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Managerial Accounting Questions

E1 The decisions that follow were made by the management of Shanahan Shoe Company. Indicate whether each decision pertains primarily to (a) cash flow management, (b) profitability management, (c) choice of inventory system, or (d) control of merchandise operations.
1. Decided to mark each item of inventory with a magnet tag that sets off an alarm if the tag is removed from the store before being deactivated
2. decided to reduce the credit terms offered to customers from 30 days to 20 days to spedd up collection of accounts
3. Decided that the benefits of keeping track of each item of inventory as it is bought and sold would exceed the costs of such a system
4. Decided to raise the price of each item of inventory to achieve a higher gross margin to offset an increase in rent expense
5. Decided to purchase a new type of cash register that can be operated only by a person who knows a predetermined code
6. Decided to switch to a new cleaning service that will provide the same service at a lower cost

E2 The operating budget and actual performance for the six months ended June 30, 20x3, for Pacific Hardware Company appear below. (1) Prepare an operating report that shows budget, actual, and difference. (2) Discuss the results, identifying which differences most likely should be investigated by management.

Selling expenses Budget Actual
Sales salaries expense $ 90,000 $ 102,030
Sales supplies expense 2,000 1,642
Rent expense, selling space 18,000 18,000
Utilities expense, selling space 12,000 11,256
Advertising expense 15,000 21,986
Deprec. Expense, selling fixtures 6,500 6,778
Total selling expenses $ 143,500 $ 161,692

General and Administrative. Expenses
Office salaries expense $ 50,000 $ 47, 912
Office supplies expense 1,000 782
Rent expense, office space 4,000 4,000
Deprec. Expense, office space 3,000 3,251
Utilities expense, office space 3,000 3,114
Postage expense 500 626
Insurance expense 2,000 2,700
Miscellaneous expense 500 481
Total general & administrative expenses $ 64,000 $ 62,866
Total operating expenses $ 207,500 $ 224,588

E3 Compute the dollar amount of each item indicated by a letter in the following table. Treat each horizontal row of numbers as a separate problem.

Sales Cost of Gross Operating Net Income
Goods Margin Expenses (Loss)

$250,000 $ a $80,000 $ b $ 24,000
c 216,000 120,000 80,000 40,000
460,000 d 100,000 e (2,000)
780,000 f g 24,000 80,000

E4 A household appliance dealer buys refrigerators from a manufacturer and resells them to its customers. What is the net cost of the refrigerator to the dealer, assuming it is paid for within ten days of purchase?
a. The manufacturer sets a list or catalog price of $ 1,000 for a refrigerator. The manufacturer offers its dealers a 30 % trade discount.
b. The manufacturer sells the machine under terms of FOB destination. The cost of shipping is $ 100.
c. The manufacturer offers a sales discount of 2/10, n/30. Sales discounts do not apply to shipping costs.

E5 Using the selected account balances at December 31, 20xx, for City Rental that follows, prepare an income statement for the year ended December 31, 20xx. Show the detail of net sales. The company uses the perpetual inventory system, and Freight In hasn't been included in the Cost of Goods Sold.

Account Name Debit Credit
Sales $ 237, 500
Sales Return & Allowance $11,750
Costs of Goods Sold 140,000
Freight In 6,750
Selling Expense 21,500
General & Administrative Expenses 43,500

E6 Give the entries to record each of the following transactions under the perpetual inventory system:
a) Purchased merchandise on credit, terms n/30, FOB shipping point, $2,500.
b) Paid freight on the shipment in transaction a, $ 135.
c) Purchased merchandise on credit, terms n/30, FOB destination, $ 1,400.
d) Purchased merchandise on credit, terms n/30, FOB shipping point, $2,600, which includes freight paid by the supplier of $200.
e) Returned part of the merchandise purchased in transaction c, $500.
f) Paid the amount owed on the purchase in transaction a.
g) Paid the amount owed on the purchase in transaction d.
h) Paid the amount owed on the purchase in transaction c, less the return in e.

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E1 The decisions that follow were made by the management of Shanahan Shoe Company. Indicate whether each decision pertains primarily to (a) cash flow management, (b) profitability management, (c) choice of inventory system, or (d) control of merchandise operations.

1. Decided to mark each item of inventory with a magnet tag that sets off an alarm if the tag is removed from the store before being deactivated

(d) control of merchandise operations.

Shanahan Shoe Co. can control their merchandise and has security against theft.

2. decided to reduce the credit terms offered to customers from 30 days to 20 days to speed up collection of accounts

(a) cash flow management

The cash inflow for the company will come in faster with the reduction in credit terms.

3. Decided that the benefits of keeping track of each item of inventory as it is bought and sold would exceed the costs of such a system

(c) choice of inventory system

By keeping track of each item of inventory, it is known as inventory system.

4. Decided to raise the price of each item of inventory to achieve a higher gross margin to offset an increase in rent expense

(b) profitability management

The gross margin is related to the profit for the company.

5. Decided to purchase a new type of cash register that can be operated only by a person who knows a predetermined code

(c) choice of inventory system

A person who knows a predetermined code can key in the code of merchandise when the customers buys the products, which will show the balance of inventory at the end of the day.

6. Decided to switch to a new cleaning service that will provide the same service at a lower cost

(b) profitability management

If the cost is lower, then the profit for the company will be increased.

E2 The operating budget and actual performance for the six months ended June 30, 20x3, for Pacific Hardware Company appear below. (1) Prepare an operating report that shows budget, actual, and difference. (2) Discuss the results, identifying which differences most likely should be investigated by management.

Selling expenses Budget Actual
Sales salaries expense $ 90,000 $ 102,030
Sales supplies expense 2,000 1,642
Rent expense, selling space 18,000 18,000
Utilities expense, selling space 12,000 11,256
Advertising expense 15,000 21,986
Deprec. Expense, selling fixtures 6,500 6,778
Total selling expenses $ 143,500 $ 161,692

General and Administrative. Expenses
Office salaries expense $ 50,000 $ 47, 912
Office supplies expense 1,000 782
Rent expense, office space 4,000 4,000
Deprec. Expense, office space 3,000 3,251
Utilities expense, office space 3,000 ...

Solution Summary

This solution is comprised of a detailed explanation to indicate whether each decision pertains primarily to (a) cash flow management, (b) profitability management, (c) choice of inventory system, or (d) control of merchandise operations for Shanahan Shoe Company, prepare an operating report that shows budget, actual, and difference for Pacific Hardware Company, compute the net cost of the refrigerator to the dealer, assuming it is paid for within ten days of purchase, prepare an income statement for the year ended December 31, 20xx for City Rental, and give the entries to record each of the following transactions under the perpetual inventory system.

$2.19