Question

# 4. Zeus Computer Chips Inc. used to have major contracts to produce the Centrino-type chips. The

market has been declining during the past three years because of the dual-core chips, which it

cannot produce, so Zeus has the unpleasant task of forecasting next year. The task is unpleasant

because the firm has not been able to find replacement chips for its product lines. Here is demand

over the past 12 quarters:

2007

I

II

III

IV

4,800

3,500

4,300

3,000

2008

I

Year

Sales (in 1,000 units)

3,500

2,700

3,500

II

III

IV 2,400

2009

I

II

III

IV

8. Talbot Publishing Company's production planning manager has provided the following

historical sales data for its leading textbook on forecasting:

3,200

2,100

2,700

1,700

4 5 6

21 18 20

7

17

The firm is considering using a basic exponential smoothing model with Alpha= 0.2 to forecast

this item's sales.

a. Use the sales average of 20,000 units through year 3 as the forecast for period 4. Prepare

forecasts for years 5 through 7 as of the end of year 4.

b. Calculate the average error and MAD value for the three forecasts using the actual sales data

provided. Estimate the standard deviation of the forecast errors using the calculated MAD.

c. Redo the forecasts and MAD calculations, updating the forecasts for years 6 and 7 at the end of

years 5 and 6, respectively. What do you observe?

Fig: 1