A Company Keeps Extensive Records on Its New Salespeople on the Premise

question 96

Essay

A company keeps extensive records on its new salespeople on the premise that sales
should increase with experience. A random sample of seven new salespeople produced
the data on experience and sales shown in the table. $\begin{array}{c|c}\text { Months on Job } & \begin{array}{c}\text { Monthly Sales } \\y \text { (\$ thousands) }\end{array} \\\hline 2 & 2.4 \\4 & 7.0 \\8 & 11.3 \\12 & 15.0 \\1 & .8 \\5 & 3.7 \\9 & 12.0\end{array}$

Summary statistics yield $S S _ { x x } = 94.8571 , S S _ { x y } = 124.7571 , S S _ { y y } = 176.5171 , \bar { x } = 5.8571$ , and $\bar { y } = 7.4571$ . State the assumptions necessary for predicting the monthly sales based on the linear relationship with the months on the job.

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Definitions:

Operating Leverage

A measure of how revenue growth translates into growth in operating income, indicating the degree to which a firm can increase its profits by increasing sales.

Fixed Operating Costs

Expenses that do not change with the volume of production, such as salaries and rent.

Variable Costs

Expenses that vary directly with the level of production or sales volume, such as raw materials and direct labor costs.

Breakeven Volume

The quantity of goods or services that must be sold to cover fixed and variable costs, resulting in no profit or loss.