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North Country Auto, Inc.

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by

LINNEA KARLSSON

on 5 February 2015

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Transcript of North Country Auto, Inc.

North Country Auto, Inc.
North Country Auto, Inc.
Ford, Saab and Volkswagen
Five departments
- New cars
- Used cars
- Service
- Parts
- Body shop
Recently changed the departments into independent profit centres

Is the change to profit centres
for all departments really the best option?
Challenges
To set an optimal transfer-pricing system

To overcome the frictions between the departments

Not to focus only on the profit for a specific
department, but on the company as a whole

Case 8.4 Group 22
Is the company structure optimal?
A system that:
Avoid frictions
Is efficient
Is an optimal solution

Currently the system creates frictions and dissatisfaction
Continue as it is or restructure?
Suggestion
1. Merge the two car sales departments
Sharing salespersons, office managers & clerks
Similar main businesses
Reduce conflicts & frictions

2. Merge service and parts departments
Depending on each other
More efficient operations
Same goals - service with higher quality

3. Keep the body as independent
External sales
Different market segment & customers
The new structure
Bonus scheme to create incentives for the managers

Provide motivators for the managers to work united

Full cost profit

Conclusion
Three departments instead of five
Profit centres
Transfer-pricing system of full cost
Reduce frictions between the departments
Solve the question about responsibilities regarding loss of profit

Transfer Pricing System
Provide information about
optimum trade-off

Stimulate goal-congruence decisions

Measure economic performance

Simple & easy
Our suggestion
Full cost pricing
- Fixed & Variable costs
- Long-run costs
- Full cost recovery
Why?
- Split indirect costs
- Better for the whole company
- Increase cooperation

Cross-functional management

Table of content
Introduction

Challenges

Suggestion for structure

Transfer Pricing System

Conclusion
Transfer Pricing System
Internal transfer of good & services

Can impact positively or negatively

Conflicts between the different profit centres is likely to arise
Thank you for your attention!


Questions?
Focus on revenues and costs

Internal & external sales

Decentralization
Profit centres
Full transcript