Question # 1 – Suppose the new-car trade is consummated. with the repaired used auto being retailed for $ 7. 100. the fixs bing Shuman $ 1. 594. Assume that all gross revenues forces are on salary ( no committees ) and that general operating expense costs are fixed. What is the franchise incremental gross net income on the entire dealing ( i. e. . new and repaired-used autos sold ) ? Answer |Sales Revenue | | | Gross saless of new auto | $ 14. 400 | | Gross saless of repaired-used auto | $ 7. 100 | | Total | $ 21. 500 | |Cost of Gross saless | | | Cost of new auto | $ 12. 240 | | Trade in value on used auto | $ 6.
500 | | Cost of reconditioning | $ 1. 594 | | Total | $ 20. 334 | |Gross Net income | $ 1. 166 | .
Question # 2 – Assume each section ( new. used. service ) is treated as net income centre. as described in the instance. Besides assume in a-c that it is known with certainty beforehand that the fixs will be $ 1. 594. a. In your sentiment. at what value should this trade-in ( unrepaired ) be transferred from the new-car section to the used-car section? Why? B. In your sentiment. how much should the service section be able to bear down the used-car section for the fixs on this trade-in auto? c.
Given your responses to a and b. what will be each department’s incremental gross net income on this trade?
Answer 2-a: I ) If Paul should take duty that he failed to happen the rear axle cleft. The value of this trade-in should be at least $ 5. 000. which is the figure Paul think he could purchase from used auto auction. If Paul should non take the duty Reconditioning charge from Service section =Cost of fixs * Service Department gross net income mark-up = $ 1594 * ( $ 2. 000/ $ 1. 480 ) = $ 2. 154 Value of Trade-in to used-car section =Wholesales monetary value – Reconditioning charge = $ 6. 100 – 2. 154 = $ 3. 946 Answer 2-b: As computation of reconditioning charge from Service section above Answer 2-a.
The Service section should bear down the fix to used-car section by $ 2. 154 Answer 2-c: I ) Use the accounting regulation which is done by Brunner for internal transportation cost. it comes out the tabular array of “Current Split” below to demo gross net income of Shuman and all three sections ii ) If we let Paul take the duty for bing mistake on used auto assessment. and allow Service section to bear down the internal occupation the same as they would make for external client. The gross net income would be as shown in the tabular array of “suggestion for split” below.
three ) | [ movie ] | | | [ movie ] | | Question # 3 -Is at that place a scheme in this case that would give the franchise more net income than the one assumed above ( i. e. . repairing and retailing this trade-in used auto ) ? Explain. In replying this inquiry. presume the service section operates at capacity. Answer 3: a ) Should hold Service section make a speedy review of the used auto and find the job every bit many as possible. so gross revenues section could hold better place and cognition to negociate at lower used auto allowance.
B ) Assume the service section operate at capacity. the incremental gross net income on the entire dealing should be merely counted by $ 660 ( earned by Moyer ) – $ 54 ( loss by Fiedler ) = $ 606. If Moyer could sell the new card at less than 10 % price reduction ( 8 % is competitory already ) without utilizing used auto allowance. The gross net income for the franchise could be more. ( 10 % price reduction. gross net income = $ 720 still higher than $ 606 ) degree Celsius ) Fiedler could seek if the client is interested to committee his section to sell his card at really minimum charge in add-on to the gross revenues result described above in answer 3-b.
vitamin D ) Bianci could cite $ 2. 154 or above if the client is interested to mend his auto in his section. Question # 4 Do you experience the three-profit-center attack is appropriate for Shuman? If so. explicate why. including an account of how this is better than other specific options. If non. suggest a better option and explicate why it is better than three net income centres and any other options you have considered. Answer 4:
Yes. we think the three-profit-center attack is appropriate for Shuman because all three sections could run concern independently to serve both external and internal clients. However. the internal cost transportation should be reviewed and revised to fit market bench grade. It would assist Shuman Automobiles a ) Both new-car and used-car section could hold more accurate cost base to do the determination for a gross revenues trade. B ) The service section could be motivated to cut down their cost and increase gross.
However. the attack might cut down the degree of cooperation among the section and diminish client benefit of “one halt shopping” in Shuman. In order to turn to this possible issue of conflict involvement among the section. we suggest the other plan could be implemented ( 1 ) The full franchise net income should be besides factor in as portion of manager’s wage. . ( 2 ) Service section should give internal occupation at precedence while they operate at capacity. and offer price reduction charge while they operates over capacity.
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