We also have to forecast the estimated sales for 2012 and 2013.
Sol:
We will add three more columns to this table - named X, X 2 and XY. Here X is just a column having numbers either from -2, -1,0,1,2 or 2,1,0,-1,-2. Here there are n=5 number of items (Years) therefore we will put 0 on the middle item ie the 3 rd item (Year 2009); if suppose there are 7 items we will take the 4 th item as the middle one for putting X=0. The rest X 2 and XY are the squares and the product of Y Column with X respectively. This all may sound confusing but you will understand during Problem-solving.
As said, adding the three columns:
Year Sales (Y) X X 2 XY Est. Sales (Yc) 2007 40 2 4 80 2008 48 1 1 48 2009 42 0 0 0 2010 55 -1 1 -55 2011 62 -2 4 -124 Y=247 X=0 X 2 =10 XY=-51
Mohammad Imad Shahid Khan, Alliance University I am leaving the Estimated Sales column deliberately blank because that is what we have to calculate right now, using the following two equations:
Y = na + bX XY = aX + bX 2
And Yc = a + bX (Yc is the Estimated Sales)
Taking the first eqtn and putting the values from the table: Y = na + bX 247 = 5 (a) + b (0) 247 = 5a + 0 a = 247/5 a = 49.4
Now taking the other eqtn and putting the values from the table:
XY = aX + bX 2
-51 = a (0) + b (10) b = -51/10 b = -5.1
Now since we have got the values of a and b, we will put in use the third eqtn: Yc = a + bX where X will be the respective value of the Year concerned.
Suppose for 2007 we want to determine the estimated sales, we will calculate Y taking the Xs value for the 2007 data i.e. X=2, So for 2007 Yc = a + bX Y c = (49.4) + (-5.1) (2) Y c =
(49.4) + (-10.2) Mohammad Imad Shahid Khan, Alliance University Y c = 49.4-10.2 Yc = 39.2
So, Yc = 38.8 is the Estimated Sales for 2007 and so for finding the same for the year 2008 you will apply the same eqtn again but this time it will be X=1,
Therefore, for year 2008 the eqtn will be:
Yc = a + bX Y c = (49.4) + (-5.1) (1) = 44.3 , the estimated sales for year 2008. And so on you can go on to find the Estimated Sales for any year.
Calculate putting the respective values of X in each eqtn for every year now when it comes to finding for 2012 and 2013 we will extend the table like this:
For the future (2012 and 2013) we extend the X value in the progression it goes. If we are writing -2,-1,0,1,2 as X then we have to write X=3 and X=4 for the respective years.
So for 2012, Mohammad Imad Shahid Khan, Alliance University
Yc = a + bX Y c = (49.4) + (-5.1) (-3) Y c = 64.7, estimated sales for 2012.
And similarly, for 2013
Yc = a + bX Y c = (49.4) + (-5.1) (-4) Y c = 69.8, the estimated sales for 2013.
Therefore our table will be completed like this:
Year Sales (Y) X X 2 XY Est. Sales (Yc) 2007 40 2 4 80 39.2 2008 48 1 1 48 44.3 2009 42 0 0 0 49.4 2010 55 -1 1 -55 54.5 2011 62 -2 4 -124 59.6 Y=247 X=0 X 2 =10 XY=-51
Mohammad Imad Shahid Khan, Alliance University Plot the graph between Y and Y c.
Series 1 is your Sales Graph. Series 2 is your Estimated Sales Graph.
Note: In the notes, the data may vary a little because sir assumed 49.4 to be only 49 (because of me only). Thats not a big deal.
Hope it helps! 40 48 42 55 62 39.2 44.3 49.4 54.5 59.6 0 10 20 30 40 50 60 70 2007 2008 2009 2010 2011 S A L E S YEARS Series1 Series2