4 Forecasting 77 mins

4.1 Thefollowing
fourdatapairshavebeenobtained:
(1,5),(2,6),(4,9),(5,11).Without
carrying
outanycalculations,
whichofthefollowing
correlationcoefficients
bestdescribes
therelationship
betweenxandy?
 –0.98
 –0.25
 0.98
 0.25 (2 marks)

4.2 MakeCo'smanagement accountant

isanalysingtherejectratesachieved
by100factory
operatives
working
inidentical
conditions.
Rejectrates,Y%,arefoundtoberelatedto
months ofexperience,
X,bythisregression
equation:Y=20– 0.25X.(Thecorrelation
coefficient
wasr=–0.9.)
Usingtheequation,
whatisthepredicted
rejectrateforanoperative
with12months'
experience?
 17%
 19%
 20%
 23% (2 marks)

4.3 Aregression
equation
Y=a +bXisusedtoforecast
thevalueofYfora givenvalueofX.
WhichTWOofthefollowing
increase
thereliability
oftheforecast?
 Acorrelation
coefficient
numerically
closeto1
 Working
toa highernumberofdecimalplacesofaccuracy
 Forecasting
forvaluesofXoutsidetherangeofthoseusedinthesample
 Alargesampleisusedtocalculate
theregression
equation (2 marks)

4.4 Ifx=12,y=42,x2=46,y2=542,xy=157andn=4,whatisthecorrelation
coefficient?
 0.98
 –0.98
 0.26
 0.008 (2 marks)
4.5 Usingdatafromtwelve Europeancountries,
ithasbeencalculatedthatthecorrelation
betweenthelevelofcarownershipandthenumber ofroaddeathsis0.73.
WhichTWOofthestatements shown follow
fromthis?
 Highlevelsofcarownershipcausehighlevelsofroaddeaths
 Thereisa strong
relationship
between thelevelofcarownership
andthenumber of
roaddeaths
 53%ofthevariationinthelevelofroaddeaths fromonecountry tothenextcanbe
explainedbythecorrespondingvariation
inthelevelofcarownership
 73%ofthevariationinthelevelofroaddeaths fromonecountry tothenextcanbe
explainedbythecorrespondingvariation
inthelevelofcarownership
(2 marks)

4.6 Theregression
equationY=3+2Xhasbeencalculated from6pairsofvalues,
withXranging
from1to10.Thecorrelation
coefficient
is0.8.Itisestimated
thatY=43when X=20.
WhichTWOofthefollowingaretrue?
 Theestimate
isnotreliable
because
X isoutside
therangeofthedata
 Theestimate
isnotreliable
because
thecorrelation
islow
 Theestimate
isreliable
 Theestimate
isnotreliable
because
thesample issmall (2 marks)

4.7 Incalculating
theregression
equation
linkingtwovariables,
thestandard
formulaeforthe
regression
coefficients
aregiveninterms ofXandY.Whichofthefollowingistrue?
 Xmustbethevariable whichwillbeforecast
 Itdoesnotmatterwhichvariableiswhich
 Ymustbethedependent variable
 Ymustbethevariable shown onthevertical
axisofa scatter
diagram (2 marks)

4.8 SaveCousesregressionanalysis
toestablisha totalcostequation
forbudgeting
purposes.
Dataforthepastfourmonthsisasfollows:
Month Totalcost Quantity
produced
$'000 $'000
1 57.5 1.25
2 37.5 1.00
3 45.0 1.50
4 60.0 2.00
200.0 5.75
Thegradientoftheregression
lineis17.14.
Whatisthevalueofa?
 25.36
 48.56
 74.64
 101.45 (2 marks)
4.9 Regression
analysis
isbeingusedtofinethelineofbestfit(y=a +bx)fromeleven
pairsof
data.Thecalculations
haveproduced thefollowing
information:
x=440,y=330,x2=17,986,
y2=10,366andxy=13,467
Whatisthevalueof'a'intheequation
forthelineofbestfit(to2 decimal
places)?
 0.63
 0.69
 2.33
 5.33 (2 marks)

4.10 Whichofthefollowing
isa feasible
valueforthecorrelation
coefficient?
 – 2.0
 – 1.2
 0
 +1.2 (2 marks)

4.11 Overan18-month period,

saleshavebeenfoundtohaveanunderlying
linear
trendof
y =7.112
+ 3.949x,where
y isthenumber
ofitemssoldandxrepresents
themonth. Monthly
deviations
fromtrendhavebeencalculated
andmonth 19isexpected
tobe1.12times
the
trendvalue.
Whatistheforecast
number
ofitems
tobesoldinmonth
19?
 91
 92
 93
 94 (2 marks)

4.12 Basedonthelast15periods
theunderlyingtrendofsalesisy =345.12
– 1.35x.
Ifthe16th
period
hasa seasonal
factorof–23.62,assuminganadditive forecasting
model, whatis
theforecast
forthatperiod,
inwholeunits?
 300
 301
 324
 325 (2 marks)
4.13 Monthly
saleshavebeenfoundtofollow
a linear
trendofy =9.82+4.372x,wherey isthe
numberofitems
soldandxisthenumber ofthemonth. Monthlydeviations
fromthetrend
havebeencalculated
andfollow
anadditivemodel.Inmonth24,theseasonalvariation
is
estimated
tobeplus8.5.
Whatistheforecast
number
ofitems
tobesoldinmonth
24?(tothenearest
whole
number.)
 106
 115
 123
 152 (2 marks)

4.14 WhichTWOofthefollowing
arenecessary
ifforecasts
obtained
froma timeseries
analysis
aretobereliable?
 There
mustbenounforeseen
events
 Themodel
usedmustfitthepastdata
 Thetrendmustbeincreasing
 Theremustbenoseasonal
variation (2 marks)

4.15 Whatisthepurpose
ofseasonally
adjusting
thevalues
ina timeseries?
 Toobtainaninstant estimate
ofthedegree ofseasonal
variation
 Toobtainaninstant estimate
ofthetrend
 Toensurethatseasonal components totalzero
 Totakethefirststepina timeseries
analysisofthedata (2 marks)

4.16 Thefollowing
datarepresents
a timeseries:
X 36 Y 41 34 38 42
Aseries
ofthree
point
moving averages
produced
from thisdatahasgiventhefirsttwovalues
as38and39.
Whatarethevaluesof(X,Y)intheoriginal
timeseries?
 (38,39)
 (38,40)
 (40,38)
 (39,38) (2 marks)
4.17 Usinganadditivetimeseries
model,thequarterlytrend(Y)isgivenbyY=65+7t,where t is
thequarter
(starting
witht =1inthefirstquarter
of20X5).Iftheseasonalcomponentinthe
fourth
quarteris–30,whatistheforecast fortheactualvalueforthefourth
quarter
of
20X6,tothenearestwhole number?
 63
 546
 85
 91 (2 marks)

4.18 Thetrendformonthly sales($Y)isrelated

tothemonth(t)bytheequationY=1,500– 3t
where t =1inthefirstmonth of20X8.Whataretheforecastsales(tothenearest
dollar)
for
thefirstmonthof20X9iftheseasonal component
forthatmonthis0.92usinga
multiplicative
model?
 $1,377
 $17,904
 $1,344
 $1,462 (2 marks)

4.19 WhichTWOofthefollowing
arenecessary
ifforecasts
obtained
froma timeseries
analysis
aretobereliable?
 Thetrendmustnotbeincreasing
ordecreasing
 Thetrendmustcontinue
asinthepast
 Extrapolation
mustnotbeused
 Thesamepatternofseasonal
variation
mustcontinue
asinthepast (2 marks)

4.20 Underwhichofthefollowing
circumstances
would
a multiplicative
model
bepreferred
toan
additive
modelintimeseries
analysis?
 Whena modeleasilyunderstood
bynon-accountants
isrequired
 Whenthetrendisincreasing
ordecreasing
 Whenthetrendissteady
 Whenaccurate
forecasts
arerequired (2 marks)

4.21 BlueCo'sannualprofits
havea trendlinegivenbyY=20t– 10,where
Y isthetrendin
$'000andt istheyearwitht =0 in20X0.
Whataretheforecastprofits
fortheyear20X9usinganadditive
model
ifthecyclical
componentforthatyearis–30?
 $160,000
 $140,000
 $119,000
 $60,000 (2 marks)
4.22 InJanuary, the unemploymentinRuritaniais 567,800.Ifthe seasonalfactor usingan
additivetimeseriesmodelis +90,100,what is the seasonally-adjustedlevelof
unemployment(to the nearest wholenumber)?
 90,100
 477,700
 567,800
 657,900 (2 marks)

4.23 Acountrymeasuresthe rate of inflationusinga base weightedindex,with20X1beingthe

base year.
Threedifferentproductsare used inthe index.Theunitpricesof these and the quantities
purchased(unitsof each product)are shownbelow.
Quantity Quantity
purchased Price purchased Price
in 20X1 in 20X1 in 20X2 in 20X2
Product (millions) ($) (millions) ($)
Milk 300 1 320 1.10
Cola 150 2 120 2.50
Phones 50 80 75 100.00
Whatis the weightedaverage pricerisebetween20X1and 20X2,usingthe country'sbase
weightedindex?
 20.0%
 24.0%
 24.3%
 77.2% (2 marks)

4.24 Thefollowinginformationisavailableforthe priceof materialsused at P Co.

Laspeyreindexforpricein20X5(withbase year of 20X0) 150.0
CorrespondingPaasche index 138.24
Whatis Fisher'sidealindex?
 12.00
 16.98
 144.00
 288.24 (2 marks)
4.25 Alargebagofcement
cost$0.80in20X3.Thepriceindices
areasfollows.
20X3 91
20X4 95
20X5 103
20X6 106
Howmuchdoesa bagofcement
costin20X6(to2 dp)?
$ (2 marks)

4.26 Fouryearsagomaterial
Xcost$5perkgandthepriceindexmostappropriate
tothecost
ofmaterial
Xstoodat150.
Thesameindexnowstandsat430.
Whatisthebestestimate
ofthecurrent
costofmaterial
Xperkg?
 $1.74
 $9.33
 $14.33
 $21.50 (2 marks)

4.27 Sixyearsagomaterial
Mcost$10perkgandthepriceindexmostappropriate
tothecost
ofmaterial
Mwas130.Thesameindexnowstands
at510.
Whatisthebestestimate
ofthecurrent
costofmaterial
Mperkg?
 $2.55
 $29.23
 $39.23
 $51.00 (2 marks)

4.28 Thepriceindexina countryisbasedonthepurchasesofthreeproducts:

bread,meatand
televisions.
Thetablebelow showsthequantities
(units)
oftheproducts
purchased
andtheirunit
prices,forthelasttwoyears.
Quantity Quantity
purchased Price purchased Price
in 20X1 in 20X1 in 20X2 in 20X2
Product (millions) ($) (millions) ($)
Bread 200 1 220 0.9
Meat 150 5 190 5.2
Televisions 10 300 14 350.00
Whatisthepricerisebetween
20X1and20X2usinga current
weightings
approach?
 3.6%
 12.9%
 13.3%
 54.1% (2 marks)
4.29 Thefollowingquestion is taken from the December2012exam.
Thefollowingdata relatesto a company'soverheadcost.
Time Output Overhead Price
(units) cost ($) index
2 years ago 1,000 3,700 121
Currentyear 3,000 13,000 155
Usingthe highlowtechnique,what is the variablecost per unit(to the nearest $0.01)
expressedincurrentyear prices?
 $3.22
 $4.13
 $4.65
 $5.06 (2 marks)

4.30 Thefollowingquestion is taken from the June 2013exam.

Anadditivetimeserieshas the followingtrend and seasonalvariations:
Trend Y=4,000+6X where Y=sales inunits
Xisthe numberofquarters,withthe firstquarterof2014being1,the secondquarterof2014
being2 etc.
Seasonalvariation
Quarter 1 2 3 4
Quarterlyvariation(units) –4 –2 +1 +5
Whatis the forecastsales volumeforthe fourthquarter of 2015?
 4,029
 4,043
 4,048
 4,053 (2 marks)

4.31 Thefollowingquestion is taken from the July to December2015exam period.

Thefollowingspreadsheet showspart of a timeseriesanalysisof a company’ssales.
Year Quarter Sales(unit) Fourquarter movingtotal (unit)
2014 1 1,100
2 1,700
7,000
3 1,900
9,000
4 2,300
11,000
2015 1 3,100
13,200
2 3,700
3 4,100
Whatis the fourquarter centred movingaverage of sales unitsforquarter 4, 2014?
 2,500
 5,025
 5,000
 10,000 (2 marks)
4.32 Thefollowingquestion is taken from the January to June 2017exam period.
Thefollowinginformationrelatesto a company’ssemi-variableproductionoverheads.
Year Output Overhead Relevant
units $ price
index
2012 1,000 12,000 130
2013 1,200 14,000 140
Whatis the variableoverheadcost per unit,expressedin2013prices?
 $5.00
 $5.38
 $10.00
 $11.67 (2 marks)

4.33 Thefollowingquestion is taken from the September to August2019exam period.

Thesales trend of a productis representedby the equationy =a +bxwhere:
y is the sales unitsina quarter
a is 40,000
b is 1,000
x is the quarter number(forexampleyear 1quarter 1is 1,year 1quarter 2 is 2)
Seasonalvariationsare appliedas a proportionof the trend and the actual sales inyear 1
quarter 1were47,560units.Ithas been decidedthat thisyear 1data is to be used to
forecastsales inyear 2.
Usingthe multiplicativetimesseriesmodel,what are the forecastsales foryear 2 quarter 1?
$ (2 marks)