WAC Shuman
GROUP 5
Raul Q. Dadis Marissa F. Espina
Arvin S. Medina Marebeth G. Valentin
Je-ar B. Sale
WRITTEN ANALYSIS OF THE CASE
Shuman Automobile Inc.
A responsibility center is the point in an organization where the control over revenue or expense is located, e.g. division, department or a single machine
OBJECTIVES:
1. To
PROBLEM:
1. Suppose the new car deal is consummated with the repaired used car being retailed for $7,100, the repairs costing Shuman $1,594. Assume that all sales personnel are on salary (no commission) and that general overhead costs are fixed. What is the dealership incremental gross profit on the total transaction (i.e., new and repaired-used car sold)?
For New-sales
Sales of new car $14,400 less: Cost of a new car sales $12,240
Net new-car gross profit $2,160
For used-car
Sales of used car $7,100 less: Cost of used car $6,500
Service work on $1,594 reconditioning Net used-car gross profit $(994)
Dealership gross profit $1,166
2. Assume each department (new, used, service) is treated as a profit center, as described in the case. Also assume in a-c that it is known with certainty beforehand that the repairs will cost $1,594.
a. In your opinion, at what value should this trade-in (unrepaired) be transferred from the new-car department be able to charge the used-car? Why?
Answer: Based on Fiedler’s evaluation the amount of used car (unrepaired) is $5,000. This is also the amount of used-car in auction.
b. In your opinion, how much should the service department be able to charge the used-car department for the repairs on this trade-in car? Why?
Answer: Based on the average charge per invoice, the amount for service is $2,042.
c. Given your responses to a and b, what will be each department’s incremental gross profit on this deal?
Answer: Table of Incremental gross profit of each department
3. Is there a strategy in this instance that would give the dealership more profit than the one assumed above
Raul Q. Dadis Marissa F. Espina
Arvin S. Medina Marebeth G. Valentin
Je-ar B. Sale
WRITTEN ANALYSIS OF THE CASE
Shuman Automobile Inc.
A responsibility center is the point in an organization where the control over revenue or expense is located, e.g. division, department or a single machine
OBJECTIVES:
1. To
PROBLEM:
1. Suppose the new car deal is consummated with the repaired used car being retailed for $7,100, the repairs costing Shuman $1,594. Assume that all sales personnel are on salary (no commission) and that general overhead costs are fixed. What is the dealership incremental gross profit on the total transaction (i.e., new and repaired-used car sold)?
For New-sales
Sales of new car $14,400 less: Cost of a new car sales $12,240
Net new-car gross profit $2,160
For used-car
Sales of used car $7,100 less: Cost of used car $6,500
Service work on $1,594 reconditioning Net used-car gross profit $(994)
Dealership gross profit $1,166
2. Assume each department (new, used, service) is treated as a profit center, as described in the case. Also assume in a-c that it is known with certainty beforehand that the repairs will cost $1,594.
a. In your opinion, at what value should this trade-in (unrepaired) be transferred from the new-car department be able to charge the used-car? Why?
Answer: Based on Fiedler’s evaluation the amount of used car (unrepaired) is $5,000. This is also the amount of used-car in auction.
b. In your opinion, how much should the service department be able to charge the used-car department for the repairs on this trade-in car? Why?
Answer: Based on the average charge per invoice, the amount for service is $2,042.
c. Given your responses to a and b, what will be each department’s incremental gross profit on this deal?
Answer: Table of Incremental gross profit of each department
3. Is there a strategy in this instance that would give the dealership more profit than the one assumed above