line # Analysis of Body shop Profitability Values

1 Sales 306652COGS 215545

2 Gross Profit 911073 Gross Profit percentage 29.71%

Analysis of Semivariable costs

For Body Shop Alone4 Legal and Auditing 05 Owner's salary (body shop) 06 Telephone & Telegraph (body shop) 8397 Total Body Shop Semi Variable costs 839

For the company8 Legal and auditing (company) 21139 Owner's salary(Company) 21600

10 Telephone & Telegraph (company) 2167611 Total Company Semi Variable costs 45389

Revising the Costs - (1) Semi variable Costs (2) Fixed Costs

12 Total body shop % of Semivariable Costs - OLDER 1.85%13 Body Shop Employees as % of total - NEWER 21.74%14 Revised Body Shop Semivariable Costs 9867.1739130415 Increase in Body shop Semi-variable costs 9028.17391304

16 Body Shop Fixed costs, AS NOW ALLOCATED 610617 Total Company Fixed Costs 2881518 Body Shop % of fixed costs 21.19%19 Revised Body Shop Foxed Costs (20% of Total Company Cos 576320 Decrease in Body Shop Fixed costs (343.00)

Summary of Findings

Revising Semivariable Costs using Body Shop Employees ratio

Analysis of Fixed Costs

21 Net Increase in Costs 8685.17 22 Unrevised Body Shop Profit 900923 Revised Body Shop profit 323.83 24 Unrevised Profit to Sales 2.94%25 Revised Profit to sales 0.11%

Body Shop Employees as % used as Measure of Semivariable costsTotal Employees 23Body Shop Employ 5

Revised Body Shop Costs : 20% of total costs

which is = sum of increase/decrease in Semi variable costs and Fixed costs

which is Unrevised body shop profit / Body Shop Saleswhich is Revised body Shop profit / Sales

which factors in Net Increase in Costs in Unrevised body Shop profit

Adjustments

Adjustments in Semivariable Costs & Fixed costsConsultants#1 In revised calc. Body Shop Employee ratio considered as a factor

Semivariable costs incurred

#2 20 % of Fixed costs - Assigned to body shop - AssumedFixed costs Incurred

SUGGESION

Components of Semi-variable Costs#1 Legal and auditing - to be Apportioned To all depts as every dept benefits

#2 Owner's Salary - apportioned according to the Gross profit % by Body Shop

#3 Telephone and Telegraph Cost - Allocated on usage basis

Total Semi Variable costsIncrease in Semi variable Costs relative to Unrevised value

Components of Fixed Costs

SUGGESIONS : Suggestion 1 : Allocate based on M/C, Equipt. in deptSuggestion 2 : Allocate based on a weight attached to

Square footage based allocation ratioSuggestion 3 : Allocate Fixed Costs based on the

Average of Industry StandardsSuggestion #3 was acceptable Suggestion #3 already has data needed in the Exhibit

#1 Industry Average of Fixed Costs#2 Delaney's New Fixed costs#3 Increase in Body Shop Fixed costs ( excess of 6106[old unrevisedvalue])

Net Increase in COSTS = Increase in Fixed Costs + Increase in Semi Variable Costs

Unrevised Body Shop Profit (given)

Consultant : Assumes 20 % as fixed costs contibution of Body Shop

Revised Body Shop Profit = (is IN FACT A LOSS !!)

Revised LOSS to Sales

Unrevised Revised1.85% 21.74%

839.6965 9867.17391304348

21.19% 20.00%6105.8985 5763

Revised - consultant Our Suggestion

459.3 459.3 _ Ratio of No of employees is taken as the factor

4695.7 6415.2 _ Allocated depending on the Profitability of the department

4712.2 839 _ Allocated on usage basis

9867.2 7713.59028.2 6874.5

12044.712044.7

Increase in Body Shop Fixed costs ( excess of 6106[old unrevisedvalue]) 5938.7

Net Increase in COSTS = Increase in Fixed Costs + Increase in Semi Variable Costs 12813.2

9009

Assumes 20 % as fixed costs contibution of Body Shop

(3804.2)

-1.24%

_ Ratio of No of employees is taken as the factor

_ Allocated depending on the Profitability of the department

Line # Other DealersDealer #9 Dealer #6 Delaer #3

1 Sales, Body Shop 363662 505025 6812013 Gross Profit Percent 32.90% 30.00% 30.60%2 Gross Profit 119644.80 151507.5 208447.506

14 Body Shop , Semi variable 9547 13913 1817719 Body Shop, Fixed 12767 11134 12233## Body Shop ,Total Costs 22314 25047 30410

22 Body Shop Profit, Unrevised 4453 26338 5640123 Body Shop profit ( loss), revised (8190.00) 19386 3665024 Unrevised % Profit to Sales 1.22% 5.22% 8.28%25 Revised % profit to Sales -2.25% 3.84% 5.38%

Revision is always resulting in Approx 3% reduction in Profit to Sales Ratio

Delaney Body Shop Our Suggestion306652 30665229.71% 29.71%

91106.3092 91106.3092

9867 7713.555763 12044.67

15630 19758.21

9009 9009324 (3804.21)

2.94% 2.94%0.11% -1.24%

Revision is always resulting in Approx 3% reduction in Profit to Sales Ratio

Price Change Reqd in Our Method

Indutsry Average Profitability = 2.32%

Current Profitability = -1.24%

Assumed - Profitability of 29.7 % assumed constant for Body Shop

With this reqd increase in profitability the profit has to increase

Sales 510000COGS 358530Gross Profit 151470Other expenses 142461 calc as Gross profit - Unrevised Net profitIncrease in Costs 12813.214493 After considering our suggestion

Net Profit -3804.2144928

Net Profit / Sales = profitability Desired -0.75%

Required Increase in Prices = New Sales - Old Sales

Old Sales

= 66.31% NOT FEASIBLE

We observe from Data Table that

At NO sales value level there is Profitability in the positive

for Body shop with the Team's Suggested Cost method

Hence, We recommend that Delaney Should sell their Unit

And Concentrate on their Other Departments

calc as Gross profit - Unrevised Net profitAfter considering our suggestion

Data Table-0.75% At the current Net Profit level

290000300000310000330000350000370000390000410000430000450000470000490000510000530000900000570000590000610000

10000000100000000

0 #DIV/0!

0