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Line graph;linear model; explore linear relation

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1. In creating a 4 year forecast for your company, you want to project future revenue based on the historical revenue provided.

Projected Revenue (in 000's)
year Actual Revenue (in 000's) Using FORECAST Using TREND
2002 185,623
2003 196,742
2004 199,240
2005 210,367
2006 218,027
2007 220,961
2008 254,013
2009 266,813

Using actual revenue from 2002-2009, calculate projected revenues for 2010 through 2013 as follows:

a. using the FORECAST function in Excel
b. using the TREND function in Excel
c. Create a line graph illustrating actual and projected revenues from 2002 to 2013 for a budget meeting.

2. A clothing designer has been marketing souvenir graphic t-shirts in conjunction with various music festivals in a number of cities. Over the past few years, this experience has provided some data on the effect of advertising on sales revenues because the advertising expenditures have tended to be different in each case. Although the lengths of advertising campaigns vary, the vast majority of the sales occur within the first three months, which is the time period covered in the data. A summary is shown in the table below.

Advertising ($M) 3.6 2.4 1 0.8 4.8 5.2 3 2.4 3.2 2 3 2.4
Revenues ($M) 21 14.4 8 8.8 27 24.4 17.6 15.4 21 13.4 19.6 10.8

a. Explore the possibility of a linear relation between advertising expenditures and three-month sales revenue. Does there seem to be a strong linear relationship, based on a scatter plot and the correlation?

b. Build a linear model to represent the relation between advertising and revenue. What revenues would the model predict for expenditures of $1.3 million and $6 million?

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Solution Summary

This post shows how to create the line graph illustrating actual and projected revenues for budget meeting and linear model to represent the relation between advertising and revenue. It shows how to explore the possibility of a linear relation between advertising expenditures

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