MANAGERIAL ACCOUNTING W/CONNECT
MANAGERIAL ACCOUNTING W/CONNECT
3rd Edition
ISBN: 9781307583946
Author: Whitecotton
Publisher: MCG/CREATE
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Chapter 12, Problem 11Q

As a junior analyst, you are evaluating the financial performance of Digilog Corporation. Impressed by this year’s growth in sales (20% increase), receivables (40% increase), and inventories (50% increase), you plan to report a favorable evaluation of the company. Your supervisor cautions you that those increases may signal difficulties rather than successes. When you ask what she means, she just says you should look at the company’s statement of cash flows. What do you think you will find there? What are the cash flow effects when the balances in a company’s receivables amid inventory increase faster than its sales?

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You have to test cash and PP&E of your client.  Both accounts have the same balance at the end of the year: $25 million. In a typical company, which account will you spend more time testing AND WHY?
You begin a new job at Cabrera Medical Supplies. The company is considering a new accounting system, with an initial investment of about half a million dollars for new software and hardware. You are excited for the opportunity to apply your managerial accounting skills regarding screening and preference methods to decide on the best system for the company. Your boss is a little old-school, and when you mention some of the things you learned in managerial accounting, he says, “Discounted cash flow methods are not the only way to approach this. I have more of a gut reaction approach that blows most managers out of the water when they become absorbed by discounted cash flow methods (DCF).” How would you react and what would you discuss with your boss?

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MANAGERIAL ACCOUNTING W/CONNECT

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