Advanced : Regression analysis and confidence intervals CB p.l.c. produces a wide range of electronic components including its best selling item, the Laser Switch. The company is preparing the budgets for 1989 and knows that the key element in the Master Budget is the contribution expected from the Laser Switch. The records for this component for the past four years are summarised below, with the costs and revenues adjusted to 1989 values:

It has been estimated that sales in 1989 will be 260 000 units.
You are required:

(a) as a starting point for forecasting 1989 contribution, to project the trend, using linear regression; (10 marksl

(b) to calculate the 95% confidence interval of the individual forecast for 1989 if the standard error of the forecast is £14500 and the appropriate tvalue is 4.303, and to interpret the value calculated: (3 marks)

(c) to comment on the advantages of using linear regression for forecasting and the limitations of the technique

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1985 1986 1987 Sales (units) 150000 180000 200 000 (2) () () 1988 230 000 ()