Ann's furniture store is a family business that has been selling to retail customers in the Chicago area for many years. They advertise extensively on radio, TV, and the Internet, emphasizing the low prices and easy credit terms. The owner would like to review the relationship between sales and the amount spend on advertising. Below is the information on sales and advertising expenses for the last four months.
Month Advertising Expense ($million) Sales Revenue ($million)
July 2 7
August 1 3
September 3 8
October 4 10
A. The owner wants to forecast sales on the basis of advertising expense. Which variable is the dependent variable? Which variable is the independent variable?
B. Determine the coefficient of correlation.
C. Interpret the strength of the correlation coefficient.
D. Determine the coefficient of determination. Interpret.
E. Determine the regression equation.
F. Interpret the values of a and b.
G. Estimate sales when $3 million is spend on advertising.
The solution provides step by step method for the calculation of regression model for advertising expense. Formula for the calculation and Interpretations of the results are also included.