Q U E S T I O N 1

NationalTire

's is considering producing and selling a new product for

tire

repair. The fixed cost for s

etting up the

production floor is estimated to be $

275

,

000. Variable production and material cost are estimated to be $

15

per

unit of the product.

NationalTire

estimates the total demand for the products to be

1

0

000 units.

NationalTire

plans

to sell the

product to

co

nsumers

for $

4

5

per unit.

a)

What is the breakeven point?

b)

What profit or loss can be anticipated with a

demand of

1

0

000 units?

c)

With

a

revised

demand of

8

000 units, what is the minimum price p

er unit

that

NationalTire

m

ust

charge

to break ev

en?

d)

If

NationalTire

believes that the price per unit could be increased to $

5

5

and not affect the anticipated

demand of

8

000

units

,

what

profit or loss can be anticipated?

Q U E S T I O N 2

The sale of

NationalTire

's

tire

repair product for the past 10 months is as shown below. If

NationalTire

uses 3

-

month moving average to forecast sales:

Month

1

2

3

4

5

6

7

8

9

10

Sales

175

178

179

178

179

181

183

190

195

194

a)

What are the forecasts for months 4

-

11?

b)

What is the

resulting MAE, MSE and MAPE values?

Q U E S T I O N 3

a)

Using the data given in Question 2, f

orecast

the sales

of

NationalTire

's

tire

repair product for

the

month

11 using

linear

trend projection forecast

using the least squares method

.

b)

What is the resulting MAE, MSE and MAPE values?

c)

Compare moving average forecast with trend projection forecast

. Which method is better? Why?