Managerial Accounting

1. For questions 1-3 the three comparative analysis tools are:

1) In Horizontal Analysis (or trend analysis) you evaluate financial statement data over a certain period of time. Ex: You compare intracompany financials from 2 years at Parker Paper Products Company.

2) Vertical Analysis entails evaluation of the financial statement data whereby each data item is shown as a percent of the base amount. Using Net Sales as the base amount, in an income statement, you compute the percentage of income items for Parker Shoe Company and compare it to the percentage of income from Thomas Shoe Company.This way you can see how one is faring financially compared to the competitor.

3) Ratio Analysis involves analyzing data as an expression of relationship between certain financial statement data items. This tool is useful in detecting underlying problems that are not evident otherwise.

Decide which tool you would use based on each circumstance described.

Leatherbury Inc., which produces fine leather purses, wants to see how well it has performed during the last decade.

(Points : 2)