Management Accounting Critical Thinking Problems

Critical Thinking #1 – Use Critical Thinking in the Solution of Management Accounting Problems Commonly Encountered in the Hospitality IndustryAnswer the following two questions based on the monthly cash flowdata presented here:JanuaryFebruaryOperating Receipts1,000,0001,100,000 Non-Operating ReceiptsOperating Expenditures750,000875,000 Non-Operating ExpendituresNet Operating Cash Flow250,000225,000 Net Non-Operating Cash FlowNet Total Cash flowBeginning Cash BalanceCumulative Cash Balances1)The business needs to increase its cash flow in:a)Januaryb)February2)In which month does this business have an overdraft in the bank?a)Januaryb)Februaryc)Neither month3In April your hotel receives $1,000 to reserve a room in June.How would this appear on the May monthly cash flow statement?How would this affect the May income statement?a)Cash flow statementMayReceipts:Customer advancesNo effectIncome statementRoom sales:b)Cash flow statementReceipts:Customer advancesNo effectMayNo effectIncome statementRoom sales:c)Cash flow statementReceipts:Customer advances$1,000May$1,000Income statementRoom sales:4)No effectIn April your hotel receives $1,000 to reserve a room in June.How would this appear on the June monthly cash flow statement?How would this affect the June income statement?a)Cash flow statementJuneReceipts:Customer advancesNo effectIncome statementRoom sales:b)Cash flow statementReceipts:Customer advancesNo effectJuneNo effectIncome statementRoom sales:c)Cash flow statementReceipts:Customer advances$1,000June$1,000Income statementRoom sales:5)No effectYour restaurant outsources cleaning services at a monthly cost of $500.Your contract starts on July 1, but you pay one month later.How would this appear on the July monthly cash flow statement?How would this affect the July income statement?a)Cash flow statementJulyExpenditures:Cleaning servicesNo effectIncome statementCleaning Expenseb)Cash flow statementExpenditures:Cleaning servicesNo effectJulyNo effectIncome statementCleaning Expensec)Cash flow statementExpenditures:Cleaning services$1,000July$1,000Income statementCleaning ExpenseNo effect6)Below are presented the sales in dollars and covers, as well as thecost of sales for a restaurant.JuneMaySales$60,000$57,000Cost of sales31,50031,200G ross profit$28,500$25,800Covers15,00013,000In this restaurant what is responsible for the higher June gross profit?a)Decrease in priceb)Increase in covers soldc)Decrease in unit cost7)If a restaurant has increasing net income anddecreasing operating cash flow, as indicated by thedata shown below JulyAugustNet income($5,025)$8,295Operating cash flow($12,350)($18,470)then this means that:a)The restaurant may be granting its customers credit termsthat are too lenientb)The restaurant may be paying on a cash basis for the goodsand services it purchasesc)Both of the aboved)None of the above8)If a restaurant’s operating cash flow is increasinglynegative its cash flow situation would be improved bydoing which of the following?a)Collect accounts receivable faster by granting promptpayment discountsb)Negotiate more extended credit terms with suppliersc)Borrow some fundsd)Sell more stock or otherwise obtain more investmentby the ownerse)Sell some unused assetsf)All of the above9)Based on the following sub-section of the operating cash flow section ofthe Cash Flow Statement select the correct answer from the list below.Analysis of working capital accounts related to operationsIncrease in A/RDecrease in InventoryIncrease in prepaid expensesIncrease in A/PIncrease in Taxes payableDecrease in unearned revenuea)b)c)10)(2,000)7,0005001,000700(7,000)The changes in these accounts indicate that this company’sworking capital related to operations is decreasing.The changes in these accounts indicate that this company’sworking capital related to operations is increasing.The above is insufficient information to determine whether ornot this company’s working capital is increasing or decreasing.If you expect sales to decrease would you prefer that more of your expenses bevariable or fixed?a)Variableb)Fixedc)Neither answer makes senseJanuary500,000900,000(400,000)(150,000)50,000(100,000)February100,000200,000(100,000)125,00025,000