MANAGEMENT CONTROL SYSTEM - 002-Case 2 - ANALYSIS

TOPIC I
Management Control
system
Case 2 ANALYSIS
Louis’s Three-
Dimension Cinema
Louis’s Three-Dimension Cinema
Louis’s Three-Dimension Cinema was a single-location,

three-dimension screen cinema located in a small town
in Orange County. The Cinema has four different
Theatres with different capacity. Louis Arthur bought
the cinema a year ago and hire Benjamin, his nephew, to
manage it. Louis was concerned, however, because the
cinema was not as profitable as he had thought it would
be. He suspected the cinema had some control
problems and ask Peter, an accounting professor at a
college in the adjacent town, to study the situation and
provide suggestions.
Peter found the following:

1. Customers purchased their tickets at one of two ticket
booths located at the front of the cinema. The cinema 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. The amounts of cash collected were counted

daily and compared with the total value of tickets
sold. The cash counts revealed, almost invariably,
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 Peter’s study, one cashier was short by
almost $100
3. Just inside the cinema’s front doors was a lobby with a
refreshment stand. Peter observed the refreshment
stand’s operation 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 cinema’s small-county location. But
the familiarity concerned Peter because he had also
observed several occasions where the stand’s attendants
either failed to collect cash from the customers or failed to
ring up the sale on the cash register.
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
cinema did not reconcile either with the number of ticket
sales or the stub counts.
 Peter found evidence of two specific problems.

First,he found a few tickets of the wrong color or with
the wrong dates in the ticket stub boxes.
Second, he found a sometimes significant number of
free cinema passes with Benjamin’s signature on them.
However, these problems did not account for all of the
customer test count discrepancies. Peter 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, Peter sat down and

wondered whether he could give Louis suggestions that
would address all the actual and potential problems, yet
not be too costly.
Discussion Questions:
1. What are the existing (current) control system and its
purpose for Louis’s 3-D Cinema?
2. What are the current control problems in the Louis’s 3-D
Cinema?
3. What control alternatives would you suggest to solve the
control problems of Louis’s 3-D Cinema?
Louis’s 3-d Cinema – EXISTING CONTROL SYSTEM
1. Cinema Tickets : Color-coded and Dated - color-coded tickets are indicate the movie the
customer wants to see
- Ensures that each theater won’t sell more
tickets than it can hold for each movie
2. Cash sales for tickets: - The tickets at each price ( adult, child, ..) are
cash collected are counted daily and pre-numbered serially.
pre-numbered tickets - Reconciliation between number of tickets sold
per day with the cash received per day
3. Entrance: - Use turnstile to count the number of customers

use turnstile for the entry of each entered in the Cinema.
customer - Employee collects the tickets and ensure each
customer has a ticket for the movie on that day
4. Attendance: Locked ticket stub box - Employee collects tickets from customer and
places the ticket in the stub box
- Reconciliation between the tickets collected and
the attendance counted
Louis’s 3-D Cinema – CONTROL PROBLEMS
 1. Less cash collected than tickets sold.

 2. Do not collect cash from the customers
for refreshments.
 3. Allowed customers to enter into the
Cinema with tickets for wrong color or with
tickets for wrong date or with no tickets
for some friends
 4.Lots of free Cinema passes given by the
Benjamin, the nephew of Louis and
manager of the Cinema.
Louis’s 3-D Cinema
– Control Alternatives to solve the control problems
 1. Less cash collected than tickets sold.
- A simple control is to ask the employee to pay
for the cash shortage
 Which alternatives do you believe will be more
effective to solve this control problem ?
 2.Do not collect cash from the customers for
refreshments.
- install a surveillance system (CCTV) in the
refreshment area
 3. Allowed customers to enter into the Cinema with
tickets for wrong color or with tickets for wrong date
or with no tickets for some friends
 Rewards to the employees who can perform this task
effectively
 Which alternatives do you believe will be more
 4.Lots of free Cinema passes given by the
Benjamin, the nephew of Louis and manager of the
Cinema.
- Sets quota of the free cinema passes and file a
report with justification for providing the free
cinema passes.

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TOPIC I

Louis’s Three-Dimension Cinema was a single-location,

Peter found the following:

2. The amounts of cash collected were counted

4. Customers entered the screening rooms by passing

 Peter found evidence of two specific problems.

When his study was complete, Peter sat down and

3. Entrance: - Use turnstile to count the number of customers

 1. Less cash collected than tickets sold.

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