North Country Auto, Inc

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NORTH COUNTRY AUTO, Inc. Case Background Each of the departments of North Country Auto, Inc. namely, the new cars sales and used cars sales, service, parts, body shop and oil change “operated as part of one business” before George Liddy bought into the dealership. The Department Managers were paid salaries and a year-end bonus. However, feeling that this system would not motivate employees, he devised a system wherein he could track effectively the departmental performance. For this, he developed a system for so that each department will be treated as decentralized profit centers. This new system requires that cost be broken down per department. Also, the bonuses per each department head will be based on departmental gross profits.…show more content…
A better system should be established such that managers of the two departments are given incentives based not on the gross profits of their respective departments but on the profits of the company as a whole. This would help ensure that conflicts of the two departments will be lessened and that the two departments will no longer compete but will work together to enrich the value of the firm. In order to be more profitable, the firm could use blue book values for the trade-in value and use that as the cost to the used car division. However, if it is better for the firm to provide added incentive to customers to trade in their cars, the firm could allow for higher trade-in values but responsibility for those added costs should reside in the new sales division. Regarding the issue of costs, whether it should be at wholesale or retail, it should be considered that North Country is a company offering more on services. The cost of service of making the cars sellable differs minimally from the market price. And these service costs should be added to the cost of used cars in wholesale. The profit on repairs must be akin to competitor’s values as well as to the industry. QUESTION and ANSWERS 1. Using the data in the transaction, compute the profitability of this one transaction to the new, used, parts, and service departments. Assume a sales commission of $250 for this trade-in on a selling price of $5000. (note :

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