| Leo's Four-Plex Theater |
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| Management Control Systems |
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Beginner |
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2 |
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Available.
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$9.00
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Leo's Four-Plex Theater was a single-location, four-screen theater
located in a small town in west Texas. Leo Antonelli bought the theater
a year ago and hired Bill Reilly, his nephew, to manage it. Leo was
concerned, however, because the theater was not as profitable as he had
thought it would be. He suspected the theater had some control
problems. He asked Park Cockerill, an accounting professor at a college
in the adjacent town, to study the situation and provide suggestions.
Park found the following:
1. Customers purchased their tickets at one of two
ticket booths located at the front of the theatre. The theater used
general admission (not assigned) seating. The tickets were color coded
to indicate which movie the customer wanted to see. The tickets were
also dated and stamped "good on day of sale only." The tickets at each
price (adult, child, matinee, evening) were pre-numbered serially. so
that the number of tickets sold each day at each price for each movie
could be determined by subtracting the number of the first ticket sold
from the ending number.
2. Cash is counted daily and compared with the total
value of tickets sold. Almost invariably the counts revealed less cash
than the amounts that should have been collected. The discrepancies
were usually small, less than $10 per cashier. However, on one day two
weeks before Park's study, one cashier was short by almost $100.
3. Just inside the theater's front doors was a lobby
with a refreshment stand. Park observed the refreshment stand's
operations for a while. He noted that most of the stand's attendants
were young, probably of high school or college age. They seemed to know
many of the customers, a majority of whom were of similar ages, which
was not surprising given the theater's small town location. But the
familiarity concerned Park because he also observed two occasions where
the stand's attendants did not ring up the sale on the cash register
and did not collect cash from the customers.
4. Customers entered the screening rooms by passing
through a turnstile manned by an attendant who separated the ticket and
placed part of it in a locked "stub box." Test counts of customers
entering and leaving the theater did not reconcile either with the
number of ticket sales or the stub counts.
Park found evidence of two specific ticket-related problems. First, in
each ticket stub box, he found some tickets of the wrong color or and
some tickets with the wrong dates. And second, he found a sometimes
significant number of free theater passes with Bill Reilly's signature
on them. Bill explained that most of the passes were used for
"marketing purposes." But Bill also admitted that he had used some of
the passes for more "marginal" purposes by giving them, for example, to
valued suppliers and personal friends.
The two specific ticket-related problems Park identified did not
account for all of the customer test count discrepancies, however. Park
suspected that the ticket collectors might also be admitting friends
who had not purchased tickets, although his observations provided no
direct evidence of this.
When his study was complete, Park sat down and wondered whether he
could give Leo cost-effective suggestions which would address all the
actual and potential problems.
Assignment:
1. Where is the theater's control system lacking?
Where are the problems caused primarily because of lack of discipline
in using the existing controls?
2. What control improvements would suggest for Leo's Four-Plex Theater?
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