Demand Forecasting: Exercises

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1 1 Demand Forecasting: Exercises The information included in this document is help you prepare for the evaluation of competency elements 1 and 2. It will allow you apply the Time Series Analysis method of demand forecasting predict future demand for products. Exercise 1 Forecast the yearly sales for the Shaving Cream and Eye Cream for using the Shaving Cream $2.99 unit ? Eye Cream $ unit ? Economic Growth % 3.8% 2.9% (1.3%) 1.2% Note: It is common show negative figures in parentheses. Therefore, the economic growth in in the table above shown in parentheses is minus 1.3% (-1.3%). Student s Explanation of Forecast To help you prepare for the evaluation, try explain your reasons for your forecast before you look at the content specialist s explanation at the end of the document.

2 2 Exercise 2 Forecast the yearly new home sales and sales of major appliances for, using the New Homes $300,000 Major Appliances $ , , ,000? 2,100,000 2,400,000 2,200,000? Mortgage s % 5.00% 4.75% 4.00% 3.50% Student s Explanation of Forecast To help you prepare for the evaluation, try explain your reasons for your forecast before you look at the content specialist s explanation at the end of the document.

3 3 Answers Exercise 1 Forecast the yearly sales for the Shaving Cream and Eye Cream for, using the Shaving Cream $2.99 unit Eye Cream $ unit Economic Growth % 3.8% 2.9% (1.3%) 1.2% Note: It is common show negative figures in parentheses. Therefore, the economic growth in in the table above shown in parentheses is minus 1.3% (-1.3%). Content Specialist s Explanation of Forecast Shaving cream would likely continue growing as it is considered a staple product (it is not affected by the state of the economy or by the unemployment rate). Shaving cream sales grew in and, when economic growth was negative. Therefore, a predicted demand of 745, ,000 would be reasonable. ( grew by 5,000 in when economic growth was -1.3%; economic growth will be stronger in (+1.2%) and therefore an increase in sales of between 5,000 and 20,000 is reasonable.) The eye cream would be considered a luxury product (its sales are affected by the state of the economy). The eye cream sales have grown slower than economic growth. Therefore, a predicted demand of 116,000 or so would be reasonable. ( decreased by 2,000 in when economic growth was -1.5%; economic growth will be stronger in (+1.2%) but unemployment will increase slightly 8.9%; therefore a

4 4 decrease in sales of between 2,000 is reasonable. This follows another decrease of 2,000 from.)

5 5 Exercise 2 Forecast the yearly new home sales and sales of major appliances for, using the New Homes $300,000 Major Appliances $ , , ,000 2,100,000 2,400,000 2,200, Mortgage s % 5.00% 4.75% 4.00% 3.50% Content Specialist s Explanation of Forecast The sale of new homes would likely not grow significantly in. Even though interest rates, a key indicar, continue drop, unemployment is also rising. Therefore, a predicted demand of 325, ,000 is reasonable. ( dropped by 20,000 in primarily due a significant increase in unemployment, even though mortgage rates (a key indicar for house sales) dropped 4.00%. Interest rates will continue drop in but unemployment will edge upwards; therefore a change ranging from a slight decrease of 5,000 a slight increase of 5,000 is likely.) The sale of major appliances is closely linked the sale of new homes. Therefore, a predicted demand of 2,150,000 2,250,000 is reasonable. ( dropped by 200,000 in primarily due a significant increase in unemployment, even though mortgage rates (a key indicar for major appliances) dropped 4.00%. Interest rates will continue drop in but unemployment will edge upwards; therefore a change ranging from a decrease of 50,000 an increase of 50,000 is likely.)