Rust Belt Mufflers

Topics: Cost, Simon says, Costs Pages: 3 (593 words) Published: July 1, 2011
Case12 -2) Rust Belt Mufflers

Dr. Madison, inventor and owner of Madison corrosion treatment, has discovered that ordinary mufflers and pipes, when treated with his patented process, will become permanently impervious to corrosion. To reap the rewards from his ingenuity, he has opened rust belt mufflers, a chain of 30 corporate owned muffler shops. Rust belts unconditionally warrant all of its muffler and pipe installation for the life of the vehicle. From minor adjustments to complete replacement, a rust belt customer must be a satisfied customer! Although rust belt’s service has become the rage of the great lakes, profits have been unimpressive. Simon one of Madison’s employees, scolds his boss: “here you are, with the greatest competitive advantage in the history of muffler service, doing no better than any of your rivals. “ Madison retorts, “I m devoted to science, not business. As long as the enterprise is profitable. I will not interfere with my shop managers.” Simon says that the profitability problem is due to squandering of resources by shop managers. The products superior price, strong demand and Madison’s policy of benign neglect have given managers a virtual blank check when it comes to expenditures. Simon says that Madison’s solution is to reduce costs by monitoring shop performance via a standard cost system. Due in large part to early childhood conditioning. Madison does as Simon says. Each rust belt shop provides two services:

1. Replacement of non Madison mufflers and pipes with modern Madison mufflers and pipes. 2. Warranty replacement of defective Madison mufflers and pipes with new Madison mufflers and pipes.

These services require materials( including corrosion treatment) and direct labor. Materials purchases, installation procedures, and labor allocation are strictly the responsibility of each individual shop manager. Since Madison mufflers and pipes are merely ordinary mufflers and pipes that are treated...
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