Big Picture in Focus: ULOe (Laboratory).

Compute the multiple

linear regression parameters and Variation

Metalanguage
The essential terms you are going to use in this unit was already presented in
the previous ULO. You need to revisit the discussion in ULOc to understand the
topic.

Essential Knowledge

The idea of this unit is the same as the concept of simple linear regression. The
only difference is in multiple linear regression, you are dealing with two or more
independent variables. The whole concept of multiple linear regression was
discussed in ULOc. This unit will focus on the estimation using MS Excel.

Let us analyze this case, the top management of ECQ Incorporated is thinking
of cutting the commission cost and increasing the marketing instead. To make the
decision, the management wants to know the effect of marketing expense and
commission expense on the sales of a company. The management likes to develop
a linear decision model to predict sales based on the two variables. From 50
companies, the analyst collected data for their sales (in million), marketing expense
(in million), and commission expense (In million).

Co. Sales Marketing Commission Co. Sales Marketing Commission

1 139 8.5 3.5 26 89 8 1
2 120 4.5 1.2 27 167 6.5 5.5
3 125 6.4 1.4 28 86 6.2 3.2
4 68 7 1.3 29 67 3.5 4.8
5 129 6 3.5 30 156 10 1.3
6 152 8 4.1 31 63 6.5 5.9
7 125 2 3.8 32 71 2 2.2
8 102 3 4.1 33 151 4 4.2
9 154 9 3.1 34 67 8 4.6
10 145 9.8 4.9 35 114 7.5 5.5
11 76 3.6 1.5 36 99 2 3.5
12 75 4.8 0.9 37 75 1.5 2.2
13 158 6 5.1 38 91 2 1.3
14 70 9 1.1 39 152 7.8 2.2
15 79 10 0.08 40 131 8.5 2.5
16 110 2 3.4 41 130 5 3.5
17 111 9 5.4 42 156 7.8 1.1
18 157 10 2.2 43 118 8 4.2
19 66 4 1 44 154 7.6 1.5
20 98 5 1.2 45 84 2 0.5
21 78 4.9 0.07 46 104 6.5 5
 22 86 8.8 0.08 47 66 2.3 1.2
23 171 9.6 3.6 48 105 5.8 4
24 79 5.2 1.7 49 79 5.3 3.5
25 144 7.6 4.2 50 153 8.8 3.9

1. Determine the Dependent variable (DV) and Independent Variables.

Dependent Variable = Sales

Independent Variables = Marketing Expense (ME) and Commission Expense
(CE)

Take note that the dependent variable must always be a ratio or interval data.
You cannot use nominal or ordinal data as the dependent variable.

2. Define the multiple regression equation.

Sales = b0 + b1ME + b2CE

3. Insert a new worksheet and enter the data presented above.

4. Go to Data then Data Analysis

5. Select Regression and click <OK>

6. In the Input Y Range, select cells B1 to B1.

7. In the Input X Range, select cells C1 to D51.

8. Click the Labels check box.

9. In the Output Range, select cell G1.

10. Click <OK>

11. The first output is the Model Summary.

The model summary reveals that the R-square is 0.281387, which

means that 28.14% of the variation in sales is explained by the independent
 variables (IV) marketing and commission expense. However, an additional IV will
increase the value of R-square even though the IV does not have a significant
effect on the dependent variable. To detect that problem, you must compare the
adjusted R-square before and after you add IV. A decrease in adjusted means
that the IV you added must be removed.

12. The second output is the ANOVA result.

The ANOVA result determined the relationship between the dependent

variable and the entire set of independent variables. If the significance F or the p-
value of F is less than 0.05, it means that at least one of the IV has a significant
effect.

13. The third output is the Coefficients.

Based on the estimated value the multiple regression equation is

Sales = 60.4441 + 5.6647ME + 5.5771CE

The intercept means if the company does not spend on marketing and
commission, their sales would be Php60.4441 million. Sometimes the intercept
has no meaning at all. The result shows that marketing expense and commission
expense has a positive effect on sales. It means if the company will increase by
Php5.7 million if they spend Php1 million on marketing. Likewise, the sales will by
Php5.6 million if the company spends Php1 million on commission.