Reference no: EM13918288

Case Problem: FORECASTING LOST SALES

The Carlson Department Store suffered heavy damage when a hurricane struck on August 31. The store was closed for four months (September through December), and Carlson is now involved in a dispute with its insurance company about the amount of lost sales during the time the store was closed. Two key issues must be resolved: (1) the amount of sales Carlson would have made if the hurricane had not struck, and
(2) whether Carlson is entitled to any compensation for excess sales due to increased business activity after the storm. More than $8 billion in federal disaster relief and insur- ance money came into the county, resulting in increased sales at department stores and numerous other businesses.

TABLE 15.19 SALES FOR CARLSON DEPARTMENT STORE ($ MILLIONS)

Month	Year 1	Year 2	Year 3	Year4	Year 5
January		1.45	2.31	231	2 .56
February		1.80	1 .89	1.99	2.28
March		2.03	2.02	2.42	2.69
April		1.99	2.23	2.45	2.48
May		2.32	2.39	2.57	2.73
June		2.20	2.14	2.42	2.37
July		2.13	2.27	2.40	231
August		2.43	2.21	2.50	2.2
September	1 .71	1.90	129	2.09
0ctober	1.90	2.13	2.29	2.34
November	2.74	2.36	2.83	2.97
December	4.20	4.16	4.04	4.35

Table 15.19 gives Carlson's sales data for the 48 months preceding the storm. Table 15.20 reports total sales for the 48 months preceding the storm for all department stores in the county, as well as the total sales in the county for the four months the Carlson Department Store was closed. Carlson's managers asked you to analyze these data and de- velop estimates of the lost sales at the Carlson Department Store for the months of Septem- ber through December. They also asked you to determine whether a case can be made for excess storm-related sales during the same period. If such a case can be made, Carlson is entitled to compensation for excess sales it would have earned in addition to ordinary sales.

TABLE 15.20 DEPARTMENT STORE SALES FOR THE COUNTY ($ MILLIONS)

Month	Year 1	Year 2	Year 3	Year4	Year 5
January		46.80	46.80	43 .80	48.00
February		48.00	48.60	45.60	51 .60
March		60.00	59.40	57.60	57.60
April		57.60	58.20	53.40	58 20
May		61.80	60.60	56.40	60 .00
June		58.20	55.20	52.80	57.00
July		56.40	51 .00	54.00	57.60
August		63.00	58 20	60.60	6120
September	55.80	57.60	49 20	47.40	69.00
October	36.40	33.40	34.60	34.60	73.00
November	71.40	71.40	65.40	67.80	83.20
December	117.60	1 14.00	102.00	1 00.20	12 1 20

Managerial Report

Prepare a report for the managers of the Carlson Department Store that summarizes your findings, forecasts, and recommendations. Include the following:

1. An estimate of sales for Carlson Department Store had there been no hurricane

2. An estimate of countywide department store sales had there been no hurricane

3. An estimate of lost sales for the Carlson Department Store for September through December

In addition, use the countywide actual department stores sales for September through December and the estimate in part (2) to make a case for or against excess storm-related sales.