CAIE A-Level Business A2 8.1.3 Sales Forecasting

[Maximum number: 16]

(a)

Year	Quarter	Sales volume	Centred quarterly moving average
2022	3	29	22.75
2022	4	20	23.00
2023	1	16	23.75
2023	2	27	See Q3(b)
2023	3	35	26.00
2023	4	24
2024	1	20

Table 1.1 Sosoy Ice Cream selected sales data by volume (000 litres)

Refer to Table 1.1. Calculate for quarter 1, 2023, the seasonal variation.

[ 1 ]

Refer to Table 1.1. Calculate for quarter 1, 2023, the seasonal variation.

Seasonal variation $=16-23.75=-7.75 \mathbf{O R}-7750 \mathbf{O R}(7.75)(1)$

Note:

No mark for 7.75 OR 7750.

(b)

Year	Quarter	Sales volume	Centred quarterly moving average
2022	3	29	22.75
2022	4	20	23.00
2023	1	16	23.75
2023	2	27	See Q3(b)
2023	3	35	26.00
2023	4	24
2024	1	20

Table 1.1 Sosoy Ice Cream selected sales data by volume (000 litres)

Refer to Table 1.1. Calculate for quarter 2, 2023, the centred quarterly moving average.

[ 3 ]

(c)

Soymai Farms (SF)

SF is a private limited company. SF owns three farms in country B. SF’s core activity is growing a range of agricultural crops. Soya and maize account for 90% of output. Most of SF’s output is sold to manufacturers of products such as soymeal and soya oil.

To increase value added, SF has diversified into manufacturing soya-based products including tofu and soya ice cream. SF owns a factory close to its farms. SF’s sales of tofu have been successful since it was launched in 2010. SF has developed its branding and sells tofu to independent retailers and a national supermarket in country B.

Flexible employment contracts

Core workers, who are employed on full-time permanent contracts, include mechanics, farm labourers and machine operatives. Labour turnover is low.

Most employees, however, have flexible employment contracts which include temporary or zero-hour contracts. These employees are unskilled and receive limited training. All employees on flexible contracts are paid the same hourly wage.

Market conditions and sales forecasting

The market for soya and maize is competitive and SF has to accept the price set in the market in country B. Output can vary significantly each year because of the weather and this affects the market price. Country B currently imposes tariffs on all imported agricultural commodities, including soya and maize. Processed food imports also have a tariff of 10%.

There is a growing market for non-dairy products in country B. In 2015, SF launched Sosoy Ice Cream as a premium non-dairy ice cream. SF’s marketing department is responsible for forecasting sales and makes use of industry market reports, its own market research and quantitative techniques such as time series analysis. Table 1.1 is an extract of sales data for Sosoy Ice Cream. The marketing department is using it to forecast sales for 2024 and 2025.

Year	Quarter	Sales volume	Centred quarterly moving average
2022	3	29	22.75
2022	4	20	23.00
2023	1	16	23.75
2023	2	27	See Q3(b)
2023	3	35	26.00
2023	4	24
2024	1	20

Table 1.1 Sosoy Ice Cream selected sales data by volume (000 litres)

SF does not yet export any manufactured products. However, SF’s latest SWOT analysis highlights opportunities to sell its food products in neighbouring countries. The Marketing Director has recommended that SF export Sosoy Ice Cream to country D.

Factory operations nearing capacity

With the increasing sales of Sosoy Ice Cream, tofu and other soya products, capacity utilisation is a problem as it is above 90%. The factory already operates three shifts a day to fulfil demand. SF’s Managing Director is considering whether to expand capacity to meet forecast demand. He believes there are two viable options:
• invest in the latest technology to automate production in the existing factory
• outsource production of Sosoy Ice Cream.

Evaluate the usefulness to SF of sales forecasting.

[ 12 ]

Level	AO1 Knowledge and understanding 2 marks	AO2 Application 2 marks	AO3 Analysis 2 marks	AO4 Evaluation 6 marks
3				5–6 marks Developed evaluation in context • A developed judgement/conclusion is made in the business context. • Developed evaluative comments which balance some key arguments in the business context.
2	2 marks Developed knowledge of relevant key term(s) and/or factor(s) is used to answer the question.	2 marks Developed application of relevant point(s) to the business context.	2 marks Developed analysis that identifies connections between causes, impacts and/or consequences.	3–4 marks Developed evaluation • A developed judgement/conclusion is made. • Developed evaluative comments which balance some key arguments.
1	1 mark Limited knowledge of relevant key term(s) and/or factor(s) is used to answer the question.	1 mark Limited application of relevant point(s) to the business context.	1 mark Limited analysis that identifies connections between causes, impacts and/or consequences.	1–2 marks Limited evaluation • A judgement/conclusion is made with limited supporting comment/evidence. • An attempt is made to balance the arguments.
0	0 marks No creditable response.	0 marks No creditable response.	0 marks No creditable response.	0 marks No creditable response.

Evaluate the usefulness to SF of sales forecasting.

3(c)

0 &
0 marks

No creditable response.

0 marks

No creditable response.

0 marks

No creditable

response.

0 marks

No creditable response.

Figure for Answer to Question (c) — CAIE A-Level Business A2

Indicative content

AO1 Knowledge and understanding

Limited knowledge K will be demonstrated through knowledge of sales forecasting or knowledge of the usefulness or limitations of sales forecasting to SF.

Developed knowledge K+K will be demonstrated through knowledge of sales forecasting and knowledge of the usefulness or limitations of sales forecasting to SF.

- Sales forecasting involves making a prediction of future sales.

- Time series analysis is a method of forecasting based on extrapolation from past data.

- Benefits of sales forecasting include:

- Contribution to workforce planning

- Planning purchase of resources

- Greater accuracy in cash flow forecasting

- Aids operational decisions such as need to increase capacity

- Aids decisions about pricing

- Drawbacks of sales forecasting include:

- Inaccuracy

- Dynamic market

- Doesn't take into account qualitative factors

- Past can't predict the future

- Moving averages are based on past data

AO2 Application

Limited application, ${ }^{\mathrm{APP}}$ applies knowledge to SF once.

Developed application, ${ }^{\triangle \mathrm{PP}}+{ }^{\triangle \mathrm{PP}}$ applies knowledge to SF twice.

- Reference to current capacity utilisation of over 90%.

- Need for forecast of sales if start to export to country D.

- Role of market reports and market research in forecasting.

3(c)

- Identifying likely demand for tofu and Sosoy Ice Cream.

- Identifying employees needed in factory and decision about employment contracts to use.

- Inability to control the weather.

AO3 Analysis

Limited analysis ${ }^{\text {AN }}$ - candidate shows one link in the chain of analysis.

Developed analysis L2AN - candidate shows two or more links in the chain of analysis.

- Helps ensure efficient use of labour and machinery helping to control costs of production ${ }^{\text {AN }}$ and therefore increase profit L2AN.

- Contributes to creating cash flow forecast which will help ensure that SF has sufficient finance in place to deal with future needs AN.

- Sales forecasts for entering country D will help evaluate whether break-even can be achieved ${ }^{\mathrm{AN}}$ and therefore whether exports are likely to be successful L2AN.

- Because the market is dynamic it could lead to misallocation of resources such as having too many peripheral employees in the factory AN which would lead to increased costs ${ }^{\text {L2AN }}$ .

AO4 Evaluation

Limited evaluation ${ }^{[\text {vxil }]}$ - limited supported judgement and/or a weak attempt at evaluative comment.

Developed evaluation ${ }^{\text {L2 }}$ - supported judgement and/or reasonable evaluative comment.

Developed evaluation in context ${ }^{\text {L3 }}{ }^{\text {vast }}$ - supported judgement in context and/or reasonable evaluative comment in context.

- Using 4 period moving average fits the data well as there are clear seasonal variations ensuring that the technique is more likely to give reliable results.

- Unexpected changes in the external environment such as entry of a new competitor will result in the predictions being incorrect and therefore less useful in making the best decisions.

- TSA relies on future events behaving as in the past so may not be reliable as markets are dynamic.

- May be advisable to introduce an element of probability to the forecasts - what if analysis?

- The longer the time frame the less useful the forecast is because there are more likely to be external events that impact the forecast.

- Using simple moving averages and a line of best fit may be too simplistic.

- Usefulness is limited if managers don't use the sales forecast to make decisions.

- Should be used in conjunction with qualitative data and current market data to improve usefulness.

Accept all valid responses.

CAIE A-Level Business A2 8.1.3 Sales Forecasting Topic Practice

Question 1

Question (a)

Question (b)

Question (c)