4- Two methods are used to predict how many customers will call in for help in t
ID: 374783 • Letter: 4
Question
4- Two methods are used to predict how many customers will call in for help in the next four days. The first method predicts the number of callers to be 23, 5, 14, and 20 for the four respective days. The second method predicts 20, 13, 14, and 20 for the four respective days. The actual number of callers turns out to be 23, 10, 15, and 19. Which method has the bigger forecast bias? a- the second method
b- both are equally biased
c- both are not biased
d- the first method
5- Two methods are used to predict how many customers will call in for help in the next four days. The first method predicts the number of callers to be 23, 5, 14, and 20 for the four respective days. The second method predicts 20, 13, 14, and 20 for the four respective days. The actual number of callers turns out to be 23, 10, 15, and 19. Which method has the smaller mean squared error (MSE)?
a- both methods have the same MSE
b- the first method
c- the second method
d- both methods have the zero (0) MSE
6- Bakery A uses 80 bags of chocolate chips each year. The chocolate chips are purchased from a supplier for a price of $80 per bag and an ordering cost of $20 per order. Bakery A's annual inventory holding cost percentage is 40%. If bakery A's demand for the chip is double, what will be the percentage change in its economic order quantity?
a- 100% decrease
b- 41% increase
c- 41% decrease
d- 100% increase
Explanation / Answer
Answer to question 4 and 5 :
Please make note of following table which calculates values of Forecast error and Squared error
Actual number of callers
Forecast ( first method)
Forecast bias = Actual - Forecast
Squared error = Forecast bias ^2
Forecast ( second method)
Forecast bias = Actual - Forecast
Squared error = Forecast bias ^2
23
23
0
0
20
3
9
10
5
5
25
13
-3
9
15
14
1
1
14
1
1
19
20
-1
1
20
-1
1
SUM =
5
27
0
20
Accordingly .
Forecast bias of first method (i.e. value = 5) > Forecast bias of second method ( i.e. value = 0)
Hence, FIRST METHOD HAS BIGGER FORECAST BIAS
Mean Squared error (MSE) for first method = 27/4 = 6.75
Mean Squared error ( MSE) for second method = 20/4 = 5
Hence , MSE for 2nd method < MSE for first method
SECOND METHOD HAS SMALLER MSE
Answer to question 6 :
Economic Order Quantity ( EOQ ) = Square root ( 2 x Co x D / Ch)
D = annual demand = 80 bags
Co = Ordering cost = $20/order
Ch = annual unit inventory holding cost = 40% of $80/bag = $32
Hence,
EOQ = Square root ( 2 x 20 x 80/32) = 10
When demand doubles, revised demand = 2 x 80 = 160
Revised EOQ = Square root ( 2 x 20 x 160/32) = 14.14
Therefore,
Percentage change in Economic Order Quantity = ( 14.14 – 10)/10 x 100 = 41.4%
Actual number of callers
Forecast ( first method)
Forecast bias = Actual - Forecast
Squared error = Forecast bias ^2
Forecast ( second method)
Forecast bias = Actual - Forecast
Squared error = Forecast bias ^2
23
23
0
0
20
3
9
10
5
5
25
13
-3
9
15
14
1
1
14
1
1
19
20
-1
1
20
-1
1
SUM =
5
27
0
20
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