QT – May 2016 – L1 – Q2 – Forecasting

This question asks for the creation of a linear regression trend equation, seasonal components, and forecasts for chocolate sales.

Question

Countess Company trades in bars of Golden Tree Chocolate from Tema Cocoa Processing Company Limited. The number of bars of chocolate sold per quarter over a four-year period by Countess Company is:

YEAR	QUARTER 1	QUARTER 2	QUARTER 3	QUARTER 4
1	20	10	4	11
2	33	17	9	18
3	45	23	11	25
4	60	30	13	29

Required:

i) Plot the data on a graph (3 marks)

ii) Calculate a linear regression trend equation for the data (5 marks)

iii) Calculate the four seasonal components using a multiplicative model (5 marks)

iv) Forecast the number of bars of chocolate for the next two years (5 marks)

v) Comment on the reliability of the forecasts in iv) above (2 marks)

Answer

ii)

The trend line is given by y = a + bx

Therefore, the trendline is y = 11.325 + 1.3x.

iii)

iv)

(v) Comment on the reliability of the forecasts:

The forecasts in (iv) above are not reliable because they are based on extrapolations, i.e., they are forecasts beyond the range of the available data.

Tags: Forecasting, Linear Regression, Multiplicative Model, Seasonal Components, Time series
Level: Level 1

Topic: Forecasting
Series: MAY 2016

Uploader: Kwame Aikins