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Case Problem: FORECASTING LOST SALES

The Carlson Department Store suffered heavy damage when a hurricane struck on

August 31, 2! The store was closed for four months "Septem#er 2 throughDecem#er 2$ and Carlson is now involved in a dispute with its insurancecompany a#out the amount of lost sales during the time the store was closed!

Two key issues must #e resolved% "1$ The amount of sales Carlson would havemade if the hurricane had not struck and "2$ &hether Carlson is entitled to anycompensation for e'cess sales due to increased #usiness activity after the storm!

(ore than )* #illion in federal disaster relief and insurance money came into thecounty, resulting in increased sales at all department stores and numerous other#usinesses during the period Septem#er 2 to Decem#er 2!

Ta#le 1 gives Carlson+s sales data for the * months preceding the storm! "Dataavaila#le in -'cel .ile /C0 .( ost Sales lank$

Month 1996 1997 1998 1999 2000January 1.45 2.31 2.31 2.56

February 1.80 1.89 1.99 2.28March 2.03 2.02 2.42 2.69

April 1.99 2.23 2.45 2.48

May 2.32 2.39 2.57 2.73June 2.20 2.14 2.42 2.37July 2.13 2.27 2.40 2.31August 2.43 2.21 2.50 2.23

September 1.71 1.90 1.89 2.09October 1.90 2.13 2.29 2.54

November 2.74 2.56 2.83 2.97December 4.20 4.16 4.04 4.35

TABLE 1: Sales for Carlson Department Store, September1996 throuh Auust 2000 $ Millions

Ta#le 2 reports total sales for the * months preceding the storm for alldepartment stores in the county "Septem#er 1445 6 August 2$, as well as thetotal sales for all department stores in the county for the four months the CarlsonDepartment Store was closed "Septem#er 2 6 Decem#er 2$! "Dataavaila#le in -'cel .ile /C0 .( ost Sales lank$

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Carlson+s managers have asked you to analy7e these data and develop estimates ofthe lost sales at the Carlson Department Store for the months of Septem#er 2through Decem#er 2!

They also have asked you to determine whether a case can #e made for e'cessstorm8related sales during the same period! 9f such a case can #e made, Carlson isentitled to compensation for e'cess sales it would have earned in addition toordinary sales!

Managerial Report0repare a report for the managers of the Carlson Department Store thatsummari7es your findings, forecasts, and recommendations! 9nclude the following"use 12 months moving average$%

1! An estimate of the seasonal inde' for the ne't 12 months : forecast ofthe ordinary sales for the ne't months "Septem#er 2 6 Decem#er

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2$ for Carlson Department Stores assuming there has #een nohurricane!

2! An estimate of the seasonal inde' for the ne't 12 months : forecast of

the ordinary sales for the ne't months "Septem#er 2 6 Decem#er2$ for Countrywide All Department Stores assuming there has #eenno hurricane!

3! An estimate of e'cess storm related sales for all the Department Storesin the county for Septem#er 2 through Decem#er 2 given thatthere was hurricane!

! An estimate of lost sales "ordinary ; e'cess storm related$ for theCarlson Department Store for Septem#er 2 through Decem#er2 given that there was hurricane!