Savings-Mart sells patio and lawn furniture. Sales are seasonal, with higher sales during the spring and summer quarters and lower sales during fall and winter quarters. The company developed the following quarterly sales forecasting model using data from 2005Q1 to 2009Q4 i.e. n=20 quarters:
t =8.25 + 0.125t - 2.75D1t + 0.25D2t + 3.50D3t R2 = 0.789;
(2.5) (3.1) (1.8) (5.3)
where the numbers in parenthesis are t-values,
t =predicted quarterly sales ($million) in quarter t
t =time period
D1t= dummy variable =1 for 1st quarter, 0 otherwise
D2t= dummy variable =1 for 2nd quarter, 0 otherwise
D3t = dummy variable =1 for 3rd quarter, 0 otherwise
a. Explain what R2 = 0.789 means.
b. Forecast Savings-Mart's sales for each of the quarters in 2010.
c. Which variables of the model are statistically significant? Use t-test for α=.05.