Quarterly Sales of a Department Store for the Last Seven

question 54

Essay

Quarterly sales of a department store for the last seven years are given in the following table. The Excel scatterplot shown indicates that the quarterly sales have an increasing trend and seasonality.Therefore,the linear regression model,Sales = β₀ + β₁Qtr1 + β₂Qtr2 + β₃Qtr3 + β₄t + ε,with three seasonal dummy variables Qtr1,Qtr2,and Qtr3,and the decomposition method are proposed to make sales forecasts.For the regression model,the following Excel partial output is available. (Use Excel. )Using MSE and MAD,compare the linear trend equation with seasonal dummy variables, = 31,9261 - 7.855Qtr1 - 4.7362Qtr2 - 7.1656Qtr3 + 1.0749t,and the decomposition method equation with = 26.8819 + 1.0780t and the quarterly seasonal indices: 0.9322,1.0066,0.9441,and 1.1171.Which of the two corresponding forecasting models is recommended?

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Definitions:

Variable Costs

Expenditures that fluctuate in direct relation to production or sales volumes, such as labor costs and materials used.

Fixed Costs

are expenses that do not change in total over a period of time, regardless of the level of production or sales volume, such as rent or salaries.

Break-even Point

The point where the amount produced or sold generates revenue that matches the overall costs, leading to neither profit nor loss.

Unit Contribution Margin

The amount each unit sold contributes to profit, calculated by subtracting the variable cost per unit from the selling price per unit.