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Practice Exercise · Q12
Q.

Given below is the data of workers welfare expenses (in lakh ₹) in steel industries during 2001 - 2005. Use method of least squares to:

i) tabulate the trend values

ii) find the best fit for a straight-line trend

iii) compute expected sale trend for year 2006

Year20012002200320042005
Welfare expenses (in lakh ₹)160185220300510
CBSENCERTSubjective· 5mImportance★★★★★
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With the origin shifted to the middle year 2003, the least-squares line is y=275+81.5xy=275+81.5x, giving trend values 112 → 438 lakh ₹ and a 2006 forecast of ₹519.5 lakh.

Straight-line trend by least squares: y=a+bxy=a+bx, with xx measured as deviation from the mid-year so that ∑x=0\sum x=0. Then

a=∑yn,b=∑xy∑x2.a=\frac{\sum y}{n},\qquad b=\frac{\sum xy}{\sum x^2}.

Steps

  1. Take x=x= (year − 2003-\,2003) so ∑x=0\sum x=0 (odd number of years, n=5n=5):
Yearyy (lakh ₹)xxx2x^2xyxy
2001160−2-24−320-320
2002185−1-11−185-185
200322000000
2004300111300300
200551022410201020
Σ1375010815
  1. a=∑yn=13755=275.a=\dfrac{\sum y}{n}=\dfrac{1375}{5}=275.
  2. b=∑xy∑x2=81510=81.5.b=\dfrac{\sum xy}{\sum x^2}=\dfrac{815}{10}=81.5.
  3. Trend line: y=275+81.5 x.y=275+81.5\,x.
  4. Trend (fitted) values:
Yearxxy^=275+81.5x\hat y=275+81.5x
2001−2-2275−163=112275-163=112
2002−1-1275−81.5=193.5275-81.5=193.5
200300275275
200411356.5356.5
200522438438

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