Forecast

The management of American Auto Parts is having a meeting to plan the operating budgets for next year. The Senior Vice-President of Sales, Mr. Tom Tremellon, knows that a large portion of the company’s income is derived from sales of their 1-year, 3-year, and lifetime batteries. He has asked you, Manager of Production, to prepare an estimate of the revenues the company can expect in each of the four quarters of next year from 1-year, 3-year, and lifetime batteries, as well as the total revenue from all these batteries. Please show all work in EXCEL.

To prepare your forecast, you have contacted Mr. Beasley in the Accounting Department, who has provided you with the following sales figures (in $ thousands) in each quarter of the previous 4 years:

YearQuarter Total 1-Year 3-Year Lifetime
2006 1 1050 205 325 520
2 600 123 180 297
3 575 150 155 270
4 982 190 285 507
2007 1 1010 206 310 494
2 652 115 190 347
3 537 150 160 227
4 990 210 300 480
2008 1 998 200 300 498
2 650 138 205 307
3 550 101 150 299
4 932 175 275 482
2009 1 1070 200 315 555
2 632 125 191 316
3 525 110 160 255
4 980 200 288 492

Use exponential smoothing to develop simple, trend (Holt’s), and seasonal models (both simple and trend) for forecasting the quarterly revenue from 1-year batteries. Do the same for 3-year and lifetime batteries, and also for the total revenue. Use the RMSE performance measure for selecting the best model in each case.