Marshall School of Business
University of Southern California
A203-11-TN
Rev. 9-15-04
Olympic Car Wash
Teaching Note
How large should the bonus pool be for the Aalst location?
One possible solution
Flex the budget based on number of hours of good weather.
Budget
Actual
Flexible
Budget
Controllable Variance
(Actual – Flex Budget)
Revenue 184,000 124,080 108,100 15,980
While this solution is simple and straightforward, it is far from the only possible solution to this
case. Students might well be asked to judge whether zero is a possible correct answer to this
case. It is. Jacques Van Raemdonck might as well conclude that no adjustments should be made
for the uncontrollable effects of weather for any of the following reasons:
1. The weather constantly varies. While the employees were unlucky during the Spring quarter
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3. The costs of making these adjustments exceed the benefits of making them. In order to
make these adjustments, someone has to keep track of periods of rain that will deter
customers from getting their cars washed. Some difficult judgments might be required. For
example, how much rain warrants an adjustment? More than a drizzle? A duration more
than a brief shower? Is just the threat of rain a justifiable cause for an adjustment? Is it not
possible that customers will just defer their car wash until a good weather period, resulting
is no (or little) actual loss of business? And if an adjustment seems warranted, someone has
to sit down and do the calculations.
Note that regardless of the reasons, this approach of not adjusting for this weather factor, or any
other uncontrollable factor, forces employees to share some risk with the owners of the
Figure A
Graphical Representation of a Variance Analysis
Factor Budget (1) (2) (3) (4) Actual
Hours of good weather P A A A A A
Vehicles/hr. P P A A A A
Revenue/vehicle P P P A A A
Figure A shows that the budget is based on planned assumptions about each of the factors that
affect performance. This is shown with the letter P. The actuals are calculated based on the
actual levels for each of those factors, here designated with the letter A. The effect of each of the
factors on performance can be calculated by changing the factor from P to A, or A to P. The
difference between the budget and column (1) can be called the weather variance. The
Merchant & Van der Stede, Management Control Systems, 3rd edition, Instructors Manual
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the numbers that would result if the actuals were adjusted first for the effects of the misforecast
hours of bad weather.41
Budget
Actual
Adjusted
Actual42
Controllable Variance
(Adjusted Actual Budget)
Revenue 184,000 124,080 211,200 27,200