Essay About Bonus Distribution And Chief Operating Officer

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 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
Average revenue per vehicle
Working hours
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 I do believe that Raemdonck should have granted a bonus to Aalst and all the other locations, given his