portia carter is the president of a company that owns six multiplex movie theaters 465565

Portia 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 120,000 110,000

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.

2. Evaluate Burgman’s performance as a manager.

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.

b. Using the ROI and residual income, evaluate Burgman’s performance as a manager.