Cost Accounting (14th Edition)

ASSIGNMENT MATERIAL 387
Lee collects the following data for the most recent year for Fashion Bling’s 10 retail department stores:
A
B
C
D
E
1
Department Store
Purchasing
Department
Costs
(PDC)
Dollar Value of
Merchandise
Purchased
(MP$)
Number of
Purchase
Orders
(No. of POs)
Number of
Suppliers
(No. of Ss)
2
Baltimore
$1,522,000
$ 68,307,000
4,345
125
3
Chicago
1,095,000
33,463,000
2,548
230
4
Los Angeles
542,000
121,800,000
1,420
8
5
Miami
2,053,000
119,450,000
5,935
188
6
New York
1,068,000
33,575,000
2,786
21
7
Phoenix
517,000
29,836,000
1,334
29
8
Seattle
1,544,000
102,840,000
7,581
101
9
St. Louis
1,761,000
38,725,000
3,623
127
10
Toronto
1,605,000
139,300,000
1,712
202
11
Vancouver
1,263,000
130,110,000
4,736
196
Lee decides to use simple regression analysis to examine whether one or more of three variables (the last
three columns in the table) are cost drivers of purchasing department costs. Summary results for these
regressions are as follows:
Regression 1: PDC = a + (b * MP$)
Variable Coefficient Standard Error t-Value
Constant $1,041,421 $346,709 3.00
Independent variable 1: MP$ 0.0031 0.0038 0.83
r 2 = 0.08; Durbin-Watson statistic = 2.41
Regression 2: PDC = a (b *
No. of POs)
Variable Coefficient Standard Error t-Value
Constant $ 722,538 $ 265,835 2.72
Independent variable 1: No. of POs $ 159.48 $ 64.84 2.46
r 2 = 0.43; Durbin-Watson statistic = 1.97
Regression 3: PDC = a + (b *
No. of Ss)
Variable Coefficient Standard Error t-Value
Constant $ 828,814 $246,570 3.36
Independent variable 1: No. of Ss $ 3,816 $ 1,698 2.25
r 2 = 0.39; Durbin-Watson statistic = 2.01
1. Compare and evaluate the three simple regression models estimated by Lee. Graph each one. Also,
use the format employed in Exhibit 10-18 (p. 372) to evaluate the information.
2. Do the regression results support the Couture Fabrics’ presentation about the purchasing department’s
cost drivers? Which of these cost drivers would you recommend in designing an ABC system?
3. How might Lee gain additional evidence on drivers of purchasing department costs at each of Fashion
Bling’s stores?
Required