ACCA Applied Knowledge · Management Accounting · Summarising and analysing data
A management accountant calculates the correlation coefficient between advertising spend and monthly sales and obtains r = -0.92. Which statement is correct?
A correlation coefficient of -0.92 shows a strong negative linear relationship, because it is close to -1. As advertising spend rises, sales tend to fall. It does not prove that advertising causes the fall, and the figure is not a percentage change.
- AThere is a strong negative linear relationship between the variablesCorrect
- BThere is a weak negative linear relationship between the variables
- CThere is a strong positive linear relationship between the variables
- DAdvertising spend causes sales to fall by 92%
Explanation
A value of r close to -1 indicates a strong negative linear relationship. It does not prove causation, and 92% is not a percentage fall in sales. A weak relationship would give r near zero.
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