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 managers’ 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:

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. (Round percentages to one decimal place.)

b. Using the ROI and residual income, evaluate Burgman’s performance asmanager.

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Master Budget Actual Results Tickets sold Revenue-tickets Revenue-concessions Total revenue Controllable variable costs: 120,000 840,000 480,000 110,000 880,000 330,000 $1,210,000 1,320,000 Concessions Direct labor Variable overhead (120,000) (420,000) (540,000) (99,000) (330,000) (550,000) 5 231,000 S240,000 Contribution margirn Controllable fixed costs: (55,000) (45,000) 140,000 Rent (55,000) (50,000) s 126,000 Other administrative expenses Theater operating income