Annual revenues, as well as sales and marketing expenses, for the years 19912002 are provided below for

Annual revenues, as well as sales and marketing expenses, for the years 1991–2002 are provided below for Microsoft Corporation:

1. Operating output data, like the number of software products sold each year, are not provided in Microsoft's Form 10-K. However, while it is a little odd to use revenues to predict marketing expense (instead of the other way around), it seems sensible that changes in revenues can serve as an approximate measure of changes in the number of products sold by Microsoft. Use the high-low method to analyze the data above to determine if there is a relationship between revenues and sales and marketing expenses.
What appears to be the amount of fixed costs in these expenses? Does this fixed cost amount make sense? (Note: Remember that the data are in millions of dollars!)
2. The Management Discussion in Microsoft's 2002 Form 10-K uses the following language to describe general changes to sales and marketing expenses: "Sales and marketing expenses increased due to higher relative headcount-related costs, higher marketing and sales expenses associated with MSN (Microsoft's popular portal destination on the Web), the Microsoft Agility advertising campaign, and other new sales initiatives." Does this statement provide any help in understanding the analysis?

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Microsoft Corporation (millions) Annual Revenue Year Sales and Marketing Expenses $ 1,847 2,777 3,786 4,714 6,075 9,050 11,936 15,262 19,747 22,956 25,296 28,365 $ 490 758 1,086 1,135 1,564 2,185 2,411 2,887 3,238 4,126 4,885 5,407 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002