Question: The relationship between total operating cost and quantity produced (in a manufacturing company) is given by the linear regression model TC = 5,000 + 500Q,

The relationship between total operating cost and quantity produced (in a manufacturing company) is given by the linear regression model TC = 5,000 + 500Q, where TC = total operating cost (in shs ) per annum and Q = quantity produced per annum (kg). What reservations might you have about relying on the above model for decision-making purposes? (5 MARKS)

Trans-Atlantic Sports House Inc is a sports fitters operating in the Mid-Western states in the USA. The demand for one of its major products called Skateboard has been observed to follow a pattern of seasonality aligned to the 4 distinct seasons of the year as follows:

Year

Spring

(Demand in units)

Summer

(Demand in units)

Autumn

(Demand in units)

Winter

(Demand in units)

2015

45,000

22,000

64,000

33,000

2016

48,000

27,000

74,000

41,000

2017

52,000

32,000

83,000

46,000

2018

57,000

35,000

94,000

52,000

Required:

Calculate the seasonal indices for each season using multiplicative index

Forecast the demand for each season of the year 2019 given that the annual demand forecast is 284,000 units.

Deseasonalize the actual demand data (2015-2018) above using the seasonal indices obtained in (a) above.

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