Cypress River Landscape Supply is a large wholesale supplier of landscaping materials in Georgia. Cypress River’s sales vary seasonally; sales tend to be higher in the spring months than in other months.

a. Suppose Cypress River estimates a linear trend without accounting for this seasonal variation. What effect would this omission have on the estimated sales trend?
b. Alternatively, suppose there is, in fact, no seasonal pattern in sales, and the trend line is estimated using dummy variables to account for seasonality. What effect would this have on the estimation?

a. If Cypress River estimates a linear trend without accounting for seasonal variation, the estimated sales trend may not accurately reflect the actual sales pattern throughout the year. Since sales tend to be higher in the spring months, omitting this seasonal variation may result in underestimating the sales trend for the rest of the year. This could lead to inaccurate sales forecasts and potentially impact decision-making regarding inventory management, production planning, and resource allocation.

b. On the other hand, if there is no seasonal pattern in sales and the trend line is estimated using dummy variables to account for seasonality, the estimation would consider the varying sales pattern throughout the year. Dummy variables would capture the effect of each season on sales, allowing for more accurate trend estimation. This approach would provide a better understanding of overall sales trends and help make more informed decisions regarding the business's operational activities.