MANAGEMENT ACCOUNTING DECISIONS

Problem 1: Marben Commercial shows the following account amounts:

8/31/19 7/31/19
Sales $8,743,000 $8,337,000
Accounts receivable 511,000 441,000
Required: If the cash collections during August be used to pay expenses amounting 9,000,000, was
there timing of collections enough to pay outstanding obligations due on August?

Problem 2: The treasurer of Boston Scientific, Inc. was interested in what effect, if any, new credit
terms have had on collections of customer accounts. The usual 30-day payment period was shortened
to 20 days in an attempt to reduce the investment in accounts receivable. The following information for
the current year and the preceding year (prior to the payment period change) is available:
Current Year Preceding Year
Accounts receivable (net of bad debt allowance) $1,392,790 $1,207,393
Credit sales 13,035,085 11,597,327
Required: What effect has the new credit policy apparently had?

Problem 3: Management of Vivocom Technologies was interested in controlling the company’s

inventory because they knew that excess inventories were expensive in that they tied up funds. On the
other hand, insufficient inventory levels could result in lost sales. Vivocom obtained the following
inventory information from its trade association, which reported average figures for companies of the
same industry:
Days Inventory 38 days
Inventory turnover 11 times

Vivocom, on the other hand, had the following information from last year, which management
considered to be a typical year for the company:
Cost of sales $300,000
Beginning inventory 58,160
Ending inventory 62,880
Required: How does Vivocom’s company inventory management compare with that of companies of
similar industry?

Problem 4: Mr. Larry Gray started a pizzeria in 1999. For this purpose he rented a building for
$1,800 per month. Two persons were hired to work full-time at the restaurant and six college students
were hired to work 30 hours per week delivering pizza. An outside accountant was hired for tax and
bookkeeping purposes at a cost of $900 per month.
A projected income statement for 2002 has been prepared by the accountant and is shown
below:
Projected Income Statement
For the Year Ended December 31, 2002
Total Sales (36,235 units sold) $308,000
Cost of food sold $92,400
Wages & fringe benefits of restaurant help 26,650
Wages & fringe benefits of delivery persons 54,100
Rent 15,500
Accounting services 10,900
Depreciation of delivery equipment 16,000
Depreciation of restaurant equipment 8,000
Utilities 7,165
Supplies (soap, floor wax, etc) 10,645 241,360
Income before taxes 66,640
Income taxes 19,992
Net Income $46,648
Required: What is the break-even point in number of pizzas that must be sold?
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