The Lockit Company manufactures door knobs for residential homes and apartments.

Lockit is considering the use of simple (single-driver) and multiple regression analyses to forecast annual sales because previous forecasts have been inaccurate. The new sales forecast will be used to initiate the budgeting process and to identify more completely the underlying process that generates sales.

Larry Husky, the controller of Lockit, has considered many possible independent variables and equations to predict sales and has narrowed his choices to four equations.

Husky used annual observations from 20 prior years to estimate each of the four equations.

Following are definitions of the variables used in the four equations and a statistical summary of these equations:

Required:
1. Write Equations 2 and 4 in the form Y= a + bx.
2. Ifactual sales are $1,500,000 in 2010, what would be the forecasted sales for Lockit in 2011?
3. Explain why Larry Husky might prefer Equation 3 to Equation 2.
4. Explain the advantages and disadvantages of using Equation 4 to forecast sales.LO1

Transcribed Image Text:

Statistical Summary of Four Equations Dependent Independent Equation Variable Variable(s) Intercept Independent Variable (Rate) Standard Error R Square t-Value 1234+ 5555 St-1 G $ 500,000 $ 1.10 $500,000 0.94 5.50 1,000,000 0.00001 510,000 0.90 10.00 G-1 900,000 0.000012 520,000 0.81 5.00 600,000 490,000 0.96 N-1 10.00 4.00 G 0.000002 1.50 G-1 0.000003 3.00