Case#21 - DIVISION PERFORMANCE MEASUREMENT (20 pts) While mulling over his decision whether to introduce the new Panther model, Mr. Mackey was eating lunch with Ms. Warren, general manager on the Tucson Division which specializes in compact and subcompact cars. Mackey told Warren about the study he had ordered and gave a general picture of the results, including the projection of 80,000 units of volume of the new model. After lunch, Waren called Ms. Georgia, the chief of market research for the firm, and requested more information about the study. Georgia said that the study indicated a potential decline in volume of 30.000 units of one the Tucson Division's best-selling higher-priced model if Yuma brought out the new lower-priced model. Warren asked why that information had not been included in the report given to Mackey and was told that Mackey had only asked for estimates in declines in volume of Yuma Division cars. Warren then immediately telephoned her production manager and sales manager. She informed them of the situation and demanded that they quickly collect information. Several days later, the production manager informed Warren that the model in question, which sold to retail dealers for P16,700, had unit costs of P16.400 at the division's current volume of 160.000 units per year. Fixed costs of P3,500 were included in the P16,400 figure. Warren asked what savings in fixed costs might be expected if volume were to fall by 30,000 units and was told that the fixed cost per unit would rise to about P4,000, even though some fixed costs could be eliminated. Conversations with other managers revealed that the division's investment could be reduced by about P100 million if volume fell as stated. Warren was visibly distressed by what she had heard. She was concerned with her division's interests, but realized that Mackey had the right to operate in accordance with his best interests. She pondered the possibility of going to the company's executive vice president for advice. Required: 1. Determine the effect on Tucson Division of the introduction of the new Panther. 2 Determine the effect on the company of the introduction of the new Panther 3. What recommendations will you offer if you are the consultant? Justify. Case#21 - DIVISION PERFORMANCE MEASUREMENT (20 pts) While mulling over his decision whether to introduce the new Panther model, Mr. Mackey was eating lunch with Ms. Warren, general manager on the Tucson Division which specializes in compact and subcompact cars. Mackey told Warren about the study he had ordered and gave a general picture of the results, including the projection of 80,000 units of volume of the new model. After lunch, Waren called Ms. Georgia, the chief of market research for the firm, and requested more information about the study. Georgia said that the study indicated a potential decline in volume of 30.000 units of one the Tucson Division's best-selling higher-priced model if Yuma brought out the new lower-priced model. Warren asked why that information had not been included in the report given to Mackey and was told that Mackey had only asked for estimates in declines in volume of Yuma Division cars. Warren then immediately telephoned her production manager and sales manager. She informed them of the situation and demanded that they quickly collect information. Several days later, the production manager informed Warren that the model in question, which sold to retail dealers for P16,700, had unit costs of P16.400 at the division's current volume of 160.000 units per year. Fixed costs of P3,500 were included in the P16,400 figure. Warren asked what savings in fixed costs might be expected if volume were to fall by 30,000 units and was told that the fixed cost per unit would rise to about P4,000, even though some fixed costs could be eliminated. Conversations with other managers revealed that the division's investment could be reduced by about P100 million if volume fell as stated. Warren was visibly distressed by what she had heard. She was concerned with her division's interests, but realized that Mackey had the right to operate in accordance with his best interests. She pondered the possibility of going to the company's executive vice president for advice. Required: 1. Determine the effect on Tucson Division of the introduction of the new Panther. 2 Determine the effect on the company of the introduction of the new Panther 3. What recommendations will you offer if you are the consultant? Justify