A CEO of a large

 

 

company would like to determine if

 

he should be

placing more money allotted in the budget next year for television advertising of a new

baby

bottle

 

marketed for controlling

reflux and reducing gas

.

HE

 

wonders whether there is a strong

relationship between the amount of money spent on telev

ision advertising for this new

baby

bottle

 

called

Gentle Bottle

 

and the number of orders received. The manufacturing process of this

baby bottle

 

is very difficult and requires

advanced quality control

so the CEO would prefer to

generate a stable number of

orders. The cost of advertising is always an important consideration

in the phase I roll

–

out of a new

baby bottle

. Data that have been collected over the past 20

months indicate the amount of money spent of television advertising and the number of orders

r

eceived.

 

The use of linear regression is a critical tool for a manager’s decision

–

making ability. Please

carefully read the example below and try to answer the questions in terms of the problem

context. 

 

use of linear regression is a critical tool for a manager’s decision

–

making ability. Please

carefully read the example below and try to answer the questions in terms of the problem

context. The results are as follows:

 

 

 

 

 

 

 

 

 

15

 

60,030

 

1

,934,000

 

16

 

79,210

 

2

,853,000

 

17

 

65,770

 

1

,625,000

 

18

 

84,530

 

3

,778,000

 

19

 

79,760

 

2

,999,000

 

20

 

82,640

 

3

,834,000

 

 

a. Set up a scatter diagram and calculate the associated correlation

coefficient. Discuss how strong you think the relationship is between the

amount of money spent on television advertising and the number of orders

received. Please use the Correlation pr

ocedures within Excel under

Tools

> Data Analysis.

The Scatterplot can more easily be generated using the

Chart procedure.

Set up a scatter diagram and calculate the associated correlation coefficient. Discuss how strong you think the relationship is between the amount of money spent on television advertising and the number of orders received. Please use the Correlation procedures within Excel under


Tools > Data Analysis.


The Scatterplot can more easily be generated using the Chart procedure.

 

NOTE: If you do not have the Data Analysis option under Tools you must install it. You need to go to Tools select Add-ins and then choose the 2 data toolpak options. It should take about a minute.

b. Assuming there is a statistically significant relationship, use the least squares method to find the regression equation to predict the advertising costs based on the number of orders received. Please use the regression procedure within Excel under Tools > Data Analysis to construct this equation.

c. Interpret the meaning of the slope, b1, in the regression equation.

d. Predict the monthly advertising cost when the number of orders is 1,800,000. (Hint: Be very careful with assigning the dependent variable for this problem) 

e. Compute the coefficient of determination, r


2


, and interpret its meaning.

f. Compute the standard error of estimate, and interpret its meaning.

g. Do you think that the company should use these results from the regression to base any

corporate decisions on?….explain fully.