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Regression Analysis of Incoe statement income and Expenses

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Use attached revenue and expense data from 2004-2008 perform a regression analysis using expense formula, Y = a + bx, where x is revenue.

Based on your regression findings, what is the operating leverage of this company? Explain what this means for this company.

Calculate the estimated contribution margin for this company absolutely ($) and as a percentage of operating revenues.

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Solution Summary

The attached solution provides techniques for regression analysis.

The revenue is regressed against the expenses for the period.

Also the operating leverage, for the company, is defined and calculated.

Solution Preview

The solution provides detailed steps and solution for the problem set out above.

The revenue is regressed against the expenses and the Straight line is derived.

The solution is full explained with diagrams and tables.

Thank you.

Regression analysis is a statistical technique for predicting an unknown variable (Y) by using its relationship with another known variable (X)

The regression line is given below:

Y = a + bx
Where Y = dependent variable (Regressand)
X = independent variable (Regressor)

The Formulas for deriving these variables are given below:

B = E(Y-y)(X-x)
E(X-x)2

A = E(y) - B(Ex)
N

Where E is the symbol for summation,
N is the number of observations,

Y X x (X-mean) X-x (X-x)2 y (Y-mean) Y-y ...

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  • B. Sc., University of Nigeria
  • M. Sc., London South Bank University
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