a. Using EXCEL, estimate the simple regression equation for (i) Dollar Value of Merchandise Purchased, (ii) Number of Purchase Orders and (iii) Number of Suppliers.

b. From your results above, determine which is the most appropriate cost driver and explain your answer by referencing the appropriate statistical outputs.

Water Pursuits operates a chain of 10 retail surf and water sport apparel stores in Western Australia. Each store makes its own purchasing decisions. Vijay Krishnan, Chief Operating Officer of Water Pursuits, is interested in better understanding the drivers of the Purchasing Departments costs. For many years, the Purchasing Departments' costs have been allocated to products on the basis of the dollar value of merchandise purchased. Vijay recently attended a training seminar conducted by Retail Traders Association of WA and CPA Australia, titled "Cost Drivers in the Retail Industry". In a presentation at the seminar, Top Hat Clothiers, a high fashion retailer that has implemented activity-based costing, reported number of purchase orders and number of suppliers to be the two most important cost drivers of Purchasing Department costs. The dollar value of merchandise purchased in each purchase order was not found to be a significant cost driver. Enthralled, Vijay interviewed several members of the Purchasing Department at the Water Pursuits store in Fremantle. They believed that Top Hat's conclusions also applied to their Purchasing Department. Vijay collected the following data for the most recent year for Water Pursuits' 10 retail stores: Department Store Albany Margaret River Mandurah Fremantle Esperance Broome Mindarie Jurien Bay Geraldton Exmouth Purchasing Department Costs $ 1,523,000 $ 1,100,000 $ 547,000 $ 2,049,000 $ 1,056,000 $ 529,000 $ 1,538,000 $ 1,754,000 $ 1,612,000 $ 1,257,000 A A A A A A A A Dollar Value of merchandise purchased $ 298,315,000 $ 173,456,000 81,160,000 219,566,000 163,505,000 129,854,000 $ 352,875,000 $ 238,674,000 239,312,000 180,944,000 Number of purchase orders 4,457 4,550 2,333 5,944 4,196 2,127 5,286 4,081 4,707 4,331 Number of suppliers 132 122 68 255 113 65 104 195 144 133