Reference no: EM132228931

M E M O R A N D U M TO: Mr. Costello : Results of Requested Forecast 5 May 2018 Attached are the results of next year’s sales forecast. After examining several quantitative models, I determined that the data best fits a linear regression forecasting model, with seasonal adjustments. My analysis shows that the line which best fits the historical annual demand is given by the equation (1)_____. From this model, I can predict that next year’s annual sales volume will be about (2) units. I am able to make this prediction by substituting the number, (3) , for x in the equation, which corresponds to next year. You may be interested in further understanding how this equation might be interpreted. The b-coefficient, which has the value, (4) , represents the approximate change in (5) that is expected each (6) . Annual sales are affected by a very distinct seasonal pattern, so it is important to predict sales behavior throughout the year. The company should plan accordingly, as the widely fluctuating seasonal pattern affects resource needs. Historical data shows that approximately (7) percent of annual demand occurs in the first two months of the year, and that is followed by subsequent percentages for each of the next five bi-monthly time periods for the remainder of the year: (8) , (9) , (10) , (11) , and (12), respectively. Based on these percentages, and the annual demand predicted by the forecasting model, I can provide an estimate of the following sales amounts for each of the bi-monthly time-periods during the year: (13), (14), (15), (16), (17), and (18). The accuracy of the forecasting model can be determined from several measures. The MAD, or mean absolute deviation, is (19) . This number describes the approximate average difference between historical actual demand and predicted demand each (20) . The MAPD, which stands for (21) , is (22) , which means our level of confidence in the forecast is (extremely high, moderate, unacceptable). The correlation between the actual annual demand and forecasted annual demand is (23) , which is (very strong, moderate, very weak). Taken as a whole, these multiple measures of accuracy show (consistent, moderately mixed, extremely disparate) error results, so the forecast should be (used as an exact prediction of sales, used with some caution and minor adjustments for error, completely abandoned as useless). Two aggregate plan options are also included in this analysis. The two choices evaluated are the level production plan and the chase demand plan. The level production plan maintains even production throughout the year, while the chase demand production plan follows demand exactly. For the level production plan, a major cost is incurred from high (inventory levels, hiring and firing costs). The chase demand plan, on the other hand, incurs higher (inventory cost, hiring and firing costs). The total cost of the level production plan is _____________, and the total cost of the chase demand plan is ______________. On the basis of cost alone, the best choice is to use the (level production plan, chase demand plan). There may be other considerations, however. For example, if our workforce is very highly trained and difficult to recruit, you may wish to consider the (level production plan, chase demand plan).