Problem
Servicing Cars Division (SCD)The source of revenue for SCD is from car servicing and repairs. Currently, SCD uses 25% of its capacity for Fondacars under warranty, 30% for Used Car Division (UCD, a subsidiary of SCD) and 40% for serving other customers. SCD charges services provided to UCD and other outside customers at full cost(including imputed fixed costs) plus an 80% mark-up. SCD imputes a fixed cost of $500,000 for its current capacity. Currently, new facilities that could increase SCD's capacity by 50%are being constructed and would be ready in 12 months. SCD's pricing is generally 10% lower thanBoss Motors. Boss Motors has capacity that is similar to SCD but is only operating at about 50% of its capacity. All the used car parts required by SCD (other than those provided by Fonda for cars under warranty) are supplied by UCD.Very recently, SCD was approached by another local car dealer- Akura. Akura is looking to out source the servicing and repairs of Akura cars under warranty. If the deal is successful, serving Akura customers will require 30%of SCD's current capacity. Akura has offered to pay SCD at full costs plus 50% mark-up. Akura has indicated that they want to start the deal as soon as possible.
SCD
Servicing and repair revenue $2,760,000
Less:
Parts cost $350,000
Labour costs $900,000
equal:
Contribution $1,510,000
How do i relate the information I have to spoilage and wastage problems in SCD?