GATE ME 2015 Set 2 — Question 35
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Industrial Engineering → Production Planning & Control → Forecasting Models
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Question
Sales data of a product is given in the following table:
Regarding forecast for the month of June, which one of the following statements is TRUE?
| Month | January | February | March | April | May |
|---|---|---|---|---|---|
| Number of units sold | 10 | 11 | 16 | 19 | 25 |
Correct answer
(D) Regression will forecast a higher value compared to moving average.
Solution
The sales data (10, 11, 16, 19, 25) shows a strong increasing trend.
1.Moving Average: This method calculates the average of the most recent periods. In an increasing trend, the average will always lag behind the actual data, resulting in a forecast lower than the most recent actual value.
2.Regression (Least Squares): This method fits a trend line to the data. For an increasing trend, the regression line will project a value for the next period that accounts for the growth, resulting in a forecast higher than the simple average of previous values.
3.Exponential Smoothing: Similar to moving average, simple exponential smoothing lags behind a trend.
Therefore, regression will forecast a higher value compared to moving average as it captures the upward trend. Additionally, for an increasing trend, a higher order in a moving average includes older, smaller data points, which actually decreases the forecast value, making statement (B) false.Continue learning with Success Tracker
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