Reference no: EM133061635

Question - Joe Murphy retired a few years ago. At the age of 48, he had built up a substantial retirement portfolio through a range of entrepreneurial ventures over the years. He moved to the Snowy Mountains to follow his dream of peaceful mountain life and opened a ski equipment store near his residence. This single store soon grew into a chain of four outlets spread from the Snowy Mountains to the Victorian Alps. As Murphy put it, 'I can't believe how fast we have expanded. It's basically been uncontrolled growth'.

Although Joe's ski equipment business is profitable, the chain did have its share of problems. Sales tend to be seasonal, as sales tend to fall once the snow has disappeared. Murphy, therefore, added fishing and camping equipment to his product line. The need to finance equipment inventories left cash balances at very low levels, occasionally giving rise to short term bank loans.

Part of his business focus is on skiing trips, arranged through the local ski lodges. This includes ski hire, ski lessons, and lift passes. Reports from the company's financial accounting system indicate that this part of the business is losing money because of increasing costs, but Murphy could not be sure. 'The traditional income statement is not too useful in identifying the problem', he noted. 'Also, my gut feeling is that we are not dealing with the best suppliers in terms of quality, delivery reliability and prices.' Additional complications are caused by an increasingly competitive online marketplace, with many former customers now buying equipment through the Internet.

Murphy was not sure what to do. The company's accountant was very good at keeping the books and preparing the financial statements and tax returns, but she did not understand the way the business really worked.

Required -

-Describe the nature of the information that Murphy needs to run his business more effectively.

-Murphy approaches his accountant to seek her help in gathering and analysing this information, but she responds: 'You must be joking - I'm an accountant. My job is to look after the money side of the business'. Do you agree with her statement? Please explain.

-What actions would you recommend that Murphy takes?