Case Problem: The Vintage Restaurant is on Captiva Island, a resort community near Fort Myers, Florida.

The restaurant, which is owned and operated by Karen Payne, has just completed its third year of operation. During that time, Karen has sought to establish a reputation for the restaurant as a high-quality dining establishment that specializes in fresh seafood. The efforts by Karen and her staff have proven successful, and her restaurant has become one of the best and fastest-growing restaurants on the island. Karen has concluded that to plan for the growth of the restaurant in the future, she needs to develop a system that will enable her to forecast food and beverage sales by month for up to one year in advance. Karen has the following data ($1000s) on total food and beverage sales for the three years of operation. The data can be found in an Excel spreadsheet (Lost Beverage and Food Sales). Perform an analysis of the sales data for the Vintage Restaurant. Prepare a report for Karen that summarizes your findings, forecasts, and recommendations. Include: a. A graph of the time series. b. An analysis of the seasonality of the data. Indicate the seasonal indexes for each month, and comment on the high and low seasonal sales months. Do the seasonal indexes make intuitive sense? Discuss. c. A forecast of sales for January through December of the fourth year. d. Recommendations as to when the system that you have developed should be updated to account for new sales data. e. Any detailed calculations of your analysis in the appendix of your report. f. Assume that January sales for the fourth year turn out to be $295,000. What was your forecast error? If this is a large error, Karen may be puzzled about the difference between your forecast and the actual sales value. What can you do to resolve her uncertainty in the forecasting procedure? The statistical Summary of the data is shown below:
Year 1 2 3 Total: Mean: Variance: StDev: January 242 263 282 787 262.3333333 400.3333333 20.0083316 February 235 238 255 728 242.66667 116.33333 10.785793 March 232 247 265 744 248 273 16.52271 April 178 193 205 576 192 183 13.52775 May 184 193 210 587 195.6667 174.3333 13.20353 June 140 149 160 449 149.6667 100.3333 10.01665 July 145 157 166 468 156 111 10.53565 August 152 161 174 487 162.3333 122.3333 11.06044 September 110 122 126 358 119.33333 69.333333 8.326664 October 130 130 148 408 136 108 10.3923 November 152 167 173 492 164 117 10.81665 December 206 230 235 671 223.6667 240.3333 15.50269 Total Sales 2106 2250 2399 6755 2251.666667 21464.33333 146.5071102

The graph of the time series is as shown below.

The seasonal indices are calculated in the matrix below:

The following is a hypothesis test of seasonality: Null Hypothesis: There is no significant seasonal component in the time series, versus Alternative Hypothesis: There is a significant seasonal component in the time series

Conclusion: There is very strong evidence against the null hypothesis, hence the null hypothesis is rejected. There is sufficient evidence to conclude that there exists significant seasonal component in the time series. We now perform linear regression model with the following data:
Year 1 2 3 Total Sales 2106 2250 2399
Linear Regression 2450 2400 2350 2300 2250 2200 2150 2100 2050 0 0.5 1 1.5 2 2.5 3 3.5 Year ---> y = 146.5x + 1958.7 R2 = 0.9999

This regression is extremely good with an R 2 value of 0.999. The regression equation is given as: y = 146.5x + 1958.7 For the fourth year, the total sales are obtained by plugging in x = 4 in the above equation. y ( x = 4) = 146 .5 * 4 +1958 .7 = 2544.7 (in thousands of dollars) The average monthly sales during the fourth year, therefore, is 2544.7/12 = 212.058 (in thousands of dollars). The forecast for a particular month (say July) is calculated by multiplying the average monthly sales forecast by that months (Julys) seasonal index. For the month of July, it will be 0.831*212.058 = 176.22 (in thousands of dollars). The monthly forecasts for the 12 months of the fourth year are as shown below:

Total Sales in 1000's --->

Month (yr.4) S. Index Forecast

January 1.398 296.45755

February 1.293 274.19143

March 1.322 280.3411

April 1.023 216.9357

May 1.043 221.1768

June 0.798 169.2226

July 0.831 176.2205

August 0.865 183.4305

September 0.636 134.8691

October 0.725 153.7423

November 0.874 185.339

December 1.192 252.7735

Suppose the actual January sales for the fourth year turn out to be $295,000. The forecasted January sales are $296,458. Error between actual and forecasted sales = $296,458 - $295,000 = $1458 Percentage Error =
Error 1458 * 100 = * 100 = 0.49% ActualSale s 295000

This is an extremely small percentage error. Karen does not have to worry about this error and she can be assured that her forecast model is extremely good.