1. Should mean disposable income be used to predict sales based on the sample of

Question

1. Should mean disposable income be used to predict sales based on the sample of 14 Sunflower stores? Explain.

2. Is it possible that the mean disposable income of the surrounding area is not an important factor in leasing new locations? Explain.

Triangle Mall Management The right triangle for retail operations For further information contact: Triangle Mall Management, TriCities Office. 1 Triangle Square, Glen Meadows proposal forEo Clothes for win As Sunflowers looks to expand its operations this year, we feel that there is a natural fit between your company's goals and our proven developments that offer retail, entertainment, and dining options for residents of upscale areas with exceptional disposal incomes and exclusive lifestyles We believe that our "unmall" mall developments, with their elegant architecture and extensive landscaping. perfectly fits the image you seek for Sunflowers. Our park-like streets and casual fine dining anchors create an award-winning environment for retail sales. Our extensive competitive retail analysis coupled with our exclusive demographic and geographic profiles regional economic analysis, and sales potential forecast analysis ensure that our developments maximize your business opportunities. We at Triangle Mall Management realize that your store opening strategies have been guided primarily by profiled customers living within a fixed radius of your stores. However, we woulcd like to suggest that our proven track record at improving sales for small chain stores is applicable to you. To that end, we have ranalyzed your store sales sample of 14 locations to include the average disposal income of the areas surrounding each store in the sample. As you can see from the data, there is a strong correlation between sales and the average disposal income of each surrounding communitv Because Triangle Mall Management establishes its centers only in areas of exceptional affluence those in which disposal income is no less than 65K dollars, we project, based on your 14-store sample, that Sunflower shops in our developments will do no less than 10.6 million dollars in sales (calculated using the regression intercept -1.94 and the regression coefficient 0.193). We note that some of stores in your sample do much better than this and we would expect the same for any stores established in Triangle developments Please review the 14-store data sample (see attachments) and when you are satisfied, give us a call at your convenience Respectfully submitted, The Triangle Mall Development Team

Explanation / Answer

1)Solution:

Average disposanble income should be used to predict sales. John Meynard Keynes, “The higher the income the higher the consumption is”. Consumption has a positive relation with disposable income. From the scatter diagram made by the given data, it is noted that as the disposable income increases the annual sales also increases.

[pic]

Again, We know that the coefficient correlation is,
r = [pic][pic]

Here,
r = [pic]
= [pic]
= 0.70
Therefore, there is a strong positive correlation between the disposable income and the annualsales.

The regression coefficient is 0.193. That means sales will increase by $0.193 if disposable income increase by $1.00.

“Based on these points we can conclude that, the average disposable income should be used to predict sales based on the sample of 14 sunflowers stores.”

2)solution:

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