How is forecast error calculated

Assignment Help Basic Statistics
Reference no: EM13247281

Regression Analysis and Cost Estimation

The CEO of Carson Company has asked you to develop a cost equation to predict monthly overhead costs in the production department. You have collected actual overhead costs for the last 12 months, together with data for three possible cost drivers, number of Indirect Workers, number of Machine Hours worked in the department and the Number of Jobs worked on in each of the last 12 months:

Overhead Costs

Indirect Workers

Machine Hours

Number of Jobs

$2,200

30

350

1,000

4,000

35

500

1,200

3,300

50

250

900

4,400

52

450

1,000

4,200

55

380

1,500

5,400

58

490

1,100

5,600

90

510

1,900

4,300

70

380

1,400

5,300

83

350

1,600

7,500

74

490

1,650

8,000

100

560

1,850

10,000

105

770

1,250

(a)

The CEO suggests that he has heard that the high-low method of estimating costs works fairly well and should be inexpensive to use. Write a response to this suggestion for the CEO indicating the advantages and disadvantages of this method. Include the calculation of a cost equation for this data using Machine Hours as the cost driver.

(b)

Using Excel develop three scatter diagrams showing overhead costs against each of the three proposed independent variables. Comment on whether these scatter diagrams appear to indicate that linearity is a reasonable assumption for each.

(c)

Using the regression module of Excel's Add-in Data Analysis, perform 3 simple regressions by regressing overhead costs against each of the proposed independent variables. Show the output for each regression and evaluate each of the regression results, indicating which of the three is best and why.

Provide the cost equations for those regression results which are satisfactory and from them calculate the predicted overhead in a month where there were 100 Indirect Workers and 500 Machine Hours and 1,000 Jobs worked.

(d)

Selecting the two best regressions from part (c) conduct a multiple regression of overhead against these two independent variables. Evaluate the regression results.

Draw conclusions about the best of the four regression results to use.

QUESTION Forecasting

All forecasts are never 100% accurate but subject to error.

  1. How is forecast error calculated?
  2. Identify and describe three common measures of forecast error. Then illustrate how each is calculated by constructing a 4-period example.

(b) Consider the following table of monthly sales of car tyres by a local company:

Month

Unit Sales

January

400

February

500

March

540

April

560

May

600

June

?

(i)

Using a 2-month moving average develop forecasts sales for March to June inclusive.

(ii)

Using a 2-month weighted moving average, with weights of 2 for the most recent month and 1 for the previous month develop forecasts sales for March to June inclusive.

(iii)

The sales manager had predicted sales for January of 400 units. Using exponential smoothing with a weight of 0.3 develop forecasts sales for March to June inclusive.

(iv) Which of the three techniques gives the most accurate forecasts? How do you know?

(c) Describe the four patterns typically found in time series data. What is meant by the expression "decomposition" with regard to forecasting? Briefly describe the process.

Reference no: EM13247281

Questions Cloud

Find the magnitude of the resulting magnetic field : One long wire lies along an x axis and carries a current of 42 A in the positive x direction, What is the magnitude of the resulting magnetic field at the point (0, 2.0 m, 0)
Discuss two distinct ethical issues that you will need : Discuss two distinct ethical issues that you will need to understand and respect as your business expands into your selected country.
Obtain input value from two switches on the logic designer : Design a circuit that, given a 2-bit value, will light a LED corresponding to that value. One of four LEDs should be lit for each of the four possible input values (binary 0 through 3).
Find the frequency of oscillation of the electron : An electron is constrained to the central axis of a ring of charge 1 coulomb and of radius 1 meter. Find the frequency of oscillation of the electron in Hertz
How is forecast error calculated : Develop three scatter diagrams showing overhead costs against each of the three proposed independent variables and how is forecast error calculated?
Discuss which of the two values to display on the leds : A circuit is needed to display a 4-bit value on the LEDs of the logic designer. This value can come from two different sources. Design a circuit using four 2-to-1 multiplexers to select which of the two values to display on the LEDs.
When a country runs a trade deficit it does so by : Suppose that consumer spending is expected to decrease in the near future. If output is at potential output, which of the following policies is most appropriate according to the AS/AD model
Find the soccer ball initial horizontal velocity component : A soccer player kicks the ball off the ground at an angle ? above the horizontal. The ball is in the air for 3.0 seconds, Find the soccer ball's initial horizontal (vox) velocity component
Determine the induced current in the coil : A flat circular coil with 110 turns, a radius of 3.80 × 10-2 m, and a resistance of 0.340 ? is exposed to an external magnetic field that is directed perpendicular to the plane of the coil, Find the induced current in the coil

Reviews

Write a Review

 

Basic Statistics Questions & Answers

  Example-single population proportion

Cite an example of how you could/would apply a test of a hypothesis for a single population proportion, two tail test described in the lecture to real world situations?

  Determine coefficient of correlation

Determine the coefficient of correlation between the two variables. Interpret the value.

  Positive correlation between the number of fire engines

Explain why one would expect to find a positive correlation between the number of fire engines that respond to a fire and the amount of damage done in the fire. Does this mean that the damage would be less extensive if fewer fire engines were disp..

  Mean total score

The Graduate Management Admission Council, who administers the test, claims that the mean total score is 529. Suppose a random sample of 8 students took the test, and their scores are given below. 699, 560, 414, 570, 521, 663, 727, 413 Use α = .05..

  Normal distribution having mean-standard deviation

A fast-food restaurant sells hamburgers and chicken sandwiches. On a typical weekday, the demand for hamburgers is normally distributed with a mean 313 and a standard deviation 57; the demand for chicken sandwiches is normally distributed with a m..

  Recognizing midpoint of the first class

Recognize the midpoint of the first class. Recognize the class boundaries of the first class.

  Determine probability that mean breaking strength exceeds

4 clothing manufacturer tests SRS of 5 specimens of each fabric. Determine the probability that mean breaking strength of 5 untreated specimens exceeds 50 pounds?

  Correlation by correlatio coefficient

Bill is doing a project for you in the marketing department. In conducting his analysis regarding consumer behavior and a new product that has come out

  Conduct nonparametric test of hypothesis

Conduct the equivalent, nonparametric test of hypothese using the five-step process. Do the following teams average a salary of 70 million dollars a year or less?

  Mean and standard deviation of final grades

The final grades for a random sample of MKT 380 students are as follows: What is the standard deviation for these data?

  Relevant population and source basics

Describe the relevant population and the source (e.g. newspaper, TV, radio, internet, etc.). Explain why you do not believe it is accurate.

  Describing design life in days of a light bulb

A particular bulb is turned on once each evening for an average of 10 hr. If it is desired to have a reliability of 90 percent, what is its design life in days?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd