TABLE OF CONTENTS
Review of Facts2-3
This case is about how a company should allocate costs. Mr. Delaney is the owner of an automobile dealership that is profitable but not profitable in the area of the body shop department.. The predicament that he faces is that he needs to figure out how to allocate the costs among his different profit centers. One of the things that Mr. Delaney did in trying to assist himself was to hire a consultant. The consultant was one that is very competent in analyzing the issues of cost, both fixed, variable and semivariable. He then tried to relate his knowledge to help Mr. Delaney in his dilemma. Mr. Delaney decided that he wants to provide a high quality product to his customers. He wanted the consultant to further assist him in his analysis by finding out more about his competitors and the prices they charged.
The consultant made suggestions that included leasing the body shop to another party, liquidating it, and increasing prices but Mr. Delaney decided that profit is not his main focus at this time.
REVIEW OF FACTS
This case is about an auto dealership owned by Frank Delaney. This auto dealership included all the operations and "profit centers" of a normal GM dealership. They sold new and used cars, had a parts and service department, and was also involved in rental and leased vehicles.
Mr. Delaney hired a consultant who would help him analyze all his different costs associated with the struggling body division of the dealership. The consultant did many reports about the fixed, variable, and semivariable costs. In semivariable costs, what he did was make the adjustment for the amount of employees working at the body shop to the number working...