Ajax Chemicals found that the demand for its two best-selling paints Yellow and Red has grown over the last few years. Figure 1 displays the quarterly demand (000 lbs) of each of the two types of paints from year 2010 to 2014 (20 quarters in total).

figure 1: quarterly demand for yellow and red paints

a. Ajax Chemicals decided to use a linear regression model to predict future demands for the paints. Figure 2 shows selected summary output of the regression analysis for the two types of paints.

Regression Statistics
Yellow		Red
Multiple R	0.955412699	Multiple R	0.931048614
R Square	0.912813426	R Square	0.866851522
Adjusted R Square	0.906585814	Adjusted R Square	0.857340916
Standard Error	345.5089346	Standard Error	509.7729917
Observations	16	Observations	16
	Coefficients		Coefficients
Intercept	2592.75	Intercept	3611.98
X Variable 1	226.85	X Variable 1	263.94

Figure 2: Summary Output of the Regression Analysis

(I) What would be the demand for Yellow and Red paints in last quarter of 2015 and first quarter of 2020, based on the regression equation?

Hint: The independent variable here is Quarter (1, 2, 3,.)

(II) It was later found that the realised demand for these quarters were 8,000 and 12,000 respectively for Yellow paints and 10,000 and 14,500 respectively for Red paints.

Using MAD, determine whether the forecast for Yellow paints is better than the forecast for Red paints.

In your opinion, how reliable is this result?

b. Appraise the quality of demand forecasts for Yellow and Red paints by examining two (2) pieces of data from the summary output shown in Figure 2.

Quarterly Demand for Paints 2010-2014 20000 15000 10000 000 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Quarter Yellow Paint Red Paint Quarterly Demand for Paints 2010-2014 20000 15000 10000 000 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Quarter Yellow Paint Red Paint