Task
Based on the ZipCar case, answer the following questions.
There are 4 parts to this task. Please complete using word processing software (please insert your answers either in the tables provided or below each question)
Part 1
Robin Chase has prepared the following revised budget for Year 1 of ZipCar's Boston operations (ref. Exhibit 5)
Complete the right-hand side column in the table below by describing what assumption(s) Robin has made in order to forecast each line item. Your answers should specify how and why exactly each line item has been predicted.
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Financial Plan
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Assumptions/Calculations
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Revenues
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N/A
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Application Fees
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11,000
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|
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Annual Fees
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16,500
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Per mile charges
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92,928
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Per hour charges
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232,320
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|
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Interest Income
(on average security deposit balance)
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2,640
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Costs
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N/A
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Lease Cost
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52,800
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Access Equipment
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6,000
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Fuel
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12,960
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Insurance
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20,400
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Maintenance
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4,800
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Parking
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7,200
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Overhead: Corporate Level
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125,895
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N/A
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Overhead: Boston Office
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55,080
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N/A
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Profit before taxes
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70,253
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N/A
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Which of the assumptions you recorded in the table do you think are most influential to the estimate of profit after taxes? Why?
Which of the assumptions you recorded in the table do you think are most uncertain? Why?
Has ZipCar's budget been developed using an incremental approach or a zero-based approach
Organisations can use either top-down or bottom-up approaches to developing budgets. Explain two benefits of ZipCar using a top-up approach to prepare their annual profit plan.
Part 2
ZipCar is considering introducing a new product - commercial vans. Robin Chase and her team have produced a set of revenue and cost estimates for the commercial van product, based on extensive surveys of the current and prospective customer base.
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Forecast Revenue for Commercial Van Use
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Application fee (per new member)
Annual fees (per average member)
Per mile charge
Per hour charge
Security deposits (average balance)
Interest income (on average deposit balance)
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$25
$75
$0.90
$8.50
$300
4%
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Variable Costs per Commercial Van
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Lease cost
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$5,500
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Access equipment
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$500
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Fuel
Insurance
Maintenance
Parking
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$1,750
$2,200
$550
$600
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|
|
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Fixed Costs per Year
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|
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Corporate costs
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$125,895
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Billing
Administration
Benefits
Office space
Office equipment and supplies
Telephone and internet
Marketing
Background checks
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$5,280
$24,000
$4,800
$0
$1,000
$1,200
$10,000
$8,800
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ZipCar has been able to secure 28 parking spaces for the upcoming year. Surveys of the current and prospective customer base indicate that there is enough demand to fully utilise 25 cars and 10 vans. Robin Chase's assumptions about the number of members will not be affected by the decision, and her estimations of the average number of trips per member, miles per trip, and hours per trip are expected to remain the same for both cars and vans.
Use the data from the table above and from Exhibit 5 to produce a comparative analysis of the expected revenues and costs of a commercial van and a ZipCar car.
Calculate the optimal product mix for ZipCar in the upcoming year (Year 1).
Calculate total forecast profit for ZipCar assuming that they adopt the optimal product mix (that you identified in part b).
Identify at least three additional criteria that Robin Chase should consider when making this decision. Explain why consideration of these criteria will help Robin make the best possible decision. Additional criteria may be qualitative or quantitative.
Part 3
As ZipCar continues to grow and expand, Robin Chase is considering using her forecast estimates of total company profit as the basis for motivating and evaluating the performance of the members of her growing top management team. In particular, she is currently contemplating introducing a system where each of the managers in the team would receive a much smaller fixed salary (75% of current levels) and then a sizeable cash bonus calculated as a proportion of the amount the company exceeded its annual profit targets. She would configure the system so that if the annual profit variance was zero (i.e. the company achieved but did not exceed its profit target) the managers would receive the same take-home pay as under the current system.
In your opinion, how appropriate would this approach to performance evaluation and rewards be in the context of ZipCar?
Provide a short essay response to this question based on your conceptual understanding on both the technical and behavioural implications of designing and using performance evaluation and reward systems in organisations. Justify your position by explaining what you believe to be the potential strengths and/or weaknesses of this approach. Support your arguments through reference to both specific theory and concepts from the course as well as particular evidence from the case.
7 references
Attachment:- ZipCar.pdf