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CS Executive · Corporate Accounting and Financial Management · Forecasting Financial Statements

In regression-based forecasting of sales on advertising spend, the line is Y = 20 + 4X, where Y is sales and X is advertising, both in Rs lakh. If advertising is Rs 5 lakh, what is the forecast sales?

Forecast sales are Rs 40 lakh. Substituting advertising of 5 into the regression equation gives 20 plus 4 times 5, which is 20 plus 20. The intercept of 20 is the base sales and the slope of 4 is the sales gained per lakh of advertising.

  1. ARs 25 lakh
  2. BRs 100 lakh
  3. CRs 40 lakhCorrect
  4. DRs 45 lakh

Explanation

Y = 20 + 4 x 5 = 20 + 20 = Rs 40 lakh. Rs 25 lakh adds X without multiplying by the slope. Rs 100 lakh multiplies 20 by 5 wrongly.

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