1. Assuming the same gross profit rate $10.6% and target profit $1,300 per vehicle as in “A Note on Trading In Motor Vehicle” (page 29), calculate the maximum trade-in allowance in Mr. Bogards initial negotiations with the customer.
2. Evaluate the way the service department charges for the internal work. Service department (represented by Mr. Berry and Mr. Rounds) is frustrated with the current interdepartmental pricing system. What suggestions would you make to improve the situation for Berlin Toyota as a whole?
3. Comment on the allocation of general overhead ($269,559 in Exhibit 3) to the four sections (that is, Customer Pays, Internal, Warranty Work, Extended Work) of the service department. What measure should be used to evaluate profitability of the four sections?
4. What suggestions would you make to reduce the conflict between the new car sales department and the used car sales department?
5. Evaluate the current “profit center” system employed by Berlin Toyota. Given the conflicts among profit centers as illustrated in the case, what suggestions would you make to improve?
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