P
rofessors Kenneth A. Merchant and Wim A. Van der Stede wrote this teaching note as an aid to instructors using the Private
F
itness, Inc. case.
Marshall School of Business
University of Southern California
Private Fitness, Inc.
Teaching Note
Purpose of Case
This case describes a real control problem faced by a small fitness-training business. A trusted
employee was both stealing cash and, by not recording all sales, diverting some revenues to
herself. Students find the setting interesting and easily understandable, but discussion of this
simple setting helps students understand the range of control alternatives that firms can use.
Suggested Assignment Questions
This case was also used successfully as part of a final exam. The questions used were as
follows, with the grading weighting used shown in parentheses. These questions might also be
used to motivate student preparation for a class discussion of this case.
1. Describe a solution to Rosemary Worths control problem that emphasizes:
2. What should Rosemary do? (40%)
(You can choose one of the solutions described in your answer to question 1, or you can
combine particular elements of each of those solutions, if appropriate.) Explain why your
recommendation is the best solution.
Merchant & Van der Stede, Management Control Systems, 3rd edition, Instructors Manual
85
Discussion
Students must first recognize that there are two problems to be solvedthe theft of cash and the
unrecorded revenue. There are a lot of control options:
2. Results controlsThis is a tough question. Students must recognize that providing Kate a
bonus of, say, 10% of revenues or profits, does little to reduce her motivation to pocket
100% of the revenue through theft of cash or direct pocketing of revenues. Revenue-based
3. Personnel/cultural controlsstricter hiring criteria (e.g., background checks), building a
strong family culture, group rewards (which encourage mutual monitoring).
The answer to the question What should Rosemary do? requires consideration of the
benefits (control effectiveness) and costs in this specific setting. Some alternatives, such as
Pedagogy
This is a short case. It can be used in class even if students have not prepared the case in
advance. Most students can probably read the case in 10 minutes, and the answers to the