Return on Investment and Residual Income: Directions: Unless otherwise stated, answer in complete sentences, and be sure to use correct English spelling and grammar. Sources must be cited in APA format. Your response should be a minimum of one (1) single-spaced page to a maximum of two (2) pages in length; refer to the "Assignment Format" page for specific format requirements. 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. More information is in the uploaded document
PRACTICE EXERCISE Accounting for Directions: Be sure to make an electronic copy of your answer before submitting it to Ashworth College for grading. Unless otherwise stated, answer in complete sentences, and be sure to use correct English spelling and grammar. Sources must be cited in APA format. Your response should be a minimum of one (1) single-spaced page to a maximum of two (2) pages in length; refer to the "Assignment Format" page for specific format requirements. Managers Return on Investment and Residual Income 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. Tickets sold Revenue--tickets Revenue--concessions Total revenue Controllable variable costs Concessions Direct labor Variable overhead Contribution margin Controllable fixed costs Rent Other administrative expenses Theater operating income Master Actual Budget Results 120,000 480,000 $ 840,000 $ 880,000 480,000 330,000 $1,320,00 $1,210,000 0 120,000 420,000 540,000 $ 240,000 99,000 330,000 550,000 $ 231,000 55,000 55,000 45,000 50,000 $ 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. Tickets sold Revenue--tickets Revenue--concessions Total revenue Controllable variable costs Concessions Direct labor Variable overhead Contribution margin Controllable fixed costs Rent Other administrative expenses Theater operating income 2. Actual Results 110,000 $ 880,000 330,000 $1,210,00 0 Flexible Budget Variance 99,000 330,000 550,000 $ 231,000 ( ) ( ) Variance ( ) ( ) ( ) ( ) $1,320,000 ( ( ( ( ) ) ) ) ( ( ( ( ) ) ) ) 55,000 120,000 420,000 540,000 $ 240,000 55,000 50,000 ( ) $ 126,000 ( ) Evaluate Burgman's performance as a manager. Master Budget 120,000 $ 840,000 480,000 45,000 ( ) $ 140,000 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. Actual ROI = Residual income 0.00% - ( 0% = b. Flexible = x ) 0.00% - ( 0% = Master = x ) 0.00% - ( 0% = Using the ROI and residual income, evaluate Burgman's performance as a manager. (25 points) STUDY FOR FINAL EXAM. x )
