Delaney Motors Case.

1054 Words May 21st, 2003 5 Pages


Executive Summary1

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
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Mr. Delaney would be doing himself a disservice if his prices were not in line with the rest of his competitors. Unless he could retain a profit margin equal to his competitors with lower prices I think he should raise them to industry standard.


The action Mr. Delaney should take should be the one that is most in line with his goals, mission and vision for the company. It seems as if he wants to retain the level of service for the buck he is giving his customers so I think he feels comfortable doing this and that is what he should do. I also think he should increase prices slowly if it is warranted by the industry and at the same time try to reduce the costs associated with the body shop to increase profit margin for that department.


This case brought to light the importance of allocating the costs of a company to the correct departments and the benefits of doing so in the analysis of each department.

The consultant seemed to make a recommendation based upon inaccurate cost allocations and a lack of analysis of the prices of competitors.

What Mr. Delaney should do is to get an accurate system in which he could allocate costs accurately to the proper department. Do the analysis which is needed based on accurate cost allocation and then make his decision after he gets a report on actual prices in the industry for the

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