Lipman Study Paper

By simply Kate Pedroso

Case 17-1: Delaney Motors

Understanding of the truth

In order for Frank Delaney, owner and agent of Delaney Motors, to accurately determine the profitability from the body shop's operations, an exact assessment of his product sales and costs has to be performed. As it stands, Delaney's current system of deciding semi varying and fixed costs can still always be improved to raised depict the two body shop's own costs as well as it is share in the entire company's costs. Finding a consultant to examine how this can be done is a step in the proper direction. Among the list of consultant's alterations that I accept include the inclusion of a correctly allocated cheaper cost of the owner's income to the body shop's price. I also agree with the consultant's advice that a similarly recomputed cheaper cost of the company's legal and auditing providers be taken into consideration as well in computing your body shop's total costs. At the same time, the re-allocation of the physique shop's set costs as a percentage of the body shop's current fixed costs towards the company's whole fixed costs is also a sound suggestion. Questions pertaining to the case

1 . Why should the charge for " telephone and telegraph” intended for the body shop be recomputed based on the whole company's cell phone and telegraph costs if the exact expense of the body shop's cost for the item can be determined anyway ($839)? 2 . Just how was the twenty percent (as noticed in Line 19) derived?

3. Is it correct to use the employee percentage (21. 7) in allocating the semivariable cost? 4. Are the set costs not really identifiable to each segment?

Advice

-Granted the body shop's low profitability, Mister Delaney should consider leasing it, but maybe it could be completed while maintaining some considerable " monitoring power” to make certain quality (e. g. He could remain on as a consultant of the fresh management)

-Should he choose to keep the body shop, Mister Delaney should know what other dealerships' body retailers are doing and how much they will...

Cost Management Strategy Dissertation