Problem 3-29 Operations Management

Here are earnings per share for two companies by quarter from the first quarter of three years ago through the second quarter of this year. Forecast earnings per share for the rest of this year and next year. Use exponential smoothing to forecast the third period of this year, and the time series decomposition method to forecast the last two quarters of this year and all four quarters of next year. (It is much easier to solve this problem on a computer spreadsheet so you can see what is happening.)

		EARNINGS PER SHARE
	QUARTER	COMPANY A		COMPANY B
3 years ago	I	$ 1.69		$ 0.23
	II	2.34		0.24
	III	1.22		0.20
	IV	1.32		0.36
2 years ago	I	1.67		0.28
	II	2.09		0.37
	III	1.30		0.38
	IV	0.35		0.49
last year	I	0.35		0.35
	II	0.21	(loss)	0.51
	III	0.88	(loss)	0.52
	IV	0.25		0.53
this year	I	1.66	(loss)	0.29
	II	0.38		0.53

a. For the exponential smoothing method, choose the first quarter of 3 years ago as the beginning forecast. Make two forecasts: one with = 0.20 and one with = 0.30. (Negative values should be indicated by a minus sign. Round your answers to 3 decimal places.)

		Company A			Company B
	Quarter	Forecast = 0.20	Forecast = 0.30	Forecast = 0.20	Forecast = 0.30
3 years ago	I
	II
	III
	IV
2 years ago	I
	II
	III
	IV
last year	I
	II
	III
	IV
this year	I
	II
	III

b-1. Calculate the MAD for each forecast using data starting with second quarter of 3 years ago through second quarter of this year. (Round your answers to 3 decimal places.)

	MAD
	Company A	Company B
= 0.20
= 0.30

b-2. Using the MAD method of testing the forecasting model's performance, plus actual data from 3 years ago through the second quarter of this year, how well did the model perform?

Based on MAD, an of (Click to select)0.20.3 performs better than an of (Click to select)0.30.2.

c. Using the decomposition of a time series method of forecasting, forecast earnings per share for the last two quarters of this year and all four quarters of next year. (Negative values should be indicated by a minus sign. Round your answers to 3 decimal places.)

		Company A		Company B
	Quarter	Seasonal Factor	Forecast	Seasonal Factor	Forecast
this year	III
	IV
next year	I
	II
	III
	IV

d. Using your forecasts, comment on each company.

Company A's EPS is an (Click to select)upward trend downward trend

Company B's EPS is an (Click to select)downward trend upward trend