Delaney Motors Case
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 body shop. If his prices are low but he is retaining his profit margin I would keep it low but if he needs a price increase to stay in line with competitors in the way of profit margin I think he should raise the prices of his service. He doesn't want to get rid or lease that portion of his business so I don't think he should. He will be able to further service his customers if he keeps the body shop but finds a way to make it more profitable by either raising prices or doing a more accurate analysis of costs so he could see where to cut costs.
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