Shuman Automobiles Inc
...nt (new, used, service) is treated as a profit center, as described in the case. Also assume that in a-s that it is known with certainty beforehand that the repairs will cost $1,594. a) In your opinion, at what value should the trade in (unrepaired) be transferred from the new car department to the used car department. Why? If you average the Gross profit each unit Sale of new car $14,400 Cost of new car - $12,240 Buy of old car - $6,500 Sale of old car - $5,000 + Gross Profit $660 The new car department can sell the car at the auction and get $5,000 for it. This is the price the used car department should be willing to pay for this car. They will do that if they belief that that repairing and selling it in the retail market gives them a profit. b) How should the service department be able to charge the used-car department for the repairs on this trade-in car? The service department should negotiate with the used car department what they can charge. The reason for this is that if the service department works for cost price, there is no incentive to do this work. They would rather use their time repairing the cars on external customers. If they charge external tariffs there is almost no incentive for the Used-car department to buy the car form the new car department. So based on the amount of work the service department has, and how much the Used-car department wants to sell the car they should determine the price. A result of this negotiation could be that the company as a whole is not better of. II. What value should be placed upon the used cars for the purpose of measuring the performance of the various divisions within this company? The new car department can sell the car at the auction and get $5,000 for it. This is the price the used car department should be willing to pay for this car. They will do that if they belief that that repairing and sel...