Reference no: EM13889847

Thomas 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 manag- ers' compensation depends on the profitability of their theaters. Morris Burgman, the manager of the Park Theater, had the following master budget and actual results for the month:

This year residual income: $50,160

Balance sheet December 31
	This Year	Last Year
Assets
Cash	$ 9,000	$ 4,000
Accounts receivable	40,000	50,000
Inventory	30,000	25,000
Other current assets	1,000	1,000
Plant assets	120,000	100,000
Total assets	$200,000	$180,000
Liabilities and stockholders' equity
Current liabilities	$ 10,000	$  10,000
Long-term liabilities	20,000	10,000
Stockholders' equity	170,000	160,000
Total liabilities and stockholders' equity	$200,000	$180,000

	Master Budget	Actual 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

Required

1. Assuming that the theaters are profit centers, prepare a performance report for the Park Theater. 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 as manager.