Frank Delaney owned and operated Delaney Motors, a General Motors automobile dealership in Ohio. Its operations consisted of new-car sales, used-car sales, parts sales, vehicle lease and rentals, vehicle service, and automobile body repairing and repainting. The dealership was profitable, earning almost 5 percent on sales, but the reported profit on the body shop operation seemed low to Mr. Delaney. Consequently, he engaged a consultant to study the body shop operation and make recommendations.

Questions
1. Comment on the consultant's adjustments made in Exhibit 1. Do you agree with each of them? If not, can you suggest better methods of making the adjustments for the stated purpose?
2. Assuming Mr. Delaney decides to keep the body shop, and the consultant reports that it is feasible to raise prices, should Mr. Delaney do so? If he does, what general guide can you suggest as to how much prices should be increased?
3. What action should Mr. Delaney take?

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EXHIBIT 1 Analysis of Body Shop Profitability ne 1 Sales: body shop 2 Gross profit: body shop 5306,652 91,107 3 Cross profit percentage (line 2 ÷ line 1) 29,7% Analysis of Semivariable Costs 4 Legal and auditing (body shop) 5 Owner's salary (body shop) 6 Telephone and telegraph (oody shop) 7 Total body shop semivariable costs 8 Legal and auditing (company) 9 Owners salary (company 10 Telephone and telegraph (company) 11 Total company semivariable costs 12 Body shop percentage (line 7-line 13) 13 Body shop employees as percent of total (5/23) 14 Revised body shop semivariable costs (ine 11 line 13) 15 increase in body shop semivariable costs (line 14-line 7) 839 839 23,600 21,676 45,389 18596 21.7% 9,867 9,028 Analysis of Fixed Costs 16 Body shop fixed costs, as now allocated 17 Total company fixed costs 18 Body shop percentage (line 16 line 17) 19 Revised body shop fixed costs (20% of line 17) 20 Decrease in body shop fixed costs (line 19-line 16) 6,106 28,815 21.1996 5,763 (343) Summary of Findings 21 Net increase in costs (line 15-line 20). 22 Unrevised body shop profit 23 Revised body shop profit (line 22 line 21) 24 Unrevised profit to sales (line 22 line 1) 25 Revised profit to sales (line 23 line 1) 8,685 9,009 24) 2.94% 190 Other Dealers No. 9 No. 6 No. 3 I Sales, body shop $363,662 $505,025 $681 201 3 Gross profit percent 14 Body shop, semivariable 19 Body shop, foxed 22 Body shop profit, unrevised 23 Body shop profit (loss) 24 Unrevised percent profit to sales 25 Revised percent profit to sales 32.9% 9,547 30.0% 13,913 11,134 12,76726,338 36.650 4.453 1.22% (2.25)% 18,177 12,233 56,401 (8,190) 19,386 5.2296 3.84% 8.28% 5.38%