Part King Case Solution Essay

1237 Words Apr 3rd, 2014 5 Pages
Question 1: Assuming Bachand’s proposed system is accepted; compare the profitability of a franchised PK store to a corporate-owned store.

Answer: In my point of view the proposed system of Bachand seems to be more profitable for PK in contrast to the current franchise system. I would like to quote following reasons in favor of my conception:

Incentive system:
In the franchise system franchisee was to be had a definite salary of $50000 but he had full liberty to draw as large salary as he wants contingent to the growth of equity by means of profitable operations and diminishing of debt. So, PK was to pay the salary on the basis of the growth of equity. But in the proposed system by Bachand the salary was made fixed with
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The goal was to set realistic goals that keep managers working hard. The budget focused on three areas: sales, profitability and account receivable. Managers were expected to keep 90 per cent of their receivables in the “current” or “fewer than 30 days outstanding” categories. Managers had some flexibility in setting credit terms for commercial accounts; for example, a discount for paying early could be extended to loyal accounts.
• Good: Part King coneach store as a profit center. It is a pretty much decentralized system and the intention of budgeting is to make the store managers working hard to increase the profitability.
• Bad: Part King should treat the corporate-owned stores the same as franchise stores by allowing the store managers prepare budgeting by themselves and having the figures reviewed by district managers.
• Weaknesses: The proposed budgeting focused on three areas: sales, profitability and account receivables. Generally speaking, a profit center manager is responsible for both revenues and costs. The cost control was not mentioned in the budgeting at all. And the center’s performance should be evaluated based upon its income statement for both segments separately. Account receivable is an asset; therefore it should not be the main components of the budgeting.
3.2 Performance: The proposed performance review system is that the managers are

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