Forecasting With Dummy Variables Group 6 Evin Whittington

Forecasting With Dummy Variables Group 6 Evin Whittington Travis Menn

Case 15. 1 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 that time, Karen sought to establish a reputation for the restaurant as a high-quality dining establish-ment that specializes in fresh seafood. Through the efforts of Karen and her staff, her restaurant has become one of the best and fastest-growing restaurants on the island.

Past Sales Data Month First Year Second Year Third Year January 242 263 282 February 235 238 255 March 232 247 265 April 178 193 205 May 184 183 210 June 140 149 160 July 145 157 166 August 152 161 174 September 110 122 126 October 130 103 148 November 152 167 173 December 206 230 235

ar M y ar ch M ay Se Ju pt ly e No mb ve er m b Ja er nu ar M y ar ch M ay Se Ju pt ly em No b ve er m be r nu Ja Time plot of the Data 300 Sales 250 200 150 100 50 0

Time series plot • The time series plot shows higher sales in the beginning of the year. • The sales dip their low point around the month of November. • This shows a seasonal pattern in the sales.

Dummy Variables • To forecast the next year of sales we use dummy variables. • Example of Dummy Variables • Month 1 = 1 if January, 0 otherwise • Month 2 = 1 if February, 0 otherwise • And so on

Regression of dummy variables.

Forecasting • With the Summary Output we are able to forecast the next 12 months of sales. • Forecast:

Forecast Error. • The actual sales for January were $295 which gave us a forecasting error of $128. 09 • Reasons for that could be the raw data still has seasonal trends in it. • There also could be some 3 rd part factors affecting sales.