McS: Olympic Car Wash

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 Ђ31,140 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

Sales Budget

Actual Original Revised

Average number of vehicles washed per hour 24 23 23

Average revenue per vehicle Ђ11 Ђ10 Ђ10

Working hours 470 800 470

Revenue Ђ124,080 Ђ184,000 Ђ108,100

Variable expenses (-50%) (Ђ62,040) (Ђ92,000) (Ђ54,050)

Fixed expenses (Ђ55,000) (Ђ53,820) (Ђ53,820)

Profit spring '02 Ђ7,040 Ђ38,180 Ђ230

Profit: Ђ7,040

Revised Profit Target: Ђ230

Variance: Ђ6,810 (continued)

Bonus pool: Ђ3,000

Bonus augmentation (Ђ6,810/10): Ђ681

Total bonus to be granted to the Aalst location: Ђ3,681

Should the chief operating officer make the adjustments?

Yes