50.1K

Verified Solution

Link Copied!

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:

Answer & Explanation Solved by verified expert

See Answer