Page 47 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting

Notes 5. Comment on the following statements:
(a) An increase in money sales should always be viewed favorably.

(b) The influence of price-level changes cannot be detected by using a comparative
statement.
(c) An expansion of plant, property, and equipment should be financed by sales of
capital stock.
(d) Intangible assets should be eliminated when the balance sheet is reconstructed for
analytical purposes.

(e) An increase in liabilities should be viewed with alarm.
6. Is the trend of total liabilities of significance in analyzing the financial condition of a
business? If so, what other trends should be used in connection therewith?
7. Write a report in which you list and discuss favorable and unfavorable financial and
operating tendencies
8. Analysis shows that Zodiac Corporation incurred the following five-year gross margin and
cost histories in serving customer number 128.
Year 1 Year 2 Year 3 Year 4 Year 5
Gross Margin 602,000 638,000 636,000 652,000 670,000
Cost of engineering changes 6,600 12,120 7,000 7,200 80,250
Special packaging 66,200 73,360 82,600 78,100 80,400
Prepare a trend analysis (in terms of percentage of gross margin) for these two customer
relate costs.
9. What different conclusions might the management draw about the behavior of the two
costs in question 8?
10. Which is the better analysis horizontal or vertical and why? Which is better between vertical
or horizontal ratio and why?

11. The comparative balance sheet of Oak and Tile Flooring Co. for June 30, 2008 and 2007, is
as follows:

June 30, 2008 June 30, 2007
Cash $24,700 $23,500
Accounts receivable (net) 101,600 92,300
Inventories 146,300 142,100
Investments 0 0
Land 145,000 0
Equipment 215,000 175,500
Accumulated depreciation (48,600) (41,300)
$594,000 $442,100
Liabilities and Stockholders Equity
Accounts payable (merchandise creditors) $100,900 $95,200
Accrued expenses (operating expenses) 15,000 13,200
Dividends payable 12,500 10,000
Common stock, $1 par 56,000 50,000
Paid-in capital in excess of par-common stock 220,000 100,000
Retained earnings 189,600 173,700
$594,000 $442,100

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