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| Topic: |
Business
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| Number of pages / Number of words: |
7 / 1739 |
Essay's paper body
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 to the used-car department? Why?
Wholesale after reconditioning 7,100
Market price of repairs -2,000
Trade-in value of unrepaired 5,100
Why 5,100 as the transfer price?
? Fiedler's feedback (used car manager) after examining the car together with Moyer (new car manager) and the customer...
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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?
Transfer Price = Outlay Costs + Opportunity Costs
= (Cost of repairs + Cost of axle replacement) + OpC
= 1594 + 406
Transfer Price = 2000
c. Given your responses to a and b, what will be each department's incremental gross profit on this deal?
Wholesale after reconditioning 7,100
Market price of repairs -2,000
Trade-in value of unrepaired 5,100
NEW USED SERVICE
List price of new car 14,400
Allowance for the used car -6,500
Cost of new car -12,240
Trade-in value of unrepaired 5,100 -5,100
Revenue from sale of used car 7,100
Transfer price of repairs -2,000 2,000
Cost to repair used car 0 -1,594
Net contribution to dealership 760 0 406
Shown above are the net contribution of each department regarding the sale that was made...
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