How is a scatter graph used in sales forecasting?

Past sales are plotted against time so the pattern can be seen, and a line drawn through the points shows the underlying trend.

What does a line of best fit show?

It shows the straight line passing as closely as possible through the plotted points, representing the general trend rather than each individual value.

How is a line of best fit used to produce a forecast?

The line is extended beyond the last data point, and the sales figure read off at a future date becomes the forecast for that date.

Define extrapolation.

Extrapolation is the extension of a trend beyond the range of the data collected, in order to estimate a future value.

Sales were £1.20 million, £1.35 million, £1.50 million and £1.65 million in four successive years. Using the trend, forecast sales for the fifth year.

Forecast sales are £1.80 million, because sales have risen by £0.15 million in each year.

OCR A-Level Business (H436) H436

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Marketing

Historical sales forecasting and the line of best fit

1 thing to know
Component 01

Overview

Recall questions on historical sales forecasting, scatter graphs and the line of best fit, extrapolating a trend, seasonal variation, the advantages and limitations of forecasting from past sales, and calculating index numbers.

What you need to know

Answer each one before you reveal it.

Your recallNot started

Key term

What is historical sales forecasting?

Questions from this subtopic

Each one with the model answer underneath.

1
What is historical sales forecasting?
Model answer
Historical sales forecasting uses a business's own past sales data to project the level of sales expected in future periods.
2
How is a scatter graph used in sales forecasting?
Model answer
Past sales are plotted against time so the pattern can be seen, and a line drawn through the points shows the underlying trend.
3
What does a line of best fit show?
Model answer
It shows the straight line passing as closely as possible through the plotted points, representing the general trend rather than each individual value.
4
How is a line of best fit used to produce a forecast?
Model answer
The line is extended beyond the last data point, and the sales figure read off at a future date becomes the forecast for that date.
5
Define extrapolation.
Model answer
Extrapolation is the extension of a trend beyond the range of the data collected, in order to estimate a future value.
6
Sales were £1.20 million, £1.35 million, £1.50 million and £1.65 million in four successive years. Using the trend, forecast sales for the fifth year.
Model answer
Forecast sales are £1.80 million, because sales have risen by £0.15 million in each year.

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