Effective Segmentation Framework for Reporting and Cost Allocation

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TO: Bob, Theatre Owner FROM: Charlie Parker Abramowitz, CPA Re: Segmentation for Reporting and Cost Allocation It has come to my attention that you do not have an effective segmentation framework in place for your financial record-keeping and reporting processes, and I thought I would offer some assistance in this regard. Not only will a more effective segmentation plan ensure compliance with reporting standards and regulations, but in an industry with margins as thin and costs as high as running a movie theatre, this segmentation could radically improve your bottom line (Young, 2003; Campea, 2007). The following brief outline of a segmentation system and a cost allocation plan should provide you with an idea of the improvements that can be made. First, there is what can be considered the core business (though certainly not the core earnings segment) of your business, namely the showing of movies (Campea, 2007). This segment could be called Cinema Operations, and should include all costs that are specific to generating traffic and revenue from movie titles and showings, as all of these costs and traffic/revenue expectations vary considerably from title to title. Promotional costs, the leasing costs of the film (which, even though a percentage of sales must still be considered an expense, and a significant one at that), the actual cost of physical tickets, ticketing machine and software maintenance, and human resources needs for selling tickets and cleaning theatres

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