# ceo would determine if she should be placing more money allotted budget next

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
baby
bottle

called
Gentle Bottle

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

is very difficult and requires
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
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
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
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.