BU330 Accounting for Managers assignment 4

BU330 Accounting for Managers  assignment 4

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.

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)

This is the end of Assignment 04.