Week 4 Homework
1. The manager of the Carpet City outlet needs to make an accurate forecast of the demand for Soft
Shag carpet (its biggest seller). If the manager does not order enough carpet from the carpet mill,
customer will buy their carpet from one of Carpet City’s many competitors. The manager has
collected the following demand data for the past 8 months:
Demand for Soft Shag
Carpet (1,000 yd.)
a. Compute a 3-month moving average forecast for months 4 through 9.
b. Compute a weighted 3-month moving average forecast for months 4 through 9. Assign
weights of 0.55, 0.35, and 0.10 to the months in sequence, starting with the most recent
c. Compare the two forecasts by using MAD. Which forecast appears to be more accurate?
2. The manager of the Petroco Service Station wants to forecast the demand for unleaded gasoline
next month so that the proper number of gallons can be ordered from the distributor. The owner has
accumulated the following data on demand for unleaded gasoline from sales during the past 10
Page 2 of 5
Month Gasoline Demanded (gal.)
a. Compute an exponential smoothed forecast, using an α value of 0.4
b. Compute the MAD.
3. Emily Andrews has invested in a science and technology mutual fund. Now she is considering
liquidating and investing in another fund. She would like to forecast the price of the science and
technology fund for the next month before making a decision. She has collected the following data
on the average price of the fund during the past 20 months:
Month Fund Price
1 $55 ¾
2 54 ¼
3 55 1/8
4 58 1/8
5 53 3/8
6 51 1/8
7 56 ¼
8 59 5/8
9 62 ¼
10 59 ¼
11 62 3/8
12 57 1/1
Page 3 of 5
13 58 1/8
14 62 ¾
15 64 ¾
16 66 1/8
17 68 ¾
a. Using a 3-month average, forecast the fund price for month 21.
b. Using a 3-month weighted average with the most recent month weighted 0.5, the next most
recent month weighted 0.30, and the third month weighted 0.20, forecast the fund price for
c. Compute an exponentially smoothed forecast, using α=0.3, and forecast the fund price for
d. Compare the forecasts in (a), (b), and (c), using MAD, and indicate the most accurate.
4. Carpet City wants to develop a means to forecast its carpet sales. The store manager believes that
the store’s sales are directly related to the number of new housing starts in town. The manager has
gathered data from county records on monthly house construction permits and from store records
on monthly sales. These data are as follows:
Monthly Carpet Sales
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a. Develop a linear regression model for these data and forecast carpet sales if 30 construction
permits for new homes are filed.
b. Determine the strength of the causal relationship between monthly sales and new home
construction by using correlation.
5. The manager of Gilley’s Ice Cream Parlor needs an accurate forecast of the demand for ice cream.
The store orders ice cream from a distributor a week ahead; if the store orders too little, it loses
business, and if it orders too much, the extra must be thrown away. The manager belives that a
major determinant of ice cream sales is temperature (i.e.,the hotter the weather, the more ice cream
people buy). Using an almanac, the manager has determined the average day time temperature for
14 weeks, selected at random, and from store records he has determined the ice cream consumption
for the same 14 weeks. These data are summarized as follows:
Ice Cream Sold
1 68 80
2 70 115
3 73 91
4 79 87
5 77 110
6 82 128
7 85 164
8 90 178
9 85 144
10 92 179
11 90 144
12 95 197
13 80 144
14 75 123
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a. Develop a linear regression model for these data and forecast the ice cream consumption if the
average weekly daytime temperature is expected to be 85 degrees.
b. Determine the strength of the linear relationship between temperature and ice cream
consumption by using correlation.
c. What is the coefficient of determination? Explain its meaning.
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