Chapter 4 case assignment

Chapter 4 case assignment

1. i). Dr. Weinbrotten’s method of improving productivity is based on educating people regarding their rights as well as responsibilities as employees. This is in contradiction to the chapter. To be specific, the section dictates that an agent will only act towards maximizing their interest. Harold is trying to go against this theory by transforming his employees’ preferences. Upon spending more about an hour every day for approximately two months, Harold realizes that his approach is not working. This is due to the self-interested people’s preferences, a behaviour that is harder to change. Therefore, for Harold can improve productivity while reducing goal incongruence by executing incentives dictates that when employees maximize their output, his output is also maximized.

ii). The approach by Mateen aimed at hiring only hardworking mechanics failed. The primary goal, which was hiring harder-working mechanics, does not make sense.

1. Harold is convinced that low profitability, which comes from repair services in Woodhaven, results from an absence of mechanic productivity. He is confident that by applying the new incentive approach in compensating his employees, he will make more profits and become a very successful service station. Upon consulting with his colleague in the same line of business, Harold comes up with two methods of incentive compensation; One is straight commission, and the other one is a flat rate accompanied by a commission rate. By using this method, Harold may welcome undesirable new behaviours worse than low productivity. To be specific, when mechanics are paid based on incentives, deceit may come in handy to increase the value of revenue generated. Also, the quality of work done by the mechanics may go down because the employees would prefer to work faster to increase their earnings than provide quality work under low pay. This negative behaviour will impact the brand image of Woodhaven Services, thus resulting in an unsuccessful business. Below are some of the prepositions for Woodhaven services;

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A flat-rate commission plus upper limit earnings may both be viable;

1. Harold’s decision on offering a $300 flat-rate with a possibility of earning commission provides less incentive to the divergent behaviour as compared to Jack’s direct commission. BY offering a base-pay, Harold is guaranteed not expecting shoddy work delivered to customers as compared to Jack’s preposition because employees can meet their financial targets in an honest way.
2. Through the limitation of mechanic’s pays through imposing an upper limit of $750 weekly, the employees may have a limited incentive for lying to customers. The concept behind the theory is that employees will feel guilty if not fear of earning weekly pay of less than $750 when found lying to customers. Furthermore, there is no much benefit in lying to customers if they can make up to $750 a week.

c). In a case where Harold owns a more massive auto-repair franchise situated in a famous sub-urban shopping mall in addition to high promotion, advertisement and valued for its ethical values with ease of credit, then approach of incentivizing the compensation might change. In such a scenario incentive which attract cheating to customers. This type of news would easily and fast travel to all corners of the sub-urban regarding the charge, shoddy work, unnecessary work, thus leading to failure of the business. Based on this, Woodhaven, services will experience a higher cost of cheating. On the contrary, in a case where Harold owned a large auto-repair store, the effect of lying to customers less.  This is due to the location, availability of easy credit as well as the ability to attract fresh clients using promotion, thus improving the possibilities of business failure in either of the two incentive approaches. In a case where Harold was a manager, his idea regarding compensation incentive change would be unknown. His salary would determine Harold’s pay in the case. The incentive compensation for the employees can be favourable if it is output relies on sales value and irrelevant if salary-based.

d). Regarding Woodhaven’s case, mechanics may choose the type of services warranted and offer them. Through this, the mechanic has a higher chance of cheating on the customers. There is a supervisor responsible for approving the work done by the mechanics, and then fraud would be eliminated. However, an on-site supervisor at an extra cost for the shop based on the shop size. Woodhaven service being a small sized-shop that does automotive maintenance. Therefore, there is no enough work for an on-site supervisor. Harold has above 20 years of experience regarding the types of services required in his shop and thus well equipped in handling all the roles (Pp. 158). This would reduce the cost of supervision. IF the shop were located in a shopping mall, then the work would be massive enough to guarantee a supervisor since the shop would be performing extensive repairs. This would, in turn, increase control expenses. Therefore, connected knowledge, as well as the right decisions regarding a chain-store repair-shop, would make more sense as compared to Woodhaven services.

e). In a case where Wood haven’s issues are not linked to agency cost, then the possible problem source would be shop capacity, if not lower prices. The background provides that “the station has three gasoline pumps and two service bays” besides offering maintenance as well as minor repairs and refer a client who has significant repairs to other larger shops. Harold is guaranteed of his client’s loyalty in procuring fuel products as well as repairs. Therefore, he can use the opportunity to expand his repair services besides increasing the prices for his prices to match supply with demand.

Reference

Zimmerman, J. L., & Yahya-Zadeh, M. (2011). Accounting for decision making and control.        Issues in Accounting Education, 26(1), 258-259.