TOPIC I
Management Control
system
Case 2
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. 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.
Louis’s Three-Dimension Cinema
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.
Louis’s Three-Dimension Cinema
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
Louis’s Three-Dimension Cinema
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.
Louis’s Three-Dimension Cinema
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.
Louis’s Three-Dimension Cinema
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
Louis’s Three-Dimension Cinema
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?
