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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

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, Olympics 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.

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. By far the largest uncontrollable factor that Jacques had to consider was, the weather. Sales volume dropped to zero 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 the locations were far below the budgeted profit level. The results for the Aalst location are shown in Table 1. Table 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.

Question

How large should the bonus pool be for the Aalst location?

Table 1

Budget ($)

Actual ($)

Variance ($)

Revenue

184,000

124,080

-59,920

Variable Expense (50% of Sales)

92,000

62,040

29,960

Fixed Expense

53,820

55,000

-1,180

Profit

38,180

7,040

-31,140

Table 2

Budget

Actual

Average vehicles washed in a good weather hour

23

24

Average revenue per vehicle

$10

$10

Total Hours

920

920

Bad weather hours

120

450

Good weather hours

800

470

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