Mcs: Olympic Car Wash

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Management Control Systems

Case: Olympic Car Wash

The company and the bonus distribution
The Olympic Car Wash Company is situated in Belgium and has 30 locations, each with a general manager. One of the locations is located in Aalst, which will base this assignment.

The chief operating officer, Jacques Van Raemdonck, is also responsible for the performances of the locations as well as the distribution of the bonus pools, both being carried out after each quarter. The bonuses are exposed to subjective adjustments by Raemdonck, depending on what uncontrollable factors might effect the revenue dramatically (such as weather conditions or construction work close by) in order to avoid unfair bonus distribution.

The bonus plan for the Aalst location
The bonus for the Aalst location should have originally been zero since the carwash was €31,140 unfavourably off the expected profit. However the carwashes had been subjected to particularly bad weather, which resulted in a much lower revenue. This could have given cause for a revision in the original budget. My calculations in the table below will show how large the bonus plan would be for the spring quarter 2002, if Raemdonck would make the subjective adjustments.

Flexing the budget
SalesBudget
ActualOriginalRevised
Average number of vehicles washed per hour242323
Average revenue per vehicle€11€10€10
Working hours470800470

Revenue€124,080€184,000€108,100
Variable expenses (-50%)(€62,040)(€92,000)(€54,050)
Fixed expenses(€55,000)(€53,820)(€53,820)

Profit spring '02€7,040€38,180€230

Profit:€7,040
Revised Profit Target:€230
Variance:€6,810(continued)

Bonus pool:€3,000
Bonus augmentation (€6,810/10):€681
Total bonus to be granted to the Aalst location:€3,681

Should the chief operating officer make the adjustments?
Yes I do believe that Raemdonck should have granted a bonus to Aalst and all the other locations, given his...
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