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:

Required
1. Assuming that the theaters are profit centers, prepare a performance report for the Park Theatre. Include a flexible budget. Determine the variances between actual results, the flexible budget, and the master budget.
2. Evaluate Burgman's performance as manager of the Park Theater.
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.
b. Using the ROI and residual income, evaluate Burgman's performance asmanager.

Transcribed Image Text:

Master Budget Actual Results 110,000 840,000 880,000 330,000 1,320,000 1,210,000 Tickeis sold 120,000 Revenue-concessions 480,000 Total revenue Controllable variable costs Concessions Direct labor Variable overhead 99,000 330,000 550,000 s 240,000 231,000 120,000 420,000 540,000 Contribution margin Controllable fixed costs Rent Other administrative expenses 55,000 45,000 50,000 S 140,000 126,000 Theater operating income