Stcentury Liquors Questions Assume That You Are Janice Wilto

21stcentury Liquors Questionsassume That You Are Janice Wilton And Yo

Assume that you are Janice Wilton and you have been asked to elaborate on the memo in Exhibit 1 to address the issues raised by Ted Radcliff in both of his conversations with you. Use the report form from the course website and please be certain to address all of the following issues: Q. 1. What conditions would justify the assumption of a constant contribution margin per customer ? Do you think those conditions are likely to hold here? To support your conclusions, do a scatter plot of the sample data, and then use the sample data to run a regression of purchase costs (dependent variable) on purchase revenues (independent variable). [Hint: What is the meaning of the intercept term of your regression results?] (See attachment which contain solution for this question.) Q. 2. Is there good reason to believe that evening customers purchase, on average, more than day customers? Support your answer by performing a statistical test on the difference between the mean day purchase and the mean evening purchase. (See attachment which contain solution for this question.) Only answer 3( you need answers to 1 & 2 to answer 3) Need this in a report form and also in a PowerPoint. Pls read the case text very carefully. Q. 3. Is Janice using marginal cost and marginal revenue correctly in her analysis? Explain the errors in her analysis, if any. [Hint: Think about Ted Radcliff’s questions.]

Paper For Above instruction

Introduction

This analytical report addresses critical questions regarding the cost and revenue analysis conducted by Janice Wilton concerning 21st Century Liquors. The core focus revolves around assessing the validity of assumptions, examining customer purchase behavior, and evaluating the appropriateness of marginal cost and revenue calculations. By dissecting these issues, the report aims to provide insights that could optimize decision-making for the business.

1. Conditions Justifying a Constant Contribution Margin Per Customer

The assumption of a constant contribution margin per customer simplifies financial analysis by presuming each customer contributes equally to profits regardless of their purchase size or timing. Conditions that justify this assumption include uniformity in customer purchasing behavior, consistent pricing strategies, and stable variable costs per sale. If customer transactions vary widely in size or if variable costs fluctuate significantly, the assumption becomes less tenable. For 21st Century Liquors, to evaluate whether these conditions hold, a scatter plot of purchase costs against revenues can visually reveal the relationship's nature. A linear pattern suggests constancy, whereas scatter indicates variability.

Regression analysis offers a quantitative method to test this assumption. By regressing purchase costs (dependent variable) on purchase revenues (independent variable), the resulting regression line's slope estimates the per-dollar contribution margin, while the intercept indicates fixed costs or baseline expenses associated with each transaction. If the intercept is close to zero and the data points align linearly, the assumption of a constant contribution margin may be justified.

However, if the intercept is significantly different from zero or the data exhibits heteroscedasticity, the contribution margin likely varies across customers. In the case of 21st Century Liquors, the analysis should reveal whether these conditions hold by examining the scatter plot and the regression output.

2. Comparing Purchase Behavior of Evening and Day Customers

To determine if evening customers purchase, on average, more than day customers, a statistical hypothesis test—specifically a t-test—can be conducted comparing the means of the two groups. The null hypothesis assumes no difference in average purchase amounts, while the alternative posits that evening customers purchase more.

Using the sample data, the test involves calculating the mean, standard deviation, and sample size for each group, then computing the t-statistic to assess whether the observed difference is statistically significant. A p-value below a chosen significance level (e.g., 0.05) would lead to rejecting the null hypothesis, supporting the claim that evening customers generally spend more.

This analysis helps in tailoring marketing and staffing strategies by understanding when customers generate higher revenue, thus informing resource allocation and promotional efforts.

3. Evaluation of Janice’s Use of Marginal Cost and Marginal Revenue

Janice’s application of marginal cost and marginal revenue in her analysis must be scrutinized in light of Ted Radcliff’s questions, which likely challenge the accuracy or relevance of her calculations. Proper use of marginal analysis requires correctly identifying the incremental cost and revenue generated by one additional unit or customer. If Janice misinterprets fixed costs as variable or fails to consider behavioral responses of customers, her conclusions may be flawed.

Errors in her analysis could stem from assuming a linear relationship where none exists, or from neglecting how fixed costs influence the marginal analysis. For example, if she includes fixed costs in marginal cost calculations, her assessment of profitability per additional customer will be distorted. Additionally, if she does not correctly differentiate between average and marginal figures, her revenue and cost estimates may be inaccurate.

Therefore, her analysis might erroneously suggest profitability where none exists or overlook profitable opportunities because of improper cost assumptions. Correcting these issues involves precise identification of variable costs, proper application of marginal concepts, and understanding the behavioral implications of pricing and staffing decisions.

Conclusion

This report underscores the importance of rigorous analysis when evaluating contribution margins, customer purchase behavior, and marginal cost and revenue application. Establishing the conditions for a constant contribution margin clarifies the limits of simplifying assumptions. Statistical testing provides insights into customer segment behavior, and accurate marginal analysis ensures robust financial decision-making. Implementing these considerations can significantly enhance the strategic planning and operational efficiency of 21st Century Liquors.

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