Champlain College Transportation and Logistics RAC: BJ72: Demand Forecasting
Demand Forecasting: Exercises
The information included in this document is to help you prepare for the evaluation of competency elements 1 and 2. It will allow you to apply the Time Series Analysis
method of demand forecasting to predict future demand for products.
Exercise 1
Forecast the yearly sales for the Shaving Cream and Eye Cream for 2010 using the information in the table below. Explain the reasons for your forecast.
Cost
Sales
2007
Sales
2008
Sales
2009
Sales
2010
Shaving Cream
$2.99 unit
700000
735000
740000
?
Eye Cream
$150.00 unit
110000
120000
118000
?
Economic Growth
%
3.8%
2.9%
(1.3%)
1.2%
Unemployment
Rate
%
6.2%
6.6%
8.8%
8.9%
Note: It is common to show negative figures in parentheses. Therefore, the economic growth in 2009 in the table above shown in parentheses is minus 1.3% (-1.3%).
Student’s Explanation of Forecast
To help you prepare for the evaluation, try to explain your reasons for your forecast before you look at the content specialist’s explanation at the end of the document.
Exercise 2
Forecast the yearly new home sales and sales of major appliances for 2010, using the information in the table below. Explain the reasons for your forecast.
Cost
Sales
2007
Sales
2008
Sales
2009
Sales
2010
New Homes
$300,000
(average)
300,000
350,000
330,000
?
Major Appliances
$600.00
(average)
2,100,000
2,400,000
2,200,000
?
Mortgage
Rates
(average)
%
5.00%
4.75%
4.00%
3.50%
Unemployment
Rate
%
6.2%
6.6%
8.8%
8.9%
Student’s Explanation of Forecast
To help you prepare for the evaluation, try to explain your reasons for your forecast before you look at the content specialist’s explanation at the end of the document.
Champlain College Transportation and Logistics RAC: BJ72: Demand Forecasting
Answers
Exercise 1
Forecast the yearly sales for the Shaving Cream and Eye Cream for 2010, using the information in the table below. Explain the reasons for your forecast.
Cost
Sales
2007
Sales
2008
Sales
2009
Sales
2010
Shaving Cream
$2.99 unit
700000
735000
740000
745 000 to760 000
Eye Cream
$150.00 unit
110000
120000
118000
116 000Economic Growth
%
3.8%
2.9%
(1.3%)
1.2%
Unemployment
Rate
%
6.2%
6.6%
8.8%
8.9%
Note: It is common to show negative figures in parentheses. Therefore, the economic growth in 2009 in the table above shown in parentheses is minus 1.3% (-1.3%).
Content Specialist’s Explanation of Forecast
Shaving cream would likely continue growing as it is considered a staple product (it is not affected by the state of the economy or by the unemployment rate). Shaving cream sales grew in 2008 and 2009, when economic growth was negative. Therefore, a predicted demand of 745,000 – 760,000 would be reasonable. (Sales grew by 5,000 in 2009 when economic growth was -1.3%; economic growth will be stronger in 2010 (+1.2%) and therefore an increase in sales of between 5,000 and 20,000 is reasonable.) The eye cream would be considered a luxury product (its sales are affected by the state of the economy). The eye cream sales have grown slower than economic growth. Therefore, a predicted demand of 116,000 or so would be reasonable. (Sales decreased by 2,000 in 2009 when economic growth was -1.5%; economic growth will be stronger in 2010 (+1.2%) but unemployment will increase slightly to 8.9%; therefore a
decrease in sales of between 2,000 is reasonable. This follows another decrease of 2,000 from 2008 to 2009.)
Champlain College Transportation and Logistics RAC: BJ72: Demand Forecasting
Exercise 2
Forecast the yearly new home sales and sales of major appliances for 2010, using the information in the table below. Explain the reasons for your forecast.
Cost
Sales
2007
Sales
2008
Sales
2009
Sales
2010
New Homes
$300,000
(average)
300,000
350,000
330,000
325 000 to 335 000Major Appliances
$600.00
(average)
2,100,000
2,400,000
2,200,000
2 150 000 to 2 250 000Mortgage
Rates
(average)
%
5.00%
4.75%
4.00%
3.50%
Unemployment
Rate
%
6.2%
6.6%
8.8%
8.9%
Content Specialist’s Explanation of Forecast
The sale of new homes would likely not grow significantly in 2010. Even though interest rates, a key indicator, continue to drop, unemployment is also rising. Therefore, a predicted demand of 325,000 to 335,000 is reasonable. (Sales dropped by 20,000 in 2009 primarily due to a significant increase in unemployment, even though mortgage rates (a key indicator for house sales) dropped to 4.00%. Interest rates will continue to drop in 2010 but unemployment will edge upwards; therefore a change ranging from a slight decrease of 5,000 to a slight increase of 5,000 is likely.)
The sale of major appliances is closely linked to the sale of new homes. Therefore, a predicted demand of 2,150,000 to 2,250,000 is reasonable. (Sales dropped by 200,000 in 2009 primarily due to a significant increase in unemployment, even though mortgage rates (a key indicator for major appliances) dropped to 4.00%. Interest rates will continue to drop in 2010 but unemployment will edge upwards; therefore a change ranging from a decrease of 50,000 to an increase of 50,000 is likely.)
