Question

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?

Answer 1

To forecast sales for January through December of the fourth year using the dummy variable approach, historical data and dummy variables representing each month can be used. The forecast error can be calculated by comparing the actual sales with the forecasted sales. To resolve any uncertainty, transparency and explanation of the forecasting methodology can be provided.

Step-by-step explanation:

To forecast sales for January through December of the fourth year using the dummy variable approach, we would use historical data and assign dummy variables to represent each month.

For example, if we assign 1 for January and 0 for the other months, the regression model would be: forecast_sales = b0 + b1(January) + b2(February) + ... + b12(December).

If the January sales for the fourth year turn out to be $295,000, the forecast error can be calculated by taking the absolute difference between the actual sales and the forecasted sales. In this case, the forecast error would be |$295,000 - (b0 + b1(1) + b2(0) + ... + b12(0))|.

To resolve any uncertainty about the forecasting procedure, transparency and explanation of the methodology used can be provided to Karen, along with the factors and variables considered in the model.