1. statistical analysis of the costs provided.

a. Plot the purchase department cost vs. each cost

driver (include these at the end of the memo as an

attachment, one graph per page).

b. Analyze the data for potential problems, correct data

problems if necessary, and report any changes made.

c. Use regression analysis to develop cost models for all

potential cost drivers.

d. Identify the best model, and explain why.

e. Explain what the model means from an economic

perspective.

2. Use the model to make two recommendations to the

CWWR management team for improving the efficiency of

purchasing operations.

a. Be specific with details of the recommendations.

b. Estimate the cost savings from the implementation of

your recommendations.

c. Consider secondary implications, quantitative and/or

qualitative.

d. Indicate how these changes (recommendations) should

be implemented.

DISCUSSION QUESTIONS

At the next team meeting, the agenda will cover the contents

of your memo as well as the following discussion items.

Please be prepared to discuss them.

1. What cost drivers are useful for predicting purchasing

department costs? What is the recommended model?

What does it mean? How can this model be used to

reduce costs?

2. Does CWWR use a centralized or decentralized

purchasing strategy? Why would the company use this

strategy? Under what circumstances would a centralized

strategy be more valuable? Under what circumstances

would a decentralized strategy be more valuable?

3. You developed recommendations, which essentially are

changes to human behavior. Is change in an organization

easy? How can human behaviors be changed in a

management setting?