. It is believed by a company that advertising expenditure for its product has significant impact on...
Question:
. It is believed by a company that advertising expenditure for its product has significant impact on the sale volume for the last few quarters. The research cell in the company collects data on sale volume and advertising expenditure for the last 24 quarters and tries to establish relationship between the two variables. The estimated equation is the as follows:
Y = - 463.811 + 7.761 X - 0.024 X2
0.000) (0.000) R 2 = 0.88
Where, Y and X represent sale volume is in crores of rupees and advertising expenditure in lakhs of rupees respectively.
The figures in the parentheses refer to the significance levels of the coefficients.
1. What could have been the reasoning of the company to fit a quadratic equation instead of a linear one ?
2. On the basis of the findings how would you conclude about the relationship between the sales revenue and the advertisement expenditure? (You are assuming other factors to remain the same over the time period).
Intermediate Accounting Reporting and Analysis
ISBN: 978-1285453828
2nd edition
Authors: James M. Wahlen, Jefferson P. Jones, Donald Pagach