Goodyear Tire and Rubber Company is the ninth largest tire manufacturer in the world. Here are...

Goodyear Tire and Rubber Company is the ninth largest tire manufacturer in the world. Here are the sales revenues for the past five years:

Year	Revenue (millions)
1	$4,877.9
2	5,065.4
3	5,525.6
4	5,729.8
5	5,499.7

a.When might a manager prefer linear trend/double exponential smoothing techniques to moving average/simple exponential smoothing techniques and why? (5 points)

b. Based on MAD for the last three years (years 3, 4, and 5), which method (linear-trend or double-exponential smoothing method with a = 0.4 and b = 0.2 (start with initial estimates S₁ = $4,867.90 and T₁ = $201.5 for year 1)) provides the better forecasts? Explain. Then, use your selected forecasting method, forecast the revenue for year 6 and year 7.

Expert Solution

A and B combined

Linear trend:

	n=	5
	X	Y	X^2	XY	Forecast	AD
	Week	Revenue			(a+bX)
	1	4,877.90	1	4877.9	4958.08
	2	5,065.40	4	10130.8	5148.88
	3	5,525.60	9	16576.8	5339.68	185.92
	4	5,729.80	16	22919.2	5530.48	199.32
	5	5,499.70	25	27498.5	5721.28	221.58
Sum	15	26698.4	55	82003.2	MAD	202.2733
		a =	4767.28
		b =	190.80
		Y = a+ bX
	6				5912.08
	7				6102.88

Doublt exponential

	a =	0.4			b=	0.2
Period	Sales	St	S't	S (2*St-S't)	T	Forecast (S+T)
				Base	Trend		AD
1	4,877.90	4,867.90	4,867.90	4,867.90	201.50	5069.40
2	5,065.40	4871.90	4869.50	4874.30	202.78	5077.08
3	5,525.60	4949.30	4901.42	4997.18	227.36	5224.54	301.06
4	5,729.80	5179.82	5012.78	5346.86	297.29	5644.15	85.65
5	5,499.70	5399.81	5167.59	5632.03	354.33	5986.36	486.66
						MAD	291.12

6	5,499.70	5439.77	5276.46	5603.07	348.53	5951.61
7	5,499.70	5463.74	5351.37	5576.11	343.14	5919.25

So as per the MAD for 3-5 we see the MAD for linear trend is lower and hence it is better in forecasting year 6 and 7 (shown above)

keosha answered 1 year ago

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