BU330 Accounting for Managers - Assignment 4 - Ashworth College
aks198Portia Carter is the president of a company that owns six multiplex movie theaters. Carter has delegated decision-making authority to the theater managers for all decisions except those relating to capital expenditures and film selection. The theater managers’ compensation depends on the profitability of their theaters. Max Burgman, the manager of the Park Theater, had the following master budget and actual results for the month.
| Master | Actual | |
Budget | Results | ||
Tickets sold | 120,000 | 480,000 | |
| Revenue--tickets | $ 840,000 | $ 880,000 |
| Revenue--concessions | 480,000 | 330,000 |
Total revenue | $1,320,000 | $1,210,000 | |
Controllable variable costs |
|
| |
| Concessions | 120,000 | 99,000 |
| Direct labor | 420,000 | 330,000 |
| Variable overhead | 540,000 | 550,000 |
Contribution margin | $ 240,000 | $ 231,000 | |
Controllable fixed costs |
|
| |
| Rent | 55,000 | 55,000 |
| Other administrative expenses | 45,000 | 50,000 |
Theater operating income | $ 140,000 | $ 126,000 | |
1. Assuming that the theaters are profit centers, prepare a performance report for the Park Theater using the chart below. Include a flexible budget. Determine the variances between actual results, the flexible budget, and the master budget. (25 points)
| Actual |
| Flexible |
| Master | |||
Results | Variance | Budget | Variance | Budget | ||||
Tickets sold | 110,000 |
|
|
|
| ( ) | 120,000 | |
| Revenue--tickets | $ 880,000 |
| ( ) |
|
| ( ) | $ 840,000 |
| Revenue--concessions | 330,000 |
| ( ) |
|
| ( ) | 480,000 |
Total revenue | $1,210,000 |
|
|
|
| ( ) | $1,320,000 | |
Controllable variable costs |
|
|
|
|
|
|
| |
| Concessions | 99,000 |
| ( ) |
|
| ( ) | 120,000 |
| Direct labor | 330,000 |
| ( ) |
|
| ( ) | 420,000 |
| Variable overhead | 550,000 |
| ( ) |
|
| ( ) | 540,000 |
Contribution margin | $ 231,000 |
| ( ) |
|
| ( ) | $ 240,000 | |
Controllable fixed costs |
|
|
|
|
|
|
| |
| Rent | 55,000 |
|
|
|
|
| 55,000 |
| Other administrative expenses | 50,000 |
| ( ) |
|
|
| 45,000 |
Theater operating income | $ 126,000 |
| ( ) |
|
| ( ) | $ 140,000 | |
2. Evaluate Burgman’s performance as a manager. (25 points)
3. Assume that the managers are assigned responsibility for capital expenditures and that the theaters are thus investment centers. Park Theater is expected to generate a desired ROI of at least 6 percent on average invested assets of $2,000,000.
a. Compute the theater’s return on investment and residual income using the chart below. (25 points)
| Actual | Flexible | Master | |||||||||||||||||||||
ROI |
| ÷ |
|
| ÷ |
|
| ÷ |
| |||||||||||||||
| = | 0.00% | = | 0.00% | = | 0.00% | ||||||||||||||||||
Residual income |
| – ( | 0% | x |
| ) |
| – ( | 0% | x |
| ) |
| – ( | 0% | x |
| ) | ||||||
| = |
| = |
| = |
| ||||||||||||||||||
b. Using the ROI and residual income, evaluate Burgman’s performance as a manager. (25 points)
13 years ago
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