Olympic Car Wash |
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Management Control Systems |
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Organizational Behavior |
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Beginner |
2 |
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The Olympic Car Wash Company owned and operated 30 car washes in
Belgium. The general managers of each of the 30 locations reported to
Jacques Van Raemdonck, Olympic's chief operating officer.
At the end of each quarter, Jacques had to evaluate the performances of
each of the car wash locations. His evaluations determined the size of
a bonus pool that was allocated to personnel at the location. If the
location achieved its budgeted profit target, €3,000 was put into the
bonus pool. The pool was also augmented by €1 for every €10 the
location exceeded its profit target.
However, the bonus contract gave Jacques the right to make subjective
adjustments for the effects of factors he deemed outside the control of
personnel at the location. In the past few years, Jacques had made such
adjustments for the adverse effects on revenue of construction taking
place on the street just in front of one car wash location and to cover
the costs of vandalism at another location.
By far the largest uncontrollable factor that Jacques had to consider
was, however, the weather. In particular, sales volume dropped sharply
when it rained, and it rained frequently in Belgium. The budget, which
was updated quarterly, was prepared based on an assumption of hours of
good weather. Inevitably, though, those assumptions were not accurate.
During the Spring quarter 2002, it rained many more hours than were
assumed in the company's budget, and actual profits for all of the
locations were far below the budgeted profit level. The results for the
Aalst location are shown in Figure 1. Figure 2 shows some operating
assumptions and statistics for the quarter. The Aalst location is open
every day, 10 hours per day when it is not raining. The car wash
employees are paid the legally required minimum wage plus a fixed
amount for each car wash completed, so labor costs are largely variable
with revenues.
Assignment
1. How large should the bonus pool be for the Aalst location?
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