Essay About Economic Order Quantity And Naïve Forecast

Practice Midterm with Solution
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Practice MidtermQuestion 1: (1×10=10 points) circle the most appropriate choiceOperations management is concerned withthe design of a firm’s productive systems.the operation of a firm’s productive systems.the improvement of a firm’s productive systems.all of the above.(i) Forecasting customer demand is rarely a key to providing good quality service.  (ii) The ratio of a firm’s monthly output to the number of labor hours used in the same month would be a measure of labor productivity(i) true (ii) false        b. (i) false (ii) true                c. both true                d. both falseA gradual, long-term up or down movement of demand is referred to as a Seasonality                b. cyclicality                        c. trend                 d. correlationExponential smoothing method is designed for Stationary series        b. Seasonality                c. Trend                 d. All of the a,b,cThe exponential smoothing model produces a naïve forecast when the smoothing constant, α, is equal to 0.00                        b. 1.00                        c. 0.50                d. 2.00The economic order quantity (EOQ) model determines the optimal order size that minimizes  annual carrying costannual order costtotal annual inventory costannual purchase cost(i) Inventory management is concerned with how much to order and when to order.  (ii) The three basic costs associated with inventory are holding costs, ordering costs and shortage costs.(i) True (ii) False(i) False (ii) TrueBoth trueBoth false(i) The production quantity model, a variation of the basic EOQ model, assumes non-instantaneous replenishment.(ii) With the economic order quantity (EOQ) model, increasing the order quantity reduces inventory carrying cost.(i) True (ii) False        b. (i) False (ii) True                c. Both true         d. Both falseA continuous inventory system is also known as afixed time period systemfixed order quantity systemfixed lead time systemfixed amount system1.10 A company may purchase larger amounts of inventory for all the following reasons exceptto take advantage of quantity discounts.as a hedge against future price increases.to obtain lower prices purchasing in volume.to reduce inventory carrying costs.Question 2: (10 points)Consider the following demand data:Period1234Demand500590710780(2 points) Compute a 2-month moving average forecasts for months 3 through 5.[pic 1],[pic 2],[pic 3](2 points) Compute a weighted 2-month moving average forecasts for months 3 through 5. Assign weights of 0.70 and 0.30 to the more recent and more distant data respectively.[pic 4],[pic 5],[pic 6](2 points) Compare the two forecasting methods using MSE. Which method is more accurate?2-month SMA: MSE =  (also accepted 44,135)[pic 7]2-month WMA(more accurate): MSE =  (also accepted 32,845) [pic 8](2 points) Compute an exponentially smoothed forecast for period 3 using an  value of 0.25. Assume that the first period’s forecast is the same as its demand.[pic 9][pic 10](2 points) Compute an adjusted exponentially smoothed forecast for period 3 . Use the second period’s forecast from part d. Assume that the second period’s trend is zero.[pic 11][pic 12][pic 13]Question 3: (10 points)Consider the following demand data for outdoor recreational clothing:201220132014TotalWinter130135145410Spring205210230645Summer115145160420Fall3603704301160Total8108609652635Develop a seasonally adjusted forecast model for these order data. Forecast demand for each quarter for 2015 (using a linear trend line forecast estimate for orders in 2015). Seasonality factor:[pic 14]Winter: 410/2635 = 0.1556Spring: 645/2635 = 0.2448        Summer: 420/2635 = 0.1594        Fall: 1160/2635 = 0.4402                Forecast Annual Sales, 2015[pic 15][pic 16][pic 17][pic 18]18108101286017204396528959Sum62635542514Average22635/3=878.33————————————–