Question

1- The following chart is data over an 8 month period that shows how much a company spent in advertising and the sales revenue for that month

MONTH	ADVERTISING $	SALES $
March	900	56000
April	2400	89000
May	3100	98000
June	1200	55000
July	3500	96000
Aug	1800	56000
Sept	2000	91000
Oct	1950	78000

E.) What sales revenue would the company expect for the following advertising spending? Round to nearest cent

1. 3000
2. 2100
3. 1300

F.) If you were in charge of the advertising department how much would you spend on each of the next 4 months on advertising and how and why did you arrive at your decision?

Nov

Jan

Feb

March

Please give a short explanation as to how and why you came up with your advertising spending for the above 4 months

Answer 1

(E )
Monthwise Data
	$	$
Months	Advertising	Sales
March	900	56,000
April	2,400	89,000
May	3,100	98,000
June	1,200	55,000
July	3,500	96,000
Aug	1,800	56,000
Sep	2,000	91,000
Oct	1,950	78,000
Data as per increasing advertising
	$	$
Months	Advertising	Sales
March	900	56,000
June	1,200	55,000
Aug	1,800	56,000
Oct	1,950	78,000
Sep	2,000	91,000
April	2,400	89,000
May	3,100	98,000
July	3,500	96,000
As trend is not clear, I will estimate by highest-lowest poit method and then adjusting
the same by limitation of historical experience data.
Constant Revenue is $56,000 for $ 900 advertising
Variable Revenue per $ of advertising expenditure shall be (96000 - 56000)/(3500-900) = $ 15.38
Revenue	Adv. $ 3,000	Adv. $ 2,100	Adv. $ 1,300
Constant	56,000	56,000	56,000
Variable (adv. Expenses x 15.38)	46,140	32,298	19,994
Total Revenue estimated	1,02,140	88,298	75,994
Adjustment as limitation:
(i) Not Justified as it should be limited to $ 98,000)	-4,140
(ii) Justified as it should be limited to $ 91,000)
(iii) Not Justified as it should be limited to $ 56,000)			-19994
Total Revenue estimated	98,000	88,298	56,000
b) We can see that when advertising increased revenue also got increased. So expenses for upcomming
month shall be accordingly but it will be slowly incremental and limited to highest adverisement done
during the year. It is estimated as following:
	$
Nov	3100
Jan	3300
Feb	3400
March	3500