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    Return on Investment and Residual Income

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    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)

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