Stanford Consolidated Western Wear Retailers Cost Behavior Analysis cost behavior case is attached. Please complete the case in Word. Copy and paste your E

Stanford Consolidated Western Wear Retailers Cost Behavior Analysis cost behavior case is attached.
Please complete the case in Word. Copy and paste your Excel Regression
results into Word. Be sure to answer all the case requirements
completely and separate your answers according to each requirement.
Think about your critical thinking rubric as you complete the case
requirements and put yourself in the position of working for a company
and analyzing this problem. Structure your presentation as you would if
you were preparing it for your boss (clear, logical, complete,
accurate).I have also included an Excel spreadsheet with the data
entered by the administrative assistant. You should review this data
prior to the start of your analysis. Consolidated Western Wear Retailers: Regression
Analysis to Understand Cost Drivers in a Purchasing
Department
Anne M. A Sergeant, PhD, CMA
School of Accounting – Seidman College of Business
Grand Valley State University
INTRODUCTION
Dan’s Western Wear began its humble roots on Main Street in Sheridan, Wyoming, where Thomas
George, a Greek immigrant, settled his family in 1919 and began a cobbler business that served ranchers,
cowboys, and coal miners. Dan George, Thomas’ son, was nine years old when they arrived in the United
States and was soon active in his father’s cobbler business. Ultimately, he took over the business and began
to increase the store’s inventory, creating the business that is known today as Dan’s Western Wear, which
sells quality boots, work clothes, western apparel, and jewelry to just about anybody. Dan believes that if
clothes can hold up to a dusty hard day’s work, and look great at the same time, all the better. The
company prides itself on quality clothes with good old-fashioned service. Customers are greeted at the door
and helped throughout their experience. A visit to Dan’s Western Wear is like a visit to an old friend.
Dan’s Western Wear is typical of western wear retail outlets. The industry is characterized by many
independent regional shops. Frequently, these retail shops have been in operation for many years and have
a multigenerational, loyal customer base. Recently, the online western wear business has shown some
growth, but customers are primarily interested in face-to-face shopping where they can feel the products,
try them on, and visit with locals who share their interests. Because these specialty retail outlets have
relatively little competition from online and discount retailers, western wear stores have enjoyed relatively
high profit margins for retail businesses. If managed well, these can be profitable stores.
Joe West, a young entrepreneur who had worked at Dan’s Western Wear prior to going to graduate
school for a master’s in business administration, saw an opportunity to consolidate western wear retail
outlets to gain efficiencies. Thus, he founded Consolidated Western Wear Retailers (CWWR) and began
purchasing profitable western wear stores, starting with Dan’s Western Wear. He also assembled a
management team to help him grow his business. As a new store is purchased, Joe and the management
team study the store to learn how it is successful. Initially, they do not make major changes, keeping the
same store name and encouraging the store to operate as before. Over time, Joe and the management
team implement changes to improve profitability. Currently, CWWR owns 21 retail stores, and Joe believes
this is large enough to aggressively pursue efficiencies from consolidation.
THE PROBLEM
Each year Joe reviews the financial information for all the CWWR stores. This past year was a
relatively good year; company profits were up despite the huge July Fourth fire in Las Vegas, Nevada, that
shut down the store for four months and required replacement of all the inventory. Joe did notice,
however, that purchasing department costs varied considerably between stores. The minimum was
$575,000 and the maximum was $2.2 million. This was perplexing, and he thought this might be an area
where efficiencies could be achieved. Currently, each store has its own purchasing department with full
autonomy. In the western wear industry, regional customers have regional tastes and desires. Local
purchasing agents are thought to be best able to understand the desires of local customers and to meet
those needs.
On his management team, Joe has a managerial cost specialist with skills in data analytics. Together
they discussed the purchase department cost problem and identified three potential cost drivers:
merchandise purchased, number of purchase orders, and number of suppliers. To verify these ideas, Joe
contacted purchasing managers from three different stores who agreed that these were potentially good
cost drivers and that no others were readily apparent. The managerial cost specialist gathered data for the
four variables from last year’s financial information and reported it in Table 1. The data was also entered
into an Excel spreadsheet (see Appendix) by the team’s administrative assistant.
REQUIREMENTS
1.
Why would CWWR want to conduct regression analysis? How can the results be of value to the
company?
2.
The company has identified three potential cost drivers. State the cost model for each of these and
identify the components of the cost model (dependent, independent, slope, and intercept).
3.
Are the independent variables you identified economically plausible?
4.
Plot the models and examine the data integrity of each model. Do you need to make any
adjustments to the model before running regression analysis? If so, explain the adjustments.
5.
Run simple regression for each model. State the cost equation and comment on the goodness of fit
and hypothesis test of parameters for each model. Which is the best model? Comment on its
predictive ability. Explain what the model means from an economic perspective.
6.
Would a multivariate model improve the predictive ability? If so, state the cost equation for the
best model.
7.
Examine your results and make two recommendations for improving the efficiency of the
purchasing operations. Be specific. Estimate the potential cost savings for your recommendations.
8.
Can you think of other considerations that should be included in the analysis and
recommendations?
Table 1: CWWR Purchasing Department Costs and Cost Drivers
Purchasing
Dept. Cost (US$)
Merchandise
Purchased (US$)
Number of
Purchase Orders
Number of
Suppliers
Sheridan
$575,000
$47,239,000
1,708
61
Denver
1,226,000
102,364,000
2,519
95
Salt Lake City
1,710,000
100,162,000
2,506
139
881,000
95,760,000
1,719
91
1,544,000
51,466,000
2,883
155
794,000
50,631,000
647
75
1,341,000
84,753,000
2,978
103
794,000
103,464,000
3,761
117
Las Vegas
2,216,000
96,162,000
2,584
73
Albuquerque
2,030,000
62,364,000
5,497
176
Tucson
1,338,000
65,635,000
4,347
130
856,000
88,524,000
2,878
62
Store Location
Kansas City
Omaha
Milwaukee
Minneapolis
Phoenix
Houston
Oklahoma City
1,122,000
72,645,000
819
129
Tulsa
863,000
61,638,000
1,247
145
Dallas
1,085,000
105,666,000
2,162
141
952,000
59,437,000
2,822
105
Austin
1,134,000
38,542,000
5,115
51
El Paso
1,042,000
33,020,000
382
131
Nashville
1,634,000
36,322,000
5,293
172
Memphis
699,000
34,121,000
967
34
Indianapolis
875,000
31,920,000
2,425
48
San Antonio
Store Locaton
Sheridan, WY
Denver
Salt Lake City
Kansas City
Omaha
Milwaukee
Minneapolis
Phoenix
Las Vegas
Albuquerque
Tucson
Houston
Oklahoma City
Tulsa
Dallas
San Antonio
Austin
El Paso
Nashville
Memphis
Indianapolis
Purchasing
Merchandise
Dept. Cost ($) Purchased ($)
575,000
47,239,000
1,226,000
102,364,000
1,710,000
100,162,000
881,000
95,760,000
1,544,000
51,466,000
794,000
50,631,000
1,341,000
84,753,000
794,000
103,464,000
2,216,000
96,162,000
2,030,000
62,364,000
1,338,000
65,635,000
856,000
88,524,000
1,122,000
72,645,000
863,000
61,638,000
1,085,000
105,666,000
952,000
59,437,000
1,134,000
38,542,000
1,042,000
33,020,000
1,634,000
36,322,000
699,000
34,121,000
875,000
31,920,000
# of Purchase
Orders
1708
2519
206
1719
2883
647
2978
3761
2584
5497
4347
2878
819
1247
2162
2822
5115
382
5293
967
2425
# of
Suppliers
61
95
139
91
155
75
103
117
73
176
130
62
129
145
141
105
51
131
172
34
48

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