Accounting 406: Introduction to Managerial Accounting
CHAPTER 1: Introduction to Managerial Accounting
1. Explain the meaning of managerial accounting.
An internal accounting system designed to support the information needs of managers. It is not bound by the GAAP (Generally Accepted
There are 3 objectives to managerial accounting: to provide information for planning the organization’s actions; to provide information for
controlling an organization’s actions and to provide information for making effective decisions.
Planning -> controlling -> feedback
2. Explain the differences between managerial accounting and financial accounting
Financial accounting focuses on the external users; must follow GAAP; provides objective and verifiable financial information; reports on
events that have already happened; focuses on overall firm performance (more aggregated viewpoint) and is self-contained.
Managerial accounting focuses on the internal users; there are no gidlines it must follow; may be financial or non-financial (more
subjective); includes historical events but focuses on future events; focuses on performance of entities, product lines, department and
managers; multiple disciplines.
3. Identify and explain the current focus of managerial accounting
It supports management focus on customer value, total quality management, and time-based consumption.
Information about value-chain activities and customer sacrifice (such as post-purchase costs) is collected and made available.
Activity-based management is a major innovative response to the demand for more accurate and relevant managerial accounting
The nature of managerial accounting information system may depend on strategic position of the firm:
o Cost leadership strategy
o -Product differentiation strategy
o Lean accounting
4. Describe the role of managerial accountants in an organization
They are responsible for identifying, collecting, measuring, analyzing, preparing, interpreting, and communicating information.
They must be sensitive to the information needs of managers
They serve as staff members of the organization and are part of the management team
5. Explain the importance of ethical behavior for managers and managerial accountants.
A strong ethical sense is needed to resist efforts to change economic information that may present an untrue picture of firm performance.
Many firms have written a code of ethics or code of conduct.
The CMA has a code of ethics for managerial accountants.
6. Identify three accounting designations available in Canada.
Certified Management Accountant (CMA)
Chartered Accountant (CA)
Certified General Accountant (CGA)
Line position: Positions that have direct responsibility for the basic objectives of an organization.
Staff position: Positions that are supportive in nature and have only indirect responsibility for an organization’s basic objectives.
Sarbanes-Oxley Act (SOX): Passed by congress in response to corporate securities fraud and corporate misconduct. It established stronger
government control and regulation of public companies.
Total quality management: A philosophy where manufacturers strive to create an environment that will enable workers to manufacture
perfect (zero-defect) products. The ‘acceptable quality’ attitude is no longer acceptable
Value Chain: the set of business functions that add value to an organization’s products or services (R&D, product design, production,
marketing, distribution and customer service). Time and efficiency are important elements for the value chain.
Focuses on cost reduction instead of cost assignment and mphasizes the maximization of system-wide performance. Concerned with driver
analysis, activity analysis & performance measurement
Customer Value: What Customer Receives – What Customer Gives Up
Activity Based Costing A more detailed approach to determining the cost of goods and services. Emphasizes cost of many activities or
tasks that must be done to produce a product