Costs for the marketing department and total sales of Belford’s, a British chain of department stores located in the United Kingdom and other European countries, are available on the Web site You have been asked to develop a cost function for next month’s cost. The head of the marketing department believes that the department’s costs are related to volume of sales (in British pounds).

A. Create a scatter plot of the data.
B. From analyzing the plot, do you think sales are a potential cost driver? Explain.
C. Perform a regression analysis between marketing department costs and sales. Write the algebraic expression for total cost.
D. Explain why it is economically plausible for sales to be a cost driver for marketing costs.
E. When you present the results of the regression analysis to the head of the marketing department, she tells you that the department costs are discretionary costs. If this statement is true, why might a linear relationship appear between the cost and sales?
F. After your discussion with the head of marketing, you now know that department costs are discretionary. In this situation, explain why regression analysis would not be appropriate for estimating future marketing department costs.

  • CreatedJanuary 26, 2015
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