Responsibility Accounting & Transfer Pricing - Shuman Automobiles, Inc Essay

Responsibility Accounting & Transfer Pricing - Shuman Automobiles, Inc Essay

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Responsibility Accounting & Transfer Pricing - Shuman Automobiles, Inc

Facts of the Case:
1. Clark Shuman, owner and general manager, plans to retire and relinquished his control over the company
2. Business has been doing good with an emphasis of selling new cars as the principal business of the dealership
3. He created three independent departments, namely new car sales, used car sales, and service department.
4. Salary is dependent on each department's gross profit
5. Upon the take over of the managerial positions, Janet Moyer of the new car sales had a first challenge of making a sale through a costumer who wanted to trade his old car with a new car.
6. Moyer had to decide the amount she would offer the costumer for the trade in value of the old car.
7. The new car model has been in stock for some time and the model wasn't selling.
8. The list price of the new car is $14400.
List Price of New Car: $14400
Cost of the New Car: 12240
9. Paul Fiedler, the used car manager, estimated the reconditioning work to cost $840, and the car could be retailed at $7100 or wholesaled at $6100.
10. Blue Book price range of buying this model of car in good condition is from $5500 - $5800. Fiedler estimated he could sell the trade-in car at an auction as is at $5000.
11. If Moyer would sell the car without trade in, she will have to deduct about 8% from the list price, which makes the sales to $13,248.
12. Nate Bianci is charging the used car department for $2,000. Total cost of repair amounted to 1,594 and based on Blue book, charges for this kind of repair ranges from 1,960 – 2,040 and she has always aimed for the middle of the BB range.

Questions:

1. Suppose the new-car deal is consummated, with the repaired...


... middle of paper ...


...me for the learning curve, it may be assumed that the company will become more profitable with each center geared towards generating profits. Adopting a decentralized form of management may work well if each department will still think of the welfare of the other departments in the company. Decentralization should not create division but greater cooperation and teamwork.

Another option that the company can take is by merging the use-car department and the service department, making the latter both a cost center and a profit center. Providing service internally without any charge but will still accept job orders from the outside to cater the maintenance service both for the new car customers and used car buyers. Besides, based on the statement of income of the service department has not been making any profit and even incurred loss of about $8,000.

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