Part King Case Solution

1232 Words Mar 29th, 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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But PK’s total sales had not yet exceeded 10 percent of Hawthorne’s general merchandise sales.
While Hawthorne believed that the PK business has the potential to be tremendously profitable, Hawthorne had always wanted to pursue a corporate store model for PK. In early 2005, Hawthorne was able to renegotiate the contract with general merchandise stores gaining the flexibility to pursue a corporate-owned store model. In August 2005, Kevin Bachand, as the newly appointed Ontario operations manager, was expected to provide his expertise in the planning, launch and ongoing operations for three corporately owned Part King stores.
2. Problem: Bachand was particularly concerned about how best to motivate the managers of a corporate-owned store given that they did not share in its ownership. He wondered what control system features would make sense for the Corporate Owned stores?
3. Analysis

To answer those questions, I will perform an evaluation on the corporate-owned store control system from budgeting, performance evaluation, incentives, and transfer pricing perspectives. Part King is a decentralized organization. Every corporate-owned store is a profit center. The stores buy auto parts from Part King and then sell them to the two segmentations: hobbyists and commercial customers. Profit is the difference between revenue and cost. Thus, profit center managers are evaluated in terms of

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