Exams Trend Analysis
Comparison with Study Material
SECTION B
STRATEGIC MANAGEMENT
A Quick Review
OPERATIONS PLANNING
CHAPTER 2.1
DEMAND FORECASTING
FORECASTING
Forecasting means peeping into the future. As future is unknown and is anybody’s guess but the business leaders in the past have evolved certain systematic and scientific methods to know the future by scientific analysis based on facts and possible consequences. Thus, this systematic method of probing the future is called forecasting. In this way forecasting of sales refers to an act of making prediction about future sales followed by a detailed analysis of facts related to future situations and forces which may affect the business as a whole. Forecast must see that they are very nearer to the accuracy.
In long range forecast, the normal period used is generally 5 years. In some cases it may extends to 10 to 15 years also. The purpose of long range forecast is:
(i) To work out expected capital expenditure for future developments or to acquire new facilities,
(ii) To determine expected cash ow from sales,
(iii) To plan for future manpower requirements,
(iv) To plan for material requirement,
(v) To plan for Research and Development. Here much importance is given to long range growth factor.
In case of medium range forecasting the period may extend over to one or two years. The purpose of this type of forecasting is:
(i) To determine budgetary control over expenses,
(ii) To determine dividend policy,
(iii) To nd and control maintenance expenses,
(iv) To determine schedule of operations,
(v) To plan for capacity adjustments.
In case of short-term forecast, which extends from few weeks to three or six months and the following purposes are generally served:
(i) To estimate the inventory requirement,
2.2
SECTION A : OPERATIONS MANAGEMENT
(ii) To provide transport facilities for despatch of nished goods,
(iii) To decide work loads for men and machines,
(iv) To nd the working capital needed,
(
v) To set-up of production run for the products,
(vi) To x sales quota,
(vii) To nd the required overtime to meet the delivery promises.
Steps in forecasting
Whatever may be the method used for forecasting, the following steps are followed in forecasting:
(
a) Determine the objective of forecast: What for you are making forecast? Is it for predicting the demand? Is it to know the consumer’s preferences? Is it to study the trend? You have to spell out clearly the use of forecast.
(
b) Select the period over which the forecast will be made? Is it long-term forecast or medium-term forecast or short-term forecast? What are your information needs over that period?
(
c) Select the method you want to use for making the forecast: This method depends on the period selected for the forecast and the information or data available on hand. It also depends on what you expect from the information you get from the forecast. Select appropriate method for making forecast.
(
d) Gather information to be used in the forecast: The data you use for making forecasting to produce the result, which is of great use to you. The data may be collected by:
(i) Primary source: This data we will get from the records of the rm itself.
(ii) Secondary source: This is available from outside means, such as published data, magazines, educational institutions etc.
(e) Make the forecast: Using the data collected in the selected method of forecasting, the forecast is made.
Forecasting Methods:
Methods or techniques of sales forecasting: Different authorities on marketing and production have devised several methods or techniques of sales or demand forecasting. The sales forecasts may be result of what market people or buyers say about the product or they may be the result of statistical and quantitative techniques. The most common methods of sales forecasting are:
1. Survey of buyer’s intentions or the user’s expectation method: Under this system of sales forecasting actual users of the product of the concern are contacted directly and they are asked about their intention to buy the company’s products in an expected given future usually a year. Total sales forecasts of the product then estimated on the basis of advice and willingness of various customers. This is most direct method of sales forecasting. The chief advantages of this method are:
(i) Sales forecast under this method is based on information received or collected from the actual users whose buying actions will really decide the future demand. So, the estimates are correct.
(ii) It provides a subjective feel of the market and of the thinking behind the buying intention of the actual uses. It may help the development of a new product in the market.
(iii) This method is more appropriate where users of the product are numbered and a new product is to be introduced for which no previous records can be made available.
(iv) It is most suitable for short-run forecasting.
2. Collective opinion or sales force composite method: Under this method, views of salesmen, branch manager, area manager and sales manager are secured for the different segments of the market. Salesmen, being close to actual users are required to estimate expected sales in their respective territories and sections. The estimates of individual salesmen are then consolidated to nd out the total estimated sales for the coming session. These estimates are then further examined by the successive executive levels in the light of various factors like proposed changes in product design, advertising and selling prices, competition etc. before they are nally emerged for forecasting.
3. Group executive judgment or executive judgment method: This is a process of combining, averaging or evaluating, in some other way, the opinions and views of top executives. Opinions are sought from the executives of different elds i.e., marketing; nance; production etc. and forecasts are made.
4. Experts’ opinions: Under this method, the organisation collects opinions from specialists in the eld outside the organisation. Opinions of experts given in the newspapers and journals for the trade, wholesalers and distributors for company’s products, agencies or professional experts are taken. By analysing these opinions and views of experts, deductions are made for the company’s sales, and sales forecasts are done.
5. Market test method: Under this method seller sells his product in a part of the market for sometimes and makes the assessment of sales for the full market on the bases of results of test sales. This method is quite appropriate when the product is quite new in the market or good estimators are not available or where buyers do not prepare their purchase plan.
6. Trend projection method: Under this method, a trend of company’s or industry’s sales is xed with the help of historical data relating to sales which are collected, observed or recorded at successive intervals of time. Such data is generally referred to as time series. The change in values of sales is found out. The study may show that the sales sometimes are increasing and sometimes decreasing, but a general trend in the long run will be either upward or downward. It cannot be both ways. This trend is called secular trend. The sales forecasts with the help of this method are made on the assumption that the same trend will continue in the future. The method which is generally used in tting the trend is the method of least squares or straight line trend method. With this method a straight line trend is obtained. This line is called ‘line of best t’. By using the formula of regression equation of Y on X, the future sales are projected.
PAST EXAMINATION QUESTIONS
OBJECTIVE QUESTIONS
MULTIPLE CHOICE QUESTIONS
Q. 1 A method in which a trend line is drawn in such a way that the sum of the squares of deviations of the actual points above and below the trend line is at the minimum is known as:
(a) Squared trend method.
(b) Equal square method.
(
c) Adjusted square method.
(d) Least square method.
Ans. (d) Least square method
Q. 2 For a marketing manager, the sales forecast is:
[June 2013, 1 Mark]
(a) Estimate of the amount of unit sales for a speci ed future period.
(b) Arranging the salesmen to different segments of the market.
(
c) To distribute the goods through transport to satisfy the market demand.
(d) To plan the sales methods.
[June 2017, 1 Mark]
Ans. (a) Estimate of the amount of unit sales for a specified future period
Q. 3 Let’s consider an example of a product manufacturing company, who is aware that it needs to produce the products. One of important aspects involved in the operational planning which is related to the question “How much to produce? is known as:
(a) Process Selection & Layout
(b) Aggregate Planning
(c) Demand Forecasting
(d) Quality Management
Ans. (c) Demand Forecasting
TRUE/FALSE
[June 2024, 2 Marks]
Q. 1 In general, long-range forecasting is more useful in production planning. [June 2013, 1 Mark]
Ans. True (in production planning, short term forecasting is useful)
Q. 2 In general short term forecasting will be more useful in production planning. [December 2017, 1 Mark]
Ans. True
Q. 3 Short-term forecasting is useful to serve the purpose of estimating the inventory requirement. [December 2017, 1 Mark]
Ans. True
FILL IN THE BLANKS
Q. 1 After forecasting human resource needs, it is logical to ________ how these needs can be ________ [December 2016, 1 Mark]
Ans. determine, met
Q. 2 In Regression and Correlation analysis, the ratio of explained variation to the total variation is called _________________ [December 2017, 1 Mark]
Ans. Coefficient of determination
THEORY QUESTIONS
Q. 1 What are two measures of forecasting [December 2013, 1 Mark]
Ans. MEAN Absolute Deviation (MAD) and bias.
Q. 2 What are the merits of Delphi method of forecasting technique? [December 2013, 5 Marks]
Ans. Delphi is preferred for the following reasons: It involves knowledgeable persons on the subject. Members in Delphi exercise come from different subject area and therefore the method is able to consider and pool up various aspects of the issue. The members do not meet each other, their views are not in uenced by the views of other.
No con ict of personality is seen in the process. No dominance by any in uential expert on the other experts. It gives quick results as compared to quantitative techniques and helps in timely decisions.
Q. 3 What is measured by regression analysis? [December 2014, 2 Marks]
Ans. Regression analysis is a statistical tools for measuring the change in dependent variable due to change in independent variable. It helps in estimation of dependent variable on the basis of dependent variable
PRACTICAL QUESTIONS
Q. 1 With the help of the following data, project the trend for the next five years:
[December 2013, 5 Marks]
2.6
Ans.
n = 6 X = 0 Y=720 X2 = 70 XY = 280
Let linear trend be:
Y = a + bX ------- (1) where X is time deviation, X = 2(T – 2004.5) ORIGIN
Y = a + b X .........................(2)
Y = na + b X .......................(3)
XY = a X + b X2 ................(4)
PUT X = 0, Y=720, X2 = 70, XY = 280 and n = 6 in Equation (2), (3) and (4)
Then equation (3) becomes
720 = 6 a, a = 120
From equation (4 )
280 = 70b, b = 4
Put value of a and b in equation (1)
So linear trend be, y = 120 + 4x
Sales forecast for the next 5 years i.e. 2008 to 2012
Y2008 =120 + 4 (+7) = 120 + 28 = ` 148 lakhs
Y2009 =120 + 4 (+9) = 120 + 36 = ` 156 lakhs
Y2010 =120 + 4 (+11) = 120 + 44 = ` 164 lakhs
Y2011 =120 + 4 (+13) = 120 + 52 = ` 172 lakhs
Y2012 = 120 + 4 (+15) = 120 + 60 = ` 180 lakhs
Q. 2 The annual sales of truck tyres manufactured by a company are as follows:
Ans.
[June 2014, 4 Marks]
n = 5 X = 0 Y = 195 X2 = 10 XY = +
Let linear trend be:
Y = a + bX ------- (1) where X is time deviation, X = (T – 2010) ORIGIN YEAR - 2010
Y = a + b X .........................(2)
Y = na + b X .......................(3)
XY = a X + b X2 ................(4)
Put X = 0, Y=195, X2 = 10, XY = 60 and n=5 in Equation (2), (3) and (4)
Then equation (3) becomes
195 = 5 a, a = 39
From equation (4 )
60 = 10b, b = 6
Put value of a and b in equation (1)
So linear trend be, y = 39 + 6x
ESTIMATION OF SALES for 2013
Y 2013 = 39 + 6 (3) = 39 + 18 = 57
The estimated sales for 2013 will be 57,000 units.
Q. 3 The following data on the exports of an item by a company during the various years fit a straight line, (for the time being, assume that a straight line gives a good fit). Give a forecast for the years 2014 and 2015.
[December 2014, 6 Marks]
2.8
Ans.
= 0 Y =
Let y = a + bX ----------1 be linear trend
Where X = year – origin (Deviation in time)
Origin – 2009
Y = a + bX .........................(2)
Y = na + b X .......................(3)
XY = a X + b X2 ................(4)
HERE
X = 0 and Then from equation (3)
Y = na and 273 = 9a then a = 273/9 = 30.33
From equation (4)
XY = b X2, 207 = b 60 then b = 207/60 = 3.45
Put value of a and b in equation (1)
The equation of a straight line fitting the data is: Y = 30.33 + 3.45X
(a) Forecast for 2014, (i.e., X = 5): Y = 30.33 + 3.45 (5) = 47.58 (in 000) (b) Forecast for 2015, (i.e., X = 6): Y = 30.33 + 3.45 (6) = 51.03 (in 000)
Q. 4 The demand for Personal Computers was estimated as 1100 per month for 5 months. Later on the actual demand was found as 1050, 1000, 1200, 1100 and 1050 respectively.
Workout Mean Absolute Deviation (MAD) and Bias. Analyze whether the forecast made was accurate. [December 2014, 2 + 2 + 1 = 5 Marks]
Ans.
= 100/5 = 20 units
In this case, MAD is 60 units whereas Bias has deviation of 20 units. Since MADmeasures the overall accuracy of the forecasting method, it is found that the forecast is not based on accurate model and the error is (60/1100) × 100 = 5.5%
Q. 5 The demand for three months for 60 watt bulbs is given below:
Period January February March
Demand 540 620 760
If the weight assigned to the period of January, February and March are 0.2, 0.3 and 0.45 respectively, forecast the demand for the month of April by using Weighted Moving Average Method [December 2017, 6 Marks]
Ans. D1 = 540 W1 = 0.20
D2 = 620 W2 = 0.30
D3 = 760 W3 = 0.45
The Weighted Moving Average = W1 × D1 × W2 × D2 × W3 × D3 = 540 × 0.2 + 620 × 0.3 + 760 × 0.45 = 636. Therefore the Demand for the month of April is 636 nos. of 60 watt bulbs.
Q. 6 The following table relates to the tourist arrivals in India during 2016 to 2022.
(Present calculation upto three decimal points)
Required:
(i) Fit a straight line trend by method of least squares.
(ii) Estimate the number of tourists (in lakh) in the year 2018 and that would arrive in the year 2026. [July 2023, 6+1+1=8 Marks]
Ans.
(i)
lakh)
2.10
SECTION A : OPERATIONS MANAGEMENT
Let straight line trend be y = a+bx (1)
Here x = t origin -2019
Now y = na + b x (2)
xy = a x + b x2 (3)
Here x = 0
Then From Eq (2)
242 = 5a + 0
a = 242 5 = 48.4
From Eq (3)
104 = 0 + b × 26
b = 104 26 = 4
Put value of a & b in Eq (1)
y = 48.4 + 4x (4)
This is straight line trend
(ii) Estimation tourist arrive in 2018, For 2018 x = 2018 – 2019 = - 1
Put x = – 1 in Eq (4)
y2018 = 48.4 + 4 (-1) = 44.4 i.e. 44.4 Lakh
Estimation of tourist arrive in 2026
x = 2026 - 2019 =7
Put x = 7 in Eq (4)
y 2026 = 48.4 + 4 (7) = 48.4 + 28 = 76.4 i.e. 76.4 Lakh.
Q. 7 The following table gives the age of cars of SKODA Make and its Annual Maintenance Cost.
Age of Cars in Years (X) 2 4 6 8
Maintenance cost (in thousand of `) (Y) 10 20 25 30
Required:
(a) Fit a Linear Regression of Y on X
(b) Estimate:
(i) Maintenance Cost for Age of Cars 10 years
(ii) Age of car in years of Maintenance cost of ` 50000 [December 2023, 7 Marks]
Operations Management & Strategic Management (OMSM) | CRACKER
AUTHOR : AMARENDRA
KUMAR
PUBLISHER : TAXMANN
DATE OF PUBLICATION : JANUARY 2025
EDITION : 4TH EDITION
ISBN NO : 9789364557764
NO. OF PAGES : 352
BINDING TYPE : PAPERBACK
DESCRIPTION
This book is specifically designed to meet the requirements of the Intermediate Level Cost & Management Accountancy Examination. It includes past exam questions and detailed answers aligned with the latest ICMAI syllabus.
The Present Publication is the 4th Edition for the CMA Intermediate | New Syllabus | June/Dec. 2025 Exam. This book is authored by Amarendra Kumar, with the following noteworthy features:
• [Strictly as Per the New ICMAI Syllabus] Ensures complete alignment with the latest requirements
• [Content Coverage]
o Past Exam Questions, including Module-wise Solved Paper of December 2024
o Additional Practice Questions
• [Tabular Summaries] Provided at the beginning of each chapter for quick reference
• [Marks Distribution] Detailed module-wise distribution from June 2018 onwards
• [Previous Exam Trend Analysis] covered from Dec. 2023
• [ICMAI Study-Material Comparison] is provided module-wise for a comprehensive understanding