ACC 406 Study Guide - Final Guide: Activity-Based Costing

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11 Apr 2012
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Wednesday January 11th, 2012
Chapter 1
Introduction to Management Accounting
What is Managerial Accounting?
-managerial accounting is providing information for a company’s internal users
-it is the firm’s internal accounting system
-it is designed to support the information that managers need
-it is not bound by any formal criteria such as GAAP or IFRS (International Financial Reporting Standards)
-managerial accounting has 3 basic objectives:
1. Provide information for planning the organizations actions
2. Provide information for controlling the organizations actions
3. Provide information for making effective decisions
Information Needs for Planning, Control, and Decision Making:
-managerial accounting information is needed by a number of individuals, in particular managers and
empowered workers need comprehensive, up to date information for the following activities:
Planning: requires setting objectives and identifying methods to achieve those objectives
EX: a firm may set the objectives of increasing its short term and long term profitability
by improving the overall quality of its products
Controlling: monitoring a plans implementation and taking corrective actions, usually achieved
by comparing actual performance with expected performance
EX: managers may decide to let the plan continue as is, take corrective action of some
type to put the action back with the original plan
Decision Making: process of choosing alternatives
Managers cannot successfully plan or control the organization actions without making
decisions regarding competing alternatives
Comparison of Managerial and Financial Accounting
-there are two kinds of accounting information systems:
Financial Accounting
Managerial Accounting
Managerial Accounting:
-internal focus such as managers, executives and workers
-there are no rules
-financial and non financial information
-deals with future; strongly emphasizes information about future events
-it is broad
Financial Accounting:
-external focus such as investors, creditors, customers, suppliers and government
-must follow GAAP rules
-objective financial information
-it deals with historical orientation; records and reports events that happened
-not as broad as managerial accounting; self contained
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Wednesday January 11th, 2012
Value Chain:
-refers to the set of business functions that add value to an organization’s products or services
-for a company to succeed all stages of the value chain add value to the final product
-value chain is a systematic approach to examine the development of a firm’s competitive advantage
-when value is built into each stage of a product or service, this increases the total value delivered by
the organization
-value chain includes:
Design
Develop
Produce
Market
Deliver
-management accountants play a key role in delivering all value chain functions; they provide estimated
revenue and cost data for each stage of the products life
The Role of the Managerial Accountant
-managerial accountants must support management in all phases of business decision making
-as specialists in accounting, they must be intelligent, well prepared, up to date with new developments,
and familiar with the customs and practices of all countries in which their firms operate
Structure of the Company:
-role of managerial accountants in an organization is one of support
-they assist individuals who are responsible for carrying out organizations basic objectives
-structure of company includes:
Line Position: position that have direct responsibility for the basic objectives of an organization
EX: vice presidents of manufacturing and marketing, factory managers and assemblers
Staff Position: position that are supportive in nature and have only indirect responsibility for an
organizations basic objective
EX: vice presidents of finance and human resources, the cost accountant and the
purchasing manager
Controller: the controller is often viewed as a member of top management team and is
encouraged to participate in planning, controlling and decision making activities, controller has
responsibility for both internal and external accounting requirements
Treasurer: is responsible for the finance position, specifically the treasurer raises capital and
managers cash and investments, treasurer may also be in charge of credit, collection and
insurance
Managerial Accounting, Ethical Conduct and Social Responsibility
-objective of profit maximization should be constrained by the requirement the profits be achieved
through legal and ethical means
-this has always been an implicit assumption of managerial accounting, the assumption should be made
explicit
Ethical Behaviour:
-involves choosing actions that are right, proper and just
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-behaviour can be right or wrong, proper or improper, fair or unfair groups bears some responsibility for
the well being of other members
-ethical behaviour includes:
1. Competence
2. Integrity
3. Credibility
4. Confidentiality
One of the biggest things!
5. Fairness
6. Caring for others
Chapter 2
Basic Managerial Accounting Concepts
The Meaning and Uses of Cost
-most important task of managerial accounting is to determine the cost of product, service, customers
and other items of interest to managers
EX: a small gourmet restaurant, the owner needs to understand the breakdown of the
restaurants costs into various categories, cost categories include direct costs (food and
beverages) and indirect costs includes laundry of linens
Costs:
-amount of cash or cash equivalent sacrificed for goods and or services that are expected to bring a
current or future benefit to the organization
EX: if a furniture manufacturer buys lumber for $10000, then the cost of lumber is $10000
EX: if the manufacturer trades office equipment at a value of $8000 for a forklift, then the cost
of the forklift is $8000 which is the value of the office equipment
-cost is a dollar ($) measure of the resources used to achieve a given benefit
-as costs are used up in the production of revenues, they are sold to expire
Expired costs are called expenses
-on the income statement, expenses are deducted from revenues to determine income aka profit
-revenue per unit is called price
Price must be greater than cost in order for the firm to earn income
Accumulating and Assigning Costs:
-accumulating costs is the way costs are measured and recorded
EX: when a telephone bill comes into the company, the bookkeeper records an addition to the
telephone expense account and an addition to the liability account; account payable, that is how
cost is accumulated
-accumulating costs tell the company what was spent
-assigning costs is the way that a cost is linked to some cost object
Cost object is something for which a company wants to know the cost
EX: of the total telephone expense, how much was for sales department and how much was for
manufacturing?
-assigning costs tells the company why the money was spent
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