4.3 Sales Forecasting

Question 1

What are some problems with quantitative data?

Answer 1

• Sample may be too small (insignificant)
• Industry could be subject to fast technical change
• External environment can change

Question 2

What are some limitations of sales forecasting?

Answer 2

• Assumes that past leads into the future
• Take no account of uncontrollable factors (eg. government)
• Takes no account of changes to company objectives

Question 3

What are the 3 methods of sales forecasting?

Answer 3

1. Times series analysis
2. Extrapolation
3. Moving averages

Question 4

What is the times series analysis?

Answer 4

Past sales figures are presented in date order

Question 5

What are the 3 types of variations the “times series” analysis uses?

Answer 5

1. Seasonal variation
2. Cyclical variation
3. Random variation

Question 6

What is “seasonal” variation?

Answer 6

Calendar periods during which more or less demand for consumer products is evident is referred to as a seasonal trend.

Question 7

What is “cyclical” variation?

Answer 7

Recurrent fluctuations in sales revenues linked to the business cycle

Question 8

What is “random” variation?

Answer 8

Unpredictable and erratic fluctuations in sales revenues, caused by irregular factors

Question 9

What is the extrapolation method of sales forecasting?

Answer 9

Future predictions are based on past sales figures
The past results are plotted on a graph and the line is EXTENDED

Question 10

What is the “moving averages” method of sales forecasting?

Answer 10

Moving averages involve smoothing out figures to show a trend
–> Add figures / (number of figures)
EG. 67 + 70 + 64 = 201
201 / 3 = 67
So *67* is the 3 point moving average

Question 11

What are some advantages of “moving averages”?

Answer 11

• Useful for identifying seasonal variations to predictions
• Reasonably accurate for short-term forecasts under stable conditions
• Assists with planning

Question 12

What are some disadvantages of “moving averages”?

Answer 12

• Difficult to calculate
• Not useful for long-term forecasts as projected sales are based on past data
• Line is not exactly straight so difficult to extrapolate

Question 13

Why do firms carry out sales forecasting?

Answer 13

• Want to note trends
• To see if any seasonal factors affect their product
• To know if cycles arise within our demand patterns
• To know what to budget for
• To avoid over production
• Be ready for market changes
• Ensure that they can meet future demand