Assignment-4 Portia Carter - 90752

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  • From: Business, Accounting
  • Posted on: Fri 15 May, 2015
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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. 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)
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BU330_Assignment-4_Portia_Carter.xls
BU330_Assignmen...