The Crimson Press Curriculum Center

First Page and the Assignment Questions:
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?