Hypothesis tests Essay Example

Quantitative Methods for Accounting

The aim of this report is to establish whether there are any significant differences between customers in the urban areas and customers in the rural areas. Therefore, there are two respective samples for the study: one for the urban market and the other for the rural market. Any research including this one involves two variables: the dependent variable and the explanatory variables. Sales revenue is the dependent variable in this study. The sales revenue is dependent on many variables. These are called the independent or explanatory variables and they explain the variability in sales revenue. These variables are the price, the price offered by the competitor, household income and the prevailing temperature. All these factors combined in different proportions influence the sales revenue for a 600 ml bottle of Fizzy Lemonade. A survey of 100 households was used. A survey of 49 households in rural area shows that the mean annual sales revenue is 23,065.93. On the other hand, a survey of 51 households in urban area shows that the mean annual sales revenue is 28,309.68. This shows that the company generates more sales in urban area than in the rural areas. The table below shows the mean and standard deviations of the explanatory variable in the different regions.

Standard

deviation

Standard

deviation

Company’s price

Competitor’s price

Advertising expenditure

10575.51

5,859.56

11,090.20

6,146.88

Household income

61,631.69

10,701.68

85,668.94

14886.96

Temperature

From this statistics, it is clear that Fizzy Pty Ltd is exercising price discrimination. It charges a higher price for a 600 ml bottle of Lemonade of 3.30 in urban areas than a lower price of the same product and quantity in the rural areas where it charges 2.80 on average. This is a factor that will help to explain why there is a significant difference between sales revenue in the different regions. Urban area has higher sales revenue than rural area since the company charges a high price per bottle of 600 ml of Fizzy Lemonade. The standard deviation of this price is not large which means that the price is homogeneous. The company charges a higher price than the competitor in rural regions. However, the company charges a lower price than the competitor in the urban area. This is a good strategy used by the company since there are more customers in the urban area. Charging a low price will help the company’s products to sell fast compared to that of the competitor. This has helped the company to experience huge sales revenue in the urban region. In addition, customers in the urban area have more household income than their counterparts in the rural area. This explains why the company reports more sales revenue in the urban area than in the rural areas since urban area customers have the purchasing power. The statistics also show that urban area experiences higher temperature than the rural area. The high temperature creates the need for individuals to demand for more cold drinks hence the more sales revenue in the urban region than in the rural region.

The company sales revenue has a negative correlation with the price of a 600 ml bottle of Fizzy Lemonade. This revelation is crucial for the company when it defines its pricing strategy. A slight increase in price will affect the sales revenue negatively (Gaffikin 76). This is because most customers will opt for a low charged drink offered by the competitor. This variable is important in decision-making since it is easily controllable by the company hence it can manipulate the price in any direction to influence the desired change in sales revenue. Temperature has the highest positive correlation with sales revenue. This shows that temperature is the main determinant for variability in sales revenue. When temperature is high people will demand more Fizzy Lemonade drink thus increasing its sales revenue. The company can take advantage of this information and consider expanding its market share to regions with high temperature. This is because the company is highly likely to realise more sales revenue in such areas.

Hypothesis Tests

In order to establish whether there are any significant differences between customers in the urban areas and customers in the rural areas we determine if the mean sales revenue in the two regions are statistically different.

Let hypothesis tests = 26,065.93 = mean sales revenue in rural area

And hypothesis tests 1 = 28,309.68 = mean sales revenue in urban area

Stating the hypothesis

Hohypothesis tests 2 mean sales revenue are equal

H1hypothesis tests 3 mean sales revenue are not equal

Using the F-test at 5%to determine whether the variances of the two samples are statistically different

hypothesis tests 4

This result shows that variances are significantly different

Therefore, the appropriate test to use is the t-test

So hypothesis tests 5

Since the calculated t < t5% then the Ho is rejected. That is, there is significant difference between customers in the urban areas and customers in the rural areas.

Work Cited

Gaffikin, Martins. Accounting theory: Research, regulation and accounting practice. Sydney: Pearson Education, 2008. Print.