Berlin Toyota Case Study Solution
- Assuming the same gross profit rate $10.6% and target profit $1300 per vehicles as in A note on trading in motors vehicle, calculate the maximum trade in allowance in Mr board’s initial negotiations with the customer.
Ans. List price = $30000
Gross profit = (3180)
Approximate cost= 26820
Additional profit= 1300
Need to realize= 28120
ACV if trade in =(7200)
Difference = 20920
List = 30000
Maximum Allowance= $9080
- Evaluate the way the service department charges for the internal work. Service department is frustrated with the current interdepartmental pricing system. What suggestions would you make to improve the situation for Berlin Toyota as a whole?
Ans.in current interdepartmental labor cost is charged according to standard price of labor and cost of part price is major problem for them. Customer only calculate the minimum labor price and not charge the exact price of parts of car which is high costly and bear in the pocket of service department. This is not suitable for company. Proper part price must be included in the price o f car dealing because it’s the right of department to charge the labor cost of its labor in the amount of car price. So this thing has to be change and proper all charges must be included in the exact price of car sales because people who work in service department has to bear all the necessary costs which they spent on maintenance of car and its parts to make it condition better.
- Comment on the allocation of general overhead ($269559) to the four sections (that is customer pays, internal, warranty work, extended work) of the service department .what measure should be used to evaluate profitability of the four sections?
Ans.service department charge four different overheads costs in the financial statement of department. Which is customer pays, internal, warranty work, extended work. These four are included in service department but in real customer pays not come under this department because this head must be come in sales department who can get proper amount from the customer after the selling of car. Insurance department has to consider the amount of warranty work because service department only provide service but not surety regarding its warranty and extra charges consider by service department. This cost also include in the price of car. Internal and extended work can come in service department because internal cost is all cost of car repairing and maintenance which dealer or department spend on car to make it in condition to go in the market and become saleable.
- What suggestions would you make to reduce the conflict between the new car sales department and used car sales department?
Ans. The new car sales is responsibility of new car manager and used car sales is responsibility of used manager. These two departments are working in a different manner. In new car, its easy to deal with customer according to its list price and including all sufficient charges according to requirement of manager and including its profit. That amount charge by customer. In used car section, dealer has to maintain the car, spend extra price on its maintenance, has to concern with the remaining life of car. Basically, problem is that people negotiate with both new and used car in the same manner after market observation. They only deal in current rates with out considers all extra charges which has to pay by dealer. So this thing effect the price of both car sales and customer is making too problems in setting the prices of cars.
- Evaluate the current profit center system employed by Berlin Toyota. Given the conflicts among profit center as illustrated in the case what suggestions would you make to improve?
Ans. Current profit center include all the expenses of car in its price which make the car price high also include unrelated charges with the actual cost of car. Basically, according to income statement all incurred charges become part of price but in real, this should not be done like this. Company has to separate all the department and proper specify all those costs which must be included in the cost of price and those excluded which is not necessary part of cost. Because it high the car cost which not attract the customer and dealer cannot earn profit according to their requirement. Although profit is going to increase but not enough to bear all costs in the company and additional charges has to bear by company in its own pocket.