Case Problem: Forecasting Food and Beverage Sales ?Data pertaining to the case will be provided and students will analyze the

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Case Problem: Forecasting Food and Beverage Sales

The Vintage Restaurant, on Captiva Island near Fort Myers, Florida, is owned and operated by Karen Payne. The restaurant just completed its third year of operation. During those three years, Karen sought to establish a reputation for the restaurant as a high­quality dining establishment that specializes in fresh seafood. Through the efforts of Karen and her staff, her restaurant has become one of the best and fastest­growing restaurants on the island.

To better plan for future growth of the restaurant, Karen needs to develop a system that will enable her to forecast food and beverage sales by month for up to one year in advance. The following table shows the value of food and beverage sales ($1,000s) for the first three years of operation:

Month First Year

Second Year

Third Year

January 242 263 282

February 235 238 255

March 232 247 265

April 178 193 205

May 184 193 210

June 140 149 160

July 145 157 166

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Month First Year

Second Year

Third Year

August 152 161 174

September 110 122 126

October 130 130 148

November 152 167 173

December 206 230 235

Managerial Report

Perform an analysis of the sales data for the Vintage Restaurant. Prepare a report for Karen that summarizes your findings, forecasts, and recommendations. Include the following:

1. A time series plot. Comment on the underlying pattern in the time series.

2. Using the dummy variable approach, forecast sales for January through December of the fourth year.

How would you explain this model to Karen?

Assume that January sales for the fourth year turn out to be $295,000. What was your forecast error? If this error is large, Karen may be puzzled about the difference between your forecast and the actual sales value. What can you do to resolve her uncertainty about the forecasting procedure?