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Applying Time Series Methodologies

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The purpose of this memo is to provide the business decisions that were made concerning the sales production plan for all the upcoming quarters. First our team decided to use the centering moving average model with the selected data range of 6 years for the calculations. The reason our team chose this was to obtain the best possible accurate results. Our team did not want to go too far in the past as past trends may no longer applicable. As for the production of the product our team decided to fix production levels at 11 million units for the first quarter, 14 million units for the second quarter, 12 million for the third quarter and 20 million for the fourth quarter. The reason for these production levels was to coincide the sales figure forecast.

Our team would also like to add to the decisions that were made concerning the advertising budget. The first decision made for the advertising strategy was to use sales as a variable for regression analysis. Based on our findings the correlation coefficient of sales with the advertising budget is 0.96. This correlation indicates that the sales have a strong positive relationship with the advertising budget. Using the regression equation our team found the value of the advertising budget would be at $2,400 million, which would make our advertising budget at $162 million. The budget was decided at $162 million since Blues, Inc. shares 6% of the $40 billion dollar denim industry. This budget would help with maintaining our competitive abilities.

The next decision that was made was to study the fluctuations in the market size to reach the destination of our sales forecast. Our team decided to use a 2-period weighted moving average with a weight of .10 for the past observation and 0.9 for the most recent observation. The reason for choosing the 2-period weighted moving average is because a weighted moving average model is a moving average model with unequal weights. This would go with the



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