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Regression analysis of annual sales based on advertising expense

Reliable Furniture is a family business that has been selling to retail customers in the Chicago area for many years. They advertise extensively on radio and TV, emphasizing their low prices and easy credit terms. The owner would like to review the relationship between sales and the amount spent on advertising. Below is information on sales and advertising expense for the last four months.

(a) The owner wants to forecast sales based on advertising expense. Which variable is the dependent variable? Which variable is the independent variable?
(b) the coefficient of determination.(R2) = 0.9308 what does this mean?

(c) The regression analysis formula is y= 2.2x + 1.5 What sales would we expect if we spent 2.5 million in advertising? 5 million?
Month Advertising Expense ($ Million) Sales Revenue ($ Million)
July 2 7
August 1 3
September 3 8
October 4 10

(d) Draw a scatter diagram.
(e) Draw the regression line.
(f) Determine the coefficient of correlation.

Solution Summary

The solution gives the details of regression analysis of annual sales based on advertising expense. Estimation of regression coefficients, correlation and interpretations of results are included. Model adequacy and scatter diagram are also given.