Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 31

Cost Estimation Using Graphs Lawson Advertising Agency is trying to persuade Kansas City Sailboards Company to spend more money on advertising. The agency’s argument is that a positive linear relationship exists between advertising and sales in the sailboard industry. Sue Lawson presents these data taken from industry data for stores similar in size and market share to Kansas City Sailboards:

Advertising Expense	Annual Sales
$2,500	$ 95,000
3,000	110,000
3,500	124,000
4,000	138,000
4,500	143,000
5,000	147,000
5,500	150,000

Required

1. Graph annual sales and advertising expense.

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2. Do the data prove Sue’s point?

Step 1 of 6

Cost estimation

Cost estimation results in estimating variable and fixed costs for business. Cost estimation is made in case of expansions or new product line set-up by companies. Cost estimation helps to determine the cost for product.