Identification of Problem

Using the data in the transaction, compute the profitability of this one transaction to
the new, used, parts, and service departments. Assume a sales commision of $250, for
the trade-in on a selling price of $5,000. (Note: Use the following allocations [new,
$835; used, $665; parts, $32; service, $114] for overhead expenses while computing
the profitability of this one transaction. Those overhead allocations are also shown as

Note 13 in Exhibit 3.)

How should the transfer-pricing system operate for each department (market price,

full retail, full cost, variable cost)?

If it were found one week later that trade-in could be wholesaled for only $3,000,

which manager should take the loss?

North Country incurred a year-to-date loss of about $59,000 before allocation of fxed
costs on the wholesaling of used cars (see Note 2 in Exhibit 3). Wholesaling of used
cars is theoretically supposed to be a break-even operation. Where do you think the

problem lies?
Should profit centers be evaluated on gross profit or fill cost profit?
What advice do you have for the owners?

Problem Analysis
Using the data in the transaction, compute the profitability of this one transaction to the new,
used, parts, and service departments. Assume a sales commision of $250, for the trade-in on
a selling price of $5,000. (Note: Use the following allocations [new, $835; used, $665; parts,
$32; service, $114] for overhead expenses while computing the profitability of this one
transaction. Those overhead allocations are also shown as Note 13 in Exhibit 3.)

Jadi, total profitabilitas dari satu transaksi adalah sebesar:

$1,895 + ($1,170) + $147 + $35 = $907
How should the transfer-pricing system operate for each department (market price, full
retail, full cost, variable cost)?
Dengan full retail price, namun pada saat yang sama retail transfer price tidak selalu harus
digunakan untuk used car sales manager. Hal ini dilakukan untuk menghindari kemungkinan
kerugian yang terjadi di departemen tersebut dengan wholesaling trade mobil bekas (used
car) yang dapat dijual kembali. Lebih lanjut, sebaiknya maximizing profit di suatu
departemen tidak memiliki pengaruh negatif untuk departemen lainnya.