month MAD
Four-month MAD
62.25
58.33
6.48
9
62.25
7.78
8
The 3-month moving average appears to be more accurate. However, when weighted moving
averages were used, the MAD was 5.444.
5-15.
58
Year
Demand
3-Year Moving
Ave.
(4 + 6 + 4)/3
= 4 23
10
(6 + 4 + 5)/3
=5
(4 + 5 + 10)/3
= 6 13
(5 + 10 + 8)/3
= 7 23
(10 + 8 + 7)/3
= 8 13
12
(8 + 7 + 9)/3
=8
10
14
(7 + 9 + 12)/3
= 9 13
11
15 (9 + 12 + 14)/3
=11 2 3
3-Year Abs.
Deviation
[(2 4) + 6 + 4]/4
= 4 12
0.34
0.55
[(2 5) + 4 + 6]/4
=5
1.67
0.75
[(2 8) + 10 +5]/4
= 7 34
0.67
0.75
[(2 7) + 8 +10]/4
=8
0.67
3.75
4.67
3.34
2.75
20.36
18.55
[(2 9) + 7 + 8]/4
= 8 14
[(2 12) + 9 +7]/4
= 10
[(2 14) + 12+9]/4
= 12 1 4
59
Year
Demand
3-Yr MA
3-Yr Wt.
MA
Trend line
|deviation|
|deviation|
|deviation|
0.73
1.67
1.38
0.34
0.55
1.44
10
5.00
5.00
2.51
1.67
0.75
0.55
0.67
0.75
2.60
0.67
1.00
1.65
12
4.00
3.75
0.29
10
14
4.67
4.00
1.24
11
15
3.34
2.75
1.18
20.36
18.55
15.24
510
Demand
New Forecast
6,000
4,000
5,000
10,000
8,000
7,000
9,000
12,000
10
14,000
11
15,000
The mean absolute deviation (MAD) can be used to determine which forecasting method is more
accurate.
Weighted
Year
Demand
Moving
Absolute
Average
Deviation
Absolute
Exp. Sm.
Deviation
4,000
5,000
1,000
6,000
4,700
1,300
4,000
5,090
1,090
5,000
4,500
500
4,763
237
10,000
5,000
5,000
4,834
5,166
8,000
7,250
750
6,384
1,616
7,000
7,750
750
6,869
131
9,000
8,000
1,000
6,908
2,092
12,000
8,250
3,750
7,536
4,464
10
14,000
10,000
4,000
8,875
5,125
11
15,000
12,250
2,750
10,412
4,588
Total:
18,500
Mean:
2,312.5
26,808
2,437
Thus, the 3-year weighted moving average model appears to be more accurate.
511
5-19. = 0.30
Year
Forecast
5-20.
Year
1
2
3
4
5
6
Sales
450
495
518
563
584
?
410.0
422.0
443.9
466.1
495.2
521.8
5-21.
Year
1
2
3
4
5
6
Actual
Sales
= 0.3
Forecast
Absolute
Deviatio
n
450
410.0
40.0
495
422.0
73.0
518
443.9
74.1
563
466.1
96.9
584
495.2
88.8
?
521.8
= 0.6
Forecast
410.0
434.0
470.6
499.0
537.4
565.4
Absolute
Deviatio
n
40.0
61.0
47.4
64.0
46.6
259.0
= 0.9
Forecast
410.0
446.0
490.1
515.2
558.2
581.4
Absolute
Deviatio
n
40.0
49.0
27.9
47.8
25.8
190.5
Sales
450
495
518
563
584
?
512
5-23.
Time
Period
X
1
2
3
4
5
Year
1
2
3
4
5
Sales
Y
450
495
518
563
584
2,610
X2
1
4
9
16
25
55
XY
450
990
1554
2252
2920
8166
b1 = 33.6
b0 = 421.2
Y = 421.2 + 33.6X
Projected sales in year 6,
Y = 421.2 + (33.6)(6)
= 622.8
5-24.
Year
1
2
3
4
5
6
Actual Sales
Three-Year Moving
Average Forecast
450
495
518
563
487.7
584
525.3
?
555.0
Total absolute deviation
MAD=0.3 = 74.56
Absolute
Deviation
75.3
58.7
134.0
Time-Series
Forecast
454.8
488.4
522.0
555.6
589.2
622.8
Absolute
Deviation
4.8
6.6
4.0
7.4
5.2
28.0
513
5-25. To answer the discussion questions, two forecasting models are required: a three-period
moving average and a three-period weighted moving average. Once the actual forecasts have been
made, their accuracy can be compared using the mean absolute differences (MAD).
a., b. Because a three-period average forecasting method is used, forecasts start for period 4.
Period
4
5
6
7
8
9
10
11
12
13
14
Month
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
Jan.
Feb.
Demand
10
15
17
11
14
17
12
14
16
11
Average
13.67
13.33
13.67
14
14.33
14
14
14.33
14.33
14
13.67
Weighted Average
14.5
12.67
13.5
15.17
13.67
13.50
15
14
13.83
14.67
13.17
c. MAD for moving average is 2.2. MAD for weighted average is 2.72. Moving average
forecast for February is 13.67. Weighted moving average forecast for February is 13.17.
Thus, based on this analysis, the moving average appears to be more accurate. The forecast
for February is about 14.
d. There are many other factors to consider, including seasonality and any underlying causal
variables such as advertising budget.
5-26. a. = 0.20
Week
1
2
3
4
5
6
7
8
9
10
11
12
Actual
Miles
17
21
19
23
18
16
20
18
22
20
15
22
Forecast
(Ft)
17.00
17.00
17.80
18.04
19.03
18.83
18.26
18.61
18.49
19.19
19.35
18.48
Error
+4.00
+1.20
+4.96
1.03
2.83
+1.74
0.61
+3.51
+0.81
4.35
+3.52
RSFE
+4.00
+5.20
+10.16
+9.13
+6.30
+8.04
+7.43
+10.94
+11.75
+7.40
+10.92
Sum of
Absolute
Forecast
Errors
4.00
5.20
10.16
11.19
14.02
15.76
16.37
19.88
20.69
25.04
28.56
MAD
4.00
2.60
3.39
2.80
2.80
2.63
2.34
2.49
2.30
2.50
2.60
Track Signal
1
2
3
3.3
2.25
3.05
3.17
4.21
5.11
2.96
4.20
514
5-27. a., b. See the accompanying table for a comparison of the calculations for the exponentially
smoothed forecasts using constants of 0.1 and 0.6.
c. Students should note how stable the smoothed values for the 0.1 smoothing constant are.
When compared to actual week 25 calls of 85, the 0.6 smoothing constant appears to do a
better job. On the basis of the forecast error, the 0.6 constant is better also. However, other
smoothing constants need to be examined.
Actual
Week,
Value,
t
Yt
1
50
2
35
3
25
4
40
5
45
6
35
7
20
8
30
9
35
10
20
11
15
12
40
13
55
14
35
15
25
16
55
17
55
18
40
19
35
20
60
21
75
22
50
23
40
24
65
25
Smoothed
Value,
Ft( = 0.1)
50
50.00
48.50
46.15
45.54
45.48
44.43
41.99
40.79
40.21
38.19
35.87
36.28
38.16
37.84
36.56
38.40
40.06
40.05
39.55
41.59
44.93
45.44
44.90
46.91
Smoothed
Forecast
Value,
Forecast
Error
Error
Ft( = 0.6)
-15.00
50.00
-15.00
-23.50
41.00
-16.00
-6.15
31.40
8.60
-0.54
36.56
8.44
-10.48
41.62
-6.62
-24.43
37.65
-17.65
-11.99
27.06
2.94
-5.79
28.82
6.18
-20.21
32.53
-12.53
-23.19
25.01
-10.01
4.13
19.00
21.00
18.72
31.60
23.40
-3.16
45.64
-10.64
-12.84
39.26
-14.26
18.44
30.70
24.30
16.60
45.28
9.72
-0.06
51.11
-11.11
-5.05
44.45
-9.45
20.45
38.78
21.22
33.41
51.51
23.49
5.07
65.60
-15.60
-5.44
56.24
-16.24
20.10
46.50
18.50
57.60
515
Actual
Value,
Yt
50
35
25
40
45
35
20
30
35
20
15
40
55
35
25
55
55
40
35
60
75
50
40
65
Smoothed
Value,
Ft( = 0.9)
50
50.00
36.50
26.15
38.62
44.36
35.94
21.59
29.16
34.42
21.44
15.64
37.56
53.26
36.83
26.18
52.12
54.71
41.47
35.65
57.56
73.26
52.33
41.23
62.62
Forecast
Error
-15.00
-11.50
13.85
6.39
-9.36
-15.94
8.41
5.84
-14.42
-6.44
24.36
17.44
-18.26
-11.83
28.82
2.88
-14.71
-6.47
24.35
17.44
-23.26
-12.33
23.77
Note that in this problem, the initial forecast (for the first period) was not used in computing the
MAD = 14.48. Either approach is considered valid.
516
Income
70.0
68.5
64.8
71.7
71.3
72.8
Forecast
Error
65.0
3.0
65.0 + 0.1(70 65) = 65.5
65.5 + 0.1(68.5 65.5) = 65.8
1.0
6.0
65.8 + 0.1(64.8 65.8) = 65.7
5.0
65.7 + 0.1(71.7 65.7) = 66.3
6.0
66.3 + 0.1(71.3 66.3) = 66.8
66.8 + 0.1(72.8 66.8) = 67.4
MAD = 4.20
Note that in this problem, the initial forecast (for the first period) was not used in computing the
MAD. Either approach is considered valid.
5-30. Exponential smoothing with = 0.3
Month
Feb.
March
April
May
June
July
Aug.
Income
70.0
68.5
64.8
71.7
71.3
72.8
Forecast
Error
65.0
66.5
2.0
67.1
2.3
66.4
5.3
68.0
3.3
69.0
3.8
70.1
MAD = 3.34
Based on MAD, = 0.3 produces a better forecast than = 0.1 (of Problem 5-29).
Note that in this problem, the initial forecast (for the first period) was not used in computing the
MAD. Either approach is considered valid.
5-31. Using QM for Windows, we select Forecasting - Time Series and multiplicative
decomposition. Then specify Centered Moving Average and we have the following results:
a. Quarter 1 index = 0.8825; Quarter 2 index = 0.9816; Quarter 3 index = 0.9712; Quarter 4
index = 1.1569
b. The trendline is Y = 237.7478 + 3.6658X
c. Quarter 1: Y = 237.7478 + 3.6658(17) = 300.0662
Quarter 2: Y = 237.7478 + 3.6658(18) = 303.7320
Quarter 3: Y = 237.7478 + 3.6658(19) = 307.3978
Quarter 4: Y = 237.7478 + 3.6658(20) = 311.0636
517
518
5-34. For a smoothing constant of 0.2, the forecast for year 11 is 6.489.
Year
1
2
3
4
5
6
7
8
9
10
11
Rate
7.2
7
6.2
5.5
5.3
5.5
6.7
7.4
6.8
6.1
Forecast
|Error|
7.2
0
7.2
0.2
7.16
0.96
6.968
1.468
6.674
1.374
6.400
0.900
6.220
0.480
6.316
1.084
6.533
0.267
6.586
0.486
6.489
MAD = 0.722
Rate
7.2
7
6.2
5.5
5.3
5.5
6.7
7.4
6.8
6.1
Forecast
7.2
7.2
7.12
6.752
6.251
5.871
5.722
6.113
6.628
6.697
6.458
|Error|
0
0.2
0.92
1.252
0.951
0.371
0.978
1.287
0.172
0.597
MAD = 0.673
Rate
7.2
7
6.2
5.5
5.3
5.5
6.7
7.4
6.8
6.1
Forecast
7.2
7.2
7.08
6.552
5.921
5.548
5.519
6.228
6.931
6.852
6.401
|Error|
0
0.2
0.88
1.052
0.621
0.048
1.181
1.172
0.131
0.752
MAD = 0.604
Rate
Forecast
|Error|
519
1
2
3
4
5
6
7
8
9
10
11
7.2
7
6.2
5.5
5.3
5.5
6.7
7.4
6.8
6.1
7.2
7.2
7.04
6.368
5.674
5.375
5.475
6.455
7.211
6.882
6.256
0
0.2
0.84
0.868
0.374
0.125
1.225
0.945
0.411
0.782
MAD = 0.577
season index
4
520
Season
Fall
Winter
Spring
Summer
Year 1
Demand
200
350
150
300
Year 2
Demand
250
300
165
285
Average
Season
Demand
250
250
250
250
Season
Index
0.90
1.30
0.63
1.17
Year 3
Demand
270
390
189
351
5-37. Using Excel with X = 1, 2, 3, , 20 for years 1991-2010 respectively, the trend equation is
Y = 2898.6 + 499.7X.
For 2009, X = 21; Y = 2898.6 + 499.7 (21) = 13392
For 2010, X = 22; Y = 2898.6 + 499.7 (22) = 13892
For 2011, X = 23; Y = 2898.6 + 499.7 (23) = 14391
The MSE from the Excel output is 2740276.
5-38. Using QM for Windows, the forecast is 10229 and the MSE = 2676625 (ignoring the first
error). This MSE is lower than the MSE found using a trend line, so this technique worked better
than the trend line.
5-39. a. With a smoothing constant of 0.4, the forecast for 2011 is 10609 with MSE = 3703109.
(ignoring the first error)
b. Using QM for Windows, the best smoothing constant is 0.92. This gives the lowest MSE
of 2514990.
5-40. Using Excel, the trend equation is Y = 1.2672 + 0.01938X.
For January of 2010, X = 13; Y = 1.2672 + 0.01938(13) = 1.519.
For February of 2010, X = 14; Y = 1.2672 + 0.01938(14) = 1.538.
5-41. The forecast for January 2010 would be 1.452.
The MSE with the trend equation is 0.00049. The MSE with this exponential smoothing model is
0.00268.
SOLUTIONS TO INTERNET HOMEWORK PROBLEMS
5-42. With = 0.4, forecast for 2011 = 10338 and MAD = 836 (including first error). With =
0.6, forecast for 2011 = 10697 and MAD = 612.
5-43. Using Excel, the trend line is: GDP = 6,142.7 + 441.4(time). For 2011 (time = 12) the
forecast is GDP = 6,142.7 + 441.4 (12) = 11,4389.5.
521
5-44. The trend line found using Excel is: Patients = 29.73 + 3.28(time). Note these coefficients are
rounded. For the next 3 years (time = 11, 12, and 13) the forecasts for the number of patients are:
Patients = 29.73 + 3.28(11) = 65.8
Patients = 29.73 + 3.28(12) = 69.1
Patients = 29.73 + 3.28(13) = 72.4
The coefficient of determination is 0.85, so the model is a fair model.
5-45. The trend line found using Excel is: Crime Rate = 51.98 + 6.09(time). Note these coefficients
are rounded. For the next 3 years (time = 11, 12, and 13) the forecasts for the crime rates are:
Crime Rate = 51.98 + 6.09(11) = 118.97
Crime Rate = 51.98 + 6.09(12) = 125.06
Crime Rate = 51.98 + 6.09(13) = 131.15
The coefficient of determination is 0.96, so this is a very good model.
5-46. The regression equation (from Excel) is: Patients = 1.23 + 0.54(crime rate). Note these
coefficients are rounded. If the crime rate is 131.2, the forecast number of patients is:
Patients = 1.23 + 0.54(131.2) = 72.1
If the crime rate is 90.6, the forecast number of patients is:
Patients = 1.23 + 0.54(90.6) = 50.2
The coefficient of determination is 0.90, so this is a good model.
5-47. With = 0.6, forecast for 2003 = 86.2 and MAD = 3.42. With = 0.2, forecast for 2003 =
63.87 and MAD = 7.23. The model with = 0.6 is better since it has a lower MAD.
5-48. With = 0.6, forecast for 2003 = 4.86 and MAD = 0.23. With = 0.2, forecast for 2003 =
4.52 and MAD = 0.48. The model with = 0.6 is better since it has a lower MAD.
5-49. The trend line (coefficients from Excel are rounded) for deposits is:
Deposits = 18.968 + 1.638(time)
For 2003, 2004, and 2005, time = 45, 46, and 47 respectively. The forecasts are:
Deposits = 18.968 + 1.638(45) = 54.7
Deposits = 18.968 + 1.638(46) = 56.4
Deposits = 18.968 + 1.638(47) = 58.0
The trend line (coefficients from Excel are rounded) for GSP is:
GSP = 0.090 + 0.112(time). The forecasts are:
GSP = 0.090 + 0.112(45) = 5.1
GSP = 0.090 + 0.112(46) = 5.2
GSP = 0.090 + 0.112(47) = 5.4
5-50. The regression equation from Excel is
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CASE STUDIES
FORECASTING ATTENDANCE AT SWU FOOTBALL GAMES
1. Because we are interested in annual attendance and there are six years of data, we find the
average attendance in each year shown in the table below. A graph of this indicates a linear
trend in the data. Using Trend Analysis in the forecasting module of QM for Windows we find
the equation:
Y = 31,660 + 2,305.714X
Where Y is attendance and X is the time period (X = 1 for 2005, 2 for 2006, etc.).
For this model, r2 = 0.98 which indicates this model is very accurate.
523
2005
2006
2007
2008
2009
2010
Attendance
34840
35380
38520
40500
43320
45820
2. Based upon the projected attendance and tickets prices of $20 in 2011 and $21 (a 5%
increase) in 2012, the projected revenues are:
47,800(20) = $956,000 in 2010 and
50,105(21) = $1,052,205 in 2012.
3. The school might consider another expansion of the stadium, or raise the ticket prices more
than 5% per year. Another possibility is to raise the prices of the best seats while leaving the
end zone prices more reasonable.
The scatter plot of the data shows a definite seasonal pattern with higher sales in the winter
months and lower sales in the summer and fall months. There is a slight upward trend as
evidenced by the fact that for each month, the sales increased from the first year to the second,
and again form the second year to the third.
524
Unadjusted forecast
325.852
326.711
327.57
328.429
329.288
330.147
331.006
331.865
332.724
333.583
334.442
335.301
Seasonal index
1.447
1.393
1.379
1.074
1.039
0.797
0.813
0.720
0.667
0.747
0.891
1.033
Adjusted forecast
471.5
455.1
451.7
352.7
342.1
263.1
269.1
238.9
221.9
249.2
298.0
346.4
525
First, we perform a linear regression with time as the independent variable. The model that
results is
admissions = 44,352 + 9,197 year
(where year is coded as 1 = 1989, 2 = 1990, etc.)
r = 0.88
MAD = 9,662
MSE = 201,655,824
So the forecasts for 1999 and 2000 are 145,519 and 154,716, respectively. Using a weighted
average of $2.875 to represent gate receipts per person, revenues for 1999 and 2000 are
$418,367 and $444,808, respectively.
Students could also consider the impact of the increasing fees to see if the increase had an
impact on attendance.
2. The student should respond that the other factors are the variability of the weather, the special
events, the competition, and the role of advertising.
526