Delaney Case Analysis

Case Title:         DELANEY MOTORS

1. OBJECTIVE

• To help Mr. Delaney decide whether he will continue the operation of the body shop or consider the recommendation of consultant to sell or have it lease.
• To help guide Ms. Delaney on proper and accurate accounting system.

1. POINT OF  VIEW

Consultant Point of View

        After the consultant took Mr. Delaney’s data for the most recent years, the consultant pointed out that the accounting system is not properly arranged and that cost allocation are a bit rough causing the expenses for each department to be under and over stated, so then concluded that the body shop was even less profitable than Mr. Delaney had thought.

He advised Mr. Delaney to consider selling or leasing the space of body shop to another party, increasing prices or if the body shop demand was thought to be elastic, lowering prices.

        The owner may decide to sell the space or have it leased so as to have a fixed income every month since the body shop only earns an amount lower than what could it probably cost in the market when it is offered for leasing.

        The owner may also decide to increase the prices on his body shop so he can have his profit increased. And given the fact that they give a good quality, they have the right to increase the price. Or the owner can lower the price so as to attract more customers, increase sales and pull the income up.

Owner’s Point of View

Ms. Delaney decided to get a consultant because he wants to identify why the body shop earning seems to be low.        The consultant had unfavourable findings regarding the sales and profit of Body shop, thus advised him to either sell or  have the space leased.

Mr. Delaney considered the recommendation of consultant but he was by no means sure that profitability should be the major consideration. He felt that the dealership had an obligation to provide high quality body shop work to its customers, and that a lease might provide below standard service.  He was not sure that prices could be raised. Mr. Delaney considers more of valuing his customer. He wants to be more of an all-in-one automobile.

1. PROBLEMS

• Difficulty in decision making because no proper accounting system in allocating of cost was made on different department throughout the dealership. Specifically the following areas:

• Owner and employees salary
• Semi variable cost
• Fixed cost

1. AREAS OF CONSIDERATION

Strength

• Customer Oriented
• Company provides quality products and services with a lower price
• They aim to give easy access to customer
• Offers various services and products

Weaknesses

• No proper accounting process
• Cash flow problems
• Social Media

Opportunity

• Increasing number of car owners
• Trend of market in the industry

Threat

• Competitors in the same industry
• Rapid change of technology
• Car insurances coverage
• New Preferences of target market

1. ALTERNATIVE COURSES OF ACTION AND ANALYSIS

• Base on the findings of the consultant in the analysis of the body shop’s profitability, Mr. Delaney would not accept or consider the consultant’s recommendation. If the company would continue the operation to provide quality services and products or develop it more, Mr Delaney could maintain old customers and even attract new customers. But he should increase his price base on the market to stay competitive. Increasing price is just part of the game.

• If Mr. Delaney would accept the consultant’s advice to sell or lease the body shop, still he is not sure that the company can be more profitable. Mr. Delaney thinks that profitability is the major consideration of consultat. He felt that dealership had an obligation to provide high quality body shop work to its customer, and that a lease might provide below standard service. And besides, selling one department would not significantly reduce company expense.

1. CONCLUSION

Mr. Frank has done a lot of work in his body shop. His administration should be a part of the cost but the percentage of it cannot just simply depend on the percentage of the body shop employees as percentage of the total. The cost of the telephone and telegraph should not be allocated by the number of workers. He should consider the different departments that uses in different proportion and contribution of the sales. The consultant should analyse the cost associated with them with their contribution of the revenue of the body shop. The cost accounting system should be changed to more accurately reflect each department used of the dealership resources.