Paradise Kitchens proposes entering 17 new metropolitan markets in the next five years. For this reason, the financial plan cannot use simple trend extrapolation. Instead, the forecasting method used was

Management Judgement

Step-by-step explanation: Forecasting simply refers to the process of estimating the future demands of an organization usually based on existing and pre-existing data.

Management Judgement is a forecasting technique whereby top level managers of an organization make decision concerning sales, expansion and other business decisions. Whereas, simple trend extrapolation involves making future projection based on values obtained from an extended trend line.

In the scenario above, the proposed expansion of paradise kitchen is beyond the scope of trend extrapolation and therefore should be embarked upon by top or senior management officials.

Question:

Paradise Kitchens proposes entering 17 new metropolitan markets in the next five years.  For this reason, the financial plan cannot use simple trend extrapolation.  Instead, the forecasting method used was

a.curvilinear trend extrapolation.

b.management judgment.

c.survey of buyers’ intentions.

d.sales force survey.

e.direct forecasting.

The correct answer to the question is

b. management judgement

Step-by-step explanation:

To solve the question it is important to note that due to the nature of the expansion simple trend extrapolation is not an appropriate methodology to support their financial plan

Trend extrapolation is technique of forecasting that makes use of historical trends and then extrapolates it into the future so as to correctly predict events with an assumption that past events usually repeats themselves. For reliability of an extrapolation to be of acceptable level, there needs to be a high level of consistency in the source data.

In the options we have

a. Curvilinear trend extrapolation

This method of extrapolation, like other forms has to do with making judgments based on available data which in the present expansion is lacking.  

b. Management Decision

Management decision or judgment pertains to the bringing into bear the management wealth of knowledge, experience and expertise as well as resourcefulness to solve challenges. It is expected of workplace leaders to decide on a broad range of operational procedures including every day routine operation to game changers.

In this situation management decision is the most appropriate for the kind of expansion envisioned in the five year plan.

Management decision is the most appropriate method to be used.

c.survey of buyers’ intentions.

Survey of buyers’ intentions is a method of demand estimation which is based on the views of the direct customers. However there should be emphasis on  the relationship between the costs and the benefits

d.sales force survey.

Need for more emphasis on cost effective demand

e.direct forecasting.

The method of direct forecasting is effective when used with highly reliable input or source data

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