Kim K. asks you to develop a demand forecast for her perfume line. Using the data provided, you find a regression model, y = 4 + 3.36x₁ + 5x₂, with the undernoted parameters.

Parameters: R²= 0.70

Sig of F: 0.04

p-value of x₁= 0.05

p-value of x₂= 0.08

x₁ denotes Consumer Income

x₂ denotes Advertising

y denotes Demand

Would you advise KIm that the above model can be (technically) used for forecasting (disregard your responses to any other related question) ?

	a.	No
	b.	Yes

College data shows that demand for Apps Design 101 has been changing over the last 5 years:

Year Actual Demand

1 5500

2 5700

3 6000

4 5900

5 5300

What is the forecast for year 6 using a 3 years weighted moving average?

(The weights are: Yr 3 =0.10, Yr. 4= 0.40, Yr. 5 = 0.50)

	a.	6000
	b.	3060
	c.	5610
	d.	2480

Annual demand for the Ferrari laptop at Circuit Town is D=1000 units,. Ordering cost (S)=$400/order, each laptop costs $500 and holding costs (H) are 2% of the cost/unit/month. Assume that the business follows the EOQ ordering policy.

What then, is the total cost of the EOQ ordering policy?

EOQ = Sq root of [(2D*S)/H]

D = annual demand in units

S = cost of placing 1 order; H = cost of holding 1 unit of that item in inventory for 1 year

and

(TC= # of orders/yr * S + Avg. Inventory * H). Round up (for e.g. 9.22 becomes 10) when computing the # of orders figure. Average inventory = (Beginning Inv + Ending Inv)/2; # of orders/yr = D/order qty

		$55,000
		$8,024
		$10,120
		$97,980

The basic EOQ model is quite robust (works reasonably well in many scenarios) because:

		It is quite easy to account for holding and ordering costs
		The flat bottomed total cost curve implies that straying away a little from the EOQ number would notincrease costs significantly
		The assumptions of the basic EOQ model are met reasonably well in most businesses.
		It accounts for variable demand and variable lead time