Visit a local movie theater and check out both its concession area and its showi

Question

Visit a local movie theater and check out both its concession area and its showing areas. The manager of a theater must confront questions such as:

         How much return do we earn on concessions?

         What types of movies generate the greatest sales?

         What types of movies generate the greatest net income?

Required

Assume that you are the new accounting manager for a 16-screen movie theater (ten of the auditoriums have 150 seats each; the other six auditoriums each have 400 seats). You are to set up a responsibility accounting reporting framework for the theater.

1. Recommend how to segment the different departments of a movie theater for responsibility reporting.

2. Propose an expense allocation system for (heat/air conditioning, rent, insurance, and maintenance costs) of the theater.

Explanation / Answer

Answer:

As per the concept of responsibility reporting we need to find out independent segment for which each manager can be held responsible for performance of such segment.

I recommend to use revenue center or cost center concept for movie theater because each type of expenses are directly related to particular auditorium, which means auditorium can be considered as cost center or revenue center, whichever gives better information to management

Answer 2: I recommend to allocate expenses similar to heat/air conditioning, rent, insurance and maintenance costs to each auditorium as per their seat capacity.

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