Answered: Your final estimate of lost sales for…

Practical Management Science

6th Edition

ISBN:9781337406659

Author:WINSTON, Wayne L.

Publisher:WINSTON, Wayne L.

Chapter2: Introduction To Spreadsheet Modeling

Section: Chapter Questions

Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...

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Question

The Carlson Department Store suffered heavy damage when a hurricane struck on August 31, 2013. The store was closed for four months (Sept – Dec 2013) and Carlson is now involved in a dispute with its insurance company concerning the amount of lost sales during the time the store was closed. Two key issues must be resolved:

The amount of sales Carlson would have made if the hurricane had not struck; and
Whether Carlson is entitled to any compensation for excess sales from increased business activity after the storm

More than $8 billion in federal disaster relief and insurance money came into the county, resulting in increased sales at department stores and numerous other businesses.

The table below shows the sales data for the 48 months preceding the storm. The following table 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. Management asks you to analyze this data and develop estimates of the lost sales at the Carlson Department Store for the months of September through December 2013. Management also wants 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 1 – Sales for Carlson Department Store, Sept ’09 through Aug ‘13

Month	2009	2010	2011	2012	2013
January		1.45	2.31	2.31	2.54
February		1.8	1.89	1.99	2.26
March		2.03	2.02	2.42	2.67
April		1.99	2.23	2.45	2.46
May		2.32	2.39	2.57	2.71
June		2.2	2.14	2.42	2.35
July		2.13	2.27	2.4	2.3
August		2.43	2.21	2.5	2.21
September	1.71	1.9	1.89	2.09
October	1.9	2.13	2.29	2.54
November	2.74	2.56	2.83	2.97
December	4.2	4.16	4.04	4.35

Table 2 – Department Store Sales for the County, Sept ’09 through Dec ‘13

Month	2009	2010	2011	2012	2013
January		46.8	46.8	43.8	48.1
February		48	48.6	45.6	51.5
March		60	59.4	57.6	57.5
April		57.6	58.2	53.4	58
May		61.8	60.6	56.4	60.2
June		58.2	55.2	52.8	57.2
July		56.4	51	54	57.5
August		63	58.8	60.6	61.5
September	55.8	57.6	49.8	47.4	69
October	56.4	53.4	54.6	54.6	75
November	71.4	71.4	65.4	67.8	85
December	117.6	114	102	100.2	121.5

Prepare a report for the management of the Carlson department store that summarizes your findings, forecasts and recommendations. Include the following:

Hint: By comparing the forecast of county-wide department store sales with actual sales, one can determine whether or not there are excess storm-related sales. By computing what is known as a "lift factor" – the ratio of actual sales to forecast sales – you have a measure of the magnitude of excess sales, if these do indeed exist