Forecasting Monthly Sales
For years The Glass Slipper restaurant has operated in a resort
community near a popular ski area of New Mexico. The restaurant
is busiest during the first 3 months of the year, when the
ski slopes are crowded and tourists flock to the area.
When James and Deena Weltee built The Glass Slipper,
they had a vision of the ultimate dining experience. As the view
of surrounding mountains was breathtaking, a high priority was
placed on having large windows and providing a spectacular
view from anywhere inside the restaurant. Special attention was
also given to the lighting, colors, and overall ambiance, resulting
in a truly magnificent experience for all who came to enjoy
gourmet dining. Since its opening, The Glass Slipper has developed
and maintained a reputation as one of the “must visit”
places in that region of New Mexico.
While James loves to ski and truly appreciates the mountains
and all that they have to offer, he also shares Deena’s
dream of retiring to a tropical paradise and enjoying a more
relaxed lifestyle on the beach. After some careful analysis of
their financial condition, they knew that retirement was many
years away. Nevertheless, they were hatching a plan to bring
them closer to their dream. They decided to sell The Glass
Slipper and open a bed and breakfast on a beautiful beach in
Mexico. While this would mean that work was still in their
future, they could wake up in the morning to the sight of the
palm trees blowing in the wind and the waves lapping at the
shore. They also knew that hiring the right manager would allow
James and Deena the time to begin a semi-retirement in a
corner of paradise.
To make this happen, James and Deena would have to sell
The Glass Slipper for the right price. The price of the business
would be based on the value of the property and equipment, as
well as projections of future income. A forecast of sales for the
next year is needed to help in the determination of the value of
the restaurant. Monthly sales for each of the past 3 years are
provided in Table 5.14.
Discussion Questions
1. Prepare a graph of the data. On this same graph, plot a
12-month moving average forecast. Discuss any apparent
trend and seasonal patterns.
2. Use regression to develop a trend line that could be used
to forecast monthly sales for the next year. Is the slope of
this line consistent with what you observed in question 1?
If not, discuss a possible explanation.
3. Use the multiplicative decomposition model on these
data. Use this model to forecast sales for each month of
the next year. Discuss why the slope of the trend equation
with this model is so different from that of the trend equation
in question 2.
MONTH 2008 2009 2010
January 438 444 450
February 420 425 438
March 414 423 434
April 318 331 338
May 306 318 331
June 240 245 254
July 240 255 264
August 216 223 231
September 198 210 224
October 225 233 243
November 270 278 289
December 315 322 335