BU330 Accounting for Managers assignment 4

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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.

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