QUESTION ONE

Harlen Industries Limited has a simple forecasting model whose forecast demand has been plotted against actual demand for an 8 months duration. The firm uses an average weekly demand which is shown below:

WEEK	FORECAST DEMAND	ACTUAL DEMAND
1	140	135
2	150	160
3	165	155
4	170	175
5	155	180
6	160	150
7	170	145
8	135	140

1. Compute the Mean Absolute Deviation (MAD) of the Harlen industries limited?

[10 Marks]

1. Calculate the Mean Square Error (MSE) for Harlen industries Limited?

[10 Marks]

1. Calculate the Cumulative Forecast Error (CFE) of Harlen industries limited?

[10 Marks]

[TOTAL 30 MARKS]

QUESTION TWO

Inventory Management is a crucial element in a firm which has to be managed in an effective and efficient manner. Many companies use inventory for many purposes in their varying activities which are relevant to survive in competitive business environments.

Explain the importance of knowing dependent and independent demand models to companies. In what ways are discrete stocking levels suitable to a company and why should this be done by companies? Justify citing examples. [20 Marks]

QUESTION THREE

Zambeef Plc at its Kalundu dairy produces 10,000 litres of milk in a 250 day/year. Delivery of milk is virtually constant to the centre which purifies it before distributing it to several outlets across the Zambian market. There is safety stock which is set up by management and cannot be changed. Ordering costs are K40 per order and the cost carrying inventory is 10 Ngwee per unit.

1. Calculate Zambeef annual total costs for running the dairy farm? [5 Marks]
2. Compute Zambeef reorder point? [5 Marks]
3. Discuss the implications of Zambeef carefully managing both reorder point and safety stock? What are their effects if they are not managed properly? How would the company reduce its total annual costs (TAC) generally?