Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
16th Edition
ISBN: 9780134475585
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Textbook Question
Chapter 10, Problem 10.37P
High-low method; regression analysis. (CIMA, adapted) Catherine McCarthy, sales manager of Baxter Arenas, is checking to see if there is any relationship between promotional costs and ticket revenues at the sports stadium. She obtains the following data for the past 9 months:
| Month | Ticket Revenues | Promotional Costs |
| April | $200,000 | $52,000 |
| May | 270,000 | 65,000 |
| June | 320,000 | 80,000 |
| July | 480,000 | 90,000 |
| August | 430,000 | 100,000 |
| September | 450,000 | 110,000 |
| October | 540,000 | 120,000 |
| November | 670,000 | 180,000 |
| December | 751,000 | 197,000 |
She estimates the following regression equation:
- 1. Plot the relationship between promotional costs and ticket revenues. Also draw the regression line and evaluate it using the criteria of economic plausibility, goodness of fit, and slope of the regression line.
- 2. Use the high-low method to compute the function relating promotional costs and revenues.
- 3. Using (a) the regression equation and (b) the high-low equation, what is the increase in revenues for each $10,000 spent on promotional costs within the relevant range? Which method should Catherine use to predict the effect of promotional costs on ticket revenues? Explain briefly.
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Chapter 10 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
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