Chapter 1: Managerial Accounting

Question 1

What is managerial accounting?

Answer 1

A field of accounting that provides economic and financial information for managers and other internal users.

Question 2

In the past, managerial accountants were primarily engaged in cost accounting: collecting and reporting costs to management. That role has now changed significantly, how?

Answer 2

First, the manufacturing environment has become more automated, methods used to determine the amounts and types of costs in a product have changed. Second, today’s managerial accountants are responsible for strategic cost management; they help management evaluate how well the company is employing its resources. As a result, managerial accountants now serve as team members alongside personnel from production, marketing, and engineering.

Question 3

Which type of accounting uses determining, and which uses reporting?

Answer 3

Determining the unit cost of manufacturing a product is part of managerial accounting. Reporting the total cost of goods manufactured and sold is part of financial accounting.

Question 4

Primary Users of reports for financial accounting is:

Answer 4

External users: shareholders, creditors, and regulators

Question 5

Primary users of reports for managerial accounting is:

Answer 5

Internal users: officers and managers

Question 6

Type and frequency of reports for financial accounting:

Answer 6

Financial statements

Quarterly and annually

Question 7

Type and frequency of reports for managerial accounting:

Answer 7

Internal reports

As frequently as needed

Question 8

Purpose of financial accounting reports:

Answer 8

General-purpose

Question 9

Purpose of managerial accounting reports:

Answer 9

Special-purpose for specific decisions

Question 10

Content of financial accounting reports:

Answer 10

1. Pertains to business as a whole
2. Highly aggregated (condensed)
3. Limited to double-entry accounting and cost data
4. Generally accepted accounting principles

Question 11

Content of managerial accounting reports:

Answer 11

1. Pertains to subunits of the business
2. Very detailed
3. Extends beyond double-entry accounting to any relevant data
4. Standard is relevance to decisions

Question 12

Verification process for financial accounting:

Answer 12

Audited by CPA (chartered professional accountant)

Question 13

Verification process for managerial accounting:

Answer 13

No independent audits

Question 14

What roles do managerial accountants play?

Answer 14

• Determine product costs.
• are held responsible for evaluating how well the company is employing its resources.
• when the company makes critical strategic decisions, managerial accountants serve as team members alongside personnel from production, marketing, and engineering.

Question 15

Managers’ activities and responsibilities can be classified into three broad functions:

Answer 15

1. Planning
2. Directing
3. Controlling

Question 16

What is planning?

Answer 16

• requires management to look ahead and to establish objectives.
• maximizing short-term profits and market share, maintaining a commitment to environmental protection, and contributing to social programs
• add value to the business under its control (value is usually measured by the trading price of the company’s shares and by the potential selling price of the company.)

Question 17

What is directing?

Answer 17

• involves coordinating a company’s diverse activities and human resources to produce a smoothly running operation.
• This function relates to implementing planned objectives and providing necessary incentives to motivate employees.
• Directing also involves selecting executives, appointing managers and supervisors, and hiring and training employees.

EXAMPLES:
Dare Foods must coordinate their purchasing, manufacturing, warehousing, and selling.

Air Canada must coordinate their scheduling, sales, service, and acquisitions of equipment and supplies.

Question 18

What is controlling?

Answer 18

• the process of keeping the company’s activities on track.
• In controlling operations, managers determine whether planned goals are being achieved.
• When there are deviations from target objectives, managers must decide what changes are needed to get back on track.

EXAMPLE:
Scandals such as the Volkswagen emissions scandal attest to the fact that companies must have adequate controls to ensure that the company develops and distributes accurate information.

Question 19

How do managers achieve control in a small business?

Answer 19

A smart manager in a small operation can make personal observations, ask good questions, and know how to evaluate the answers

Question 20

How do managers achieve control in a large business?

Answer 20

Large businesses typically use a formal system of evaluation.

These systems include such features as:

• budgets
• responsibility centres,
• and performance evaluation reports

all of which are features of managerial accounting.

Question 21

What is decision-making?

Answer 21

Decision-making is not a separate management function.

Rather, it is the outcome of the exercise of good judgement in planning, directing, and controlling.

Question 22

Why do companies use organization charts?

Answer 22

In order to assist in carrying out management functions, most companies prepare organization charts that show the interrelationships of activities and the delegation of authority and responsibility within the company.