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 2001 and knows that the key element in the Master Budget is the contribution expected from the Laser Switch. The records for this com¬ ponent for the past four years are summarised below, with the costs and revenues adjusted to 2001 values:

It has been estimated that sales in 2001 will be 260 000 units.
You are required:

(a) as a starting point for forecasting 2001 contri¬
bution, to project the trend, using linear regression; (10 marks)

(b) to calculate the 95% confidence interval of the individual forecast for 2001 if the standard error of the forecast is £14 500 and the appro¬ priate t value 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. (7 marks)
(Total 20 marks) CIMA Stage 3 Management Accounting Techniques

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1997 1998 1999 2000 Sales (units) 150 000 180000 200000 230000 () () () () Sales revenue 292820 346060 Variable costs 131 080 Contribution 363 000 448 800 161 706 178 604 201 160 161 740 184354 184 396 247 640