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Ken Smith retired a few years ago at the age of 48, having built up a substantial retirementportfolio through a range of entrepreneurial activities. He moved to the Snowy Mountainsto follow his dream of a peaceful mountain life. However, after a few months, Smithbecame restless and opened a ski equipment store. The single store soon grew into a chainof four outlets spread from the Snowy Mountains to the Victorian Alps. As Smith put it, '1can't believe how fast we've expanded. It's basically been uncontrolled growth-growth

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nas occurred despite what we've done'.

Although business was profitable, the chain did have its share of problems. Sales tendedto be seasonal, with a slowdown once the snow had disappeared. Smith therefore addedfishing and camping equipment to his product line. The need to finance requiredinventories seemed to be bulging and left cash balances at very low levels, occasionallygiving rise to the need for short-term bank loans

Part of Smith's business focussed on sking trips, which were arranged through local sklodges, and included ski hire, lessons, and lift passes. Reports from the company's financiaaccounting system seemed to indicate that this part of the business was losing moneybecause of increasing costs, but Smith could not be sure. The traditional profit or loss'statement is not too useful in assessing the problem', he noted. 'Also, my gut feeling isthat we are not dealing with the best suppliers in terms of quality, delivery reliability ancprices'. Additional complications were caused by an increasingly competitive marketplacewith many former customers now buying equipment online.

5mith was not sure what to do. The company's accountant was very good at keeping theaccounting records and preparing the financial statements and tax returns, but she dicnot understand the way the business really operated.

Required:

1. Discuss the types of managerial accounting information that Smith may need to runhis business more effectively. Be specific and provide e

e examples. (9 marks)

Smith approaches the accountant to seek her help in gathering and analysing thisinformation, but she responds: 'you must be joking -Im the accountant. My job isonly to do the external financial statements and complete the tax return!'. Do youagree with this statement? Explain. (3 marks)

3. What actions would you recommend that Smith takes? (3 marks)

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