Accounting for Managers

Return on Investment and Residual Income: Park Theater

1. The variances between the actual results, the flexible budget, and the master budget are as follows:

Actual Flexible Master

Results Variance Budget Variance Budget

Tickets sold 110,000 110,000 10,000 (U ) 120,000

Revenue--tickets $ 880,000 $ 110,000 (F ) $ 770,000 $ 70,000 (U ) $ 840,000

Revenue--concessions 330,000 110,000 (U ) 440,000 40,000 (U ) 480,000

Total revenue $1,210,000 $ 0 $ 1,210,000 $ 110,000 (U ) $1,320,000

Controllable variable costs

Concessions 99,000 11,000 (F ) 110,000 10,000 (F) 120,000

Direct labor 330,000 55,000 (F ) 385,000 35,000 (F) 420,000

Variable overhead 550,000 55,000 (U ) 495,000 45,000 (F) 540,000

Contribution margin $ 231,000 11,000 ( F ) 220,000 20,000 (U) $ 240,000

Controllable fixed costs

Rent 55,000 0.00 55,000 0.00 55,000

Other administrative expenses 50,000 5,000 (U ) 45,000 0.00 45,000

Theater operating income $ 126,000 6,000 (F ) 120,000 20,000 (U ) $ 140,000

2. Burgman’s performance as the manager of Park Theater was less than the company’s projected operating income – it was under by $110,000. The performance report shows that the tickets that were sold were $10,000 less than the projected number, but the revenue brought in by the sold tickets was $40,000 more than the projected revenue. This gave the Park Theater a favorable variance on the actual results. That said, not a lot of the movie goers bought snacks at the concessions because the actual revenue from the concessions was $150,000 less than the projected. The controllable variable costs variance for the concessions and direct labor were favorable, but the variable overhead variance for the actual results was unfavorable by $55,000. As for the controllable fixed costs, there was no variance in the rent for both the actual results and the master budget. However, there was an unfavorable variance for the actual results...