ACC 406 Final Exam
Study Guide
Chapter 1 – Introduction to Managerial Accounting
What is Managerial Accounting?
Financial accounting – producing information (financial statements) for external users, including
investors, creditors, customers, suppliers, government (CRA), and labour unions
Managerial accounting – provides accounting information for a company’s internal users
• Not bound by GAAP or IFRS
• Designed to provide information for:
o Planning the organization’s actions
o Controlling the organization’s actions
o Making effective decisions
Planning – a management activity that involves the detailed formulation of action to achieve a
particular end
Controlling – the management activity of monitoring a plan’s implementation and taking corrective
action as needed
Decision making – the process of choosing among competing alternatives
Comparison of Financial and Managerial accounting
Managerial Accounting Financial Accounting
• Internally focused • Externally focused
• No mandatory rules • Must follow externally imposed rules
• Financial and nonfinancial information; • Objective financial information
subjective information possible • Historical orientation
• Internal information and decision making • Information about the firm as a whole
based on decisions, departments, • More self-contained
products and jobs
• Broad, multidisciplinary
Triple bottom line – performance measures for companies to include financial, social, and
environmental factors
Current Focus of Managerial Accounting
Changes in technology, transportation, and communication result in new focus of:
• New methods of costing products and services such as activity-based costing
Activity-based Costing (ABC) – a method for costing goods and services that emphasize the cost of
the many activities that must be done to produce a product or offer a service
⟶ Objective – find ways to perform necessary activities more efficiently and eliminate those that
to not create customer value
, • Understanding customer orientation
o Customer value = what customer receives – what customer gives up
o Two strategies: Cost leadership and Superior products through differentiation
o Product life cycle – new products’ series of stages: conception, introduction to the
market, growth, maturity, and decline and eventual withdrawal from the market
o Value chain – the set of activities required to design, develop, produce, market, and
deliver products and services to customers
• Evaluation from a cross-functional perspective
o Cross-functional perspective – seeing the interrelation in the disciplines of managerial
accounting, marketing, management, engineering, finance, and other business
functions
• Improving total quality management
o Continuous improvement – searching for ways to increase the overall efficiency and
productivity of activities by reducing waste, increasing quality, and managing costs
o Total quality management – a management philosophy in which manufacturers strive
to create an environment that will enable workers to manufacture perfect (zero-defect)
products
o Lean accounting – an accounting practice that organizes costs according to the value
chain focusing primarily on the elimination of waste. The objective is to provide
information to managers that support this effort and to provide financial statements that
better reflect overall performance, using financial and nonfinancial information
• Emphasis of time as a competitive element
• Improving efficiency
o Financial measures – costs are a crucial measure of efficiency
o Non-financial measures – to be effective cost must be defined, measured, and assigned
• Service and not-for profit organizations
The Role of the Management Accountant
Line positions – positions that have direct responsibility for the basic objectives of an organization
Staff positions – positions that are supportive in nature and have only indirect responsibility for an
organization’s basic objectives
Controller – the chief accounting officer in an organization
Treasurer – the individual responsible for the finance function; raises capital and manages cash and
investments
Sarbanes-Oxley Act of 2002 – passed by the US congress in response to corporate securities fraud
and corporate misconduct. This legislation established a stronger government and regulation of public
companies through:
1. Enhanced auditor independence
2. Tightened regulation of corporate governance
3. Control over management
4. Manager/auditor assessment of the firm’s internal control
5. Increased attention to corporate ethics
,Ontario Bill 198 – a bill passed by the Ontario Legislature in response to a variety of financial
scandals in Canada and the United States. It enacts Legislation similar to the Sarbanes-Oxely Act in
the United States
Accounting Designations and Career Opportunities
Ethical behaviour – involves choosing actions that are right, proper, and just.
Chartered Accountant (CA) – accountant who works as a business professional in public practice,
industry, government, or education. CA’s must pass a rigorous national examination and be licensed
by the province in which they practice
Certified Management Accountant (CMA) – a certified management accountant who has passed
the examination, has met the experience requirement, and participates in continuing education
Certified General Accountant (CGA) – a certified accountant who is permitted (by law) to serve as
an external auditor
CPA Canada – as of June 2014, the body that brings together the three groups across Canada and
confers on members the designation of CPA through its provincial counterparts
Charter Professional Accountant (CPA) – the designation for professional accountants in Canada.
All the three professional bodies of accounting have been merged into a single body. There is a
national examination and they must be licensed by the province in which they practice
, Chapter 2 – Basic Managerial Accounting Concepts
The Meaning and Uses of Cost
Cost – is the amount of cash or cash equivalent scarified for goods and/or services that are expected
to bring future or current benefits (revenues)
Expenses – costs that are used up (expired) in the production of revenue
Price – is the revenue per unit
Income statement –
• Expenses are deducted from revenues to determine the net income (or profit)
⟶ Revenues > Costs = Profit
⟶ Revenues = Costs = Zero Profit
⟶ Revenues < Costs = Losses
Accumulating costs – the way that costs are measured and recorded
Assigning costs – the way that costs are linked to some cost object
• Tells the company why the money was spent
Cost object – any item such as a product, customer, department, project, and so on, for which costs
are measured and assigned
• Examples:
o Products
o Services
o Customers
o Departments
o Geographic regions
Opportunity costs – the benefit that is given up or scarified when one alternative is chosen over
another
Direct costs – costs that can be easily and accurately traced to a cost object
• Relationship between cost and the object can be physically observed
• Traceable
Indirect costs – costs that cannot be easily and accurately traced to a cost object
• Non-traceable – so these costs need to be allocated/assigned
• Relationship cannot easily observed
Allocation – when an indirect cost is assigned to a cost object using a reasonable and convenient
method
Fixed costs – costs that, in total are constant as the level of output increases or decreases
• Remains fixed with activity level
Variable costs – costs that, in total, varies in direct proportion to changes in output (activity level)
Study Guide
Chapter 1 – Introduction to Managerial Accounting
What is Managerial Accounting?
Financial accounting – producing information (financial statements) for external users, including
investors, creditors, customers, suppliers, government (CRA), and labour unions
Managerial accounting – provides accounting information for a company’s internal users
• Not bound by GAAP or IFRS
• Designed to provide information for:
o Planning the organization’s actions
o Controlling the organization’s actions
o Making effective decisions
Planning – a management activity that involves the detailed formulation of action to achieve a
particular end
Controlling – the management activity of monitoring a plan’s implementation and taking corrective
action as needed
Decision making – the process of choosing among competing alternatives
Comparison of Financial and Managerial accounting
Managerial Accounting Financial Accounting
• Internally focused • Externally focused
• No mandatory rules • Must follow externally imposed rules
• Financial and nonfinancial information; • Objective financial information
subjective information possible • Historical orientation
• Internal information and decision making • Information about the firm as a whole
based on decisions, departments, • More self-contained
products and jobs
• Broad, multidisciplinary
Triple bottom line – performance measures for companies to include financial, social, and
environmental factors
Current Focus of Managerial Accounting
Changes in technology, transportation, and communication result in new focus of:
• New methods of costing products and services such as activity-based costing
Activity-based Costing (ABC) – a method for costing goods and services that emphasize the cost of
the many activities that must be done to produce a product or offer a service
⟶ Objective – find ways to perform necessary activities more efficiently and eliminate those that
to not create customer value
, • Understanding customer orientation
o Customer value = what customer receives – what customer gives up
o Two strategies: Cost leadership and Superior products through differentiation
o Product life cycle – new products’ series of stages: conception, introduction to the
market, growth, maturity, and decline and eventual withdrawal from the market
o Value chain – the set of activities required to design, develop, produce, market, and
deliver products and services to customers
• Evaluation from a cross-functional perspective
o Cross-functional perspective – seeing the interrelation in the disciplines of managerial
accounting, marketing, management, engineering, finance, and other business
functions
• Improving total quality management
o Continuous improvement – searching for ways to increase the overall efficiency and
productivity of activities by reducing waste, increasing quality, and managing costs
o Total quality management – a management philosophy in which manufacturers strive
to create an environment that will enable workers to manufacture perfect (zero-defect)
products
o Lean accounting – an accounting practice that organizes costs according to the value
chain focusing primarily on the elimination of waste. The objective is to provide
information to managers that support this effort and to provide financial statements that
better reflect overall performance, using financial and nonfinancial information
• Emphasis of time as a competitive element
• Improving efficiency
o Financial measures – costs are a crucial measure of efficiency
o Non-financial measures – to be effective cost must be defined, measured, and assigned
• Service and not-for profit organizations
The Role of the Management Accountant
Line positions – positions that have direct responsibility for the basic objectives of an organization
Staff positions – positions that are supportive in nature and have only indirect responsibility for an
organization’s basic objectives
Controller – the chief accounting officer in an organization
Treasurer – the individual responsible for the finance function; raises capital and manages cash and
investments
Sarbanes-Oxley Act of 2002 – passed by the US congress in response to corporate securities fraud
and corporate misconduct. This legislation established a stronger government and regulation of public
companies through:
1. Enhanced auditor independence
2. Tightened regulation of corporate governance
3. Control over management
4. Manager/auditor assessment of the firm’s internal control
5. Increased attention to corporate ethics
,Ontario Bill 198 – a bill passed by the Ontario Legislature in response to a variety of financial
scandals in Canada and the United States. It enacts Legislation similar to the Sarbanes-Oxely Act in
the United States
Accounting Designations and Career Opportunities
Ethical behaviour – involves choosing actions that are right, proper, and just.
Chartered Accountant (CA) – accountant who works as a business professional in public practice,
industry, government, or education. CA’s must pass a rigorous national examination and be licensed
by the province in which they practice
Certified Management Accountant (CMA) – a certified management accountant who has passed
the examination, has met the experience requirement, and participates in continuing education
Certified General Accountant (CGA) – a certified accountant who is permitted (by law) to serve as
an external auditor
CPA Canada – as of June 2014, the body that brings together the three groups across Canada and
confers on members the designation of CPA through its provincial counterparts
Charter Professional Accountant (CPA) – the designation for professional accountants in Canada.
All the three professional bodies of accounting have been merged into a single body. There is a
national examination and they must be licensed by the province in which they practice
, Chapter 2 – Basic Managerial Accounting Concepts
The Meaning and Uses of Cost
Cost – is the amount of cash or cash equivalent scarified for goods and/or services that are expected
to bring future or current benefits (revenues)
Expenses – costs that are used up (expired) in the production of revenue
Price – is the revenue per unit
Income statement –
• Expenses are deducted from revenues to determine the net income (or profit)
⟶ Revenues > Costs = Profit
⟶ Revenues = Costs = Zero Profit
⟶ Revenues < Costs = Losses
Accumulating costs – the way that costs are measured and recorded
Assigning costs – the way that costs are linked to some cost object
• Tells the company why the money was spent
Cost object – any item such as a product, customer, department, project, and so on, for which costs
are measured and assigned
• Examples:
o Products
o Services
o Customers
o Departments
o Geographic regions
Opportunity costs – the benefit that is given up or scarified when one alternative is chosen over
another
Direct costs – costs that can be easily and accurately traced to a cost object
• Relationship between cost and the object can be physically observed
• Traceable
Indirect costs – costs that cannot be easily and accurately traced to a cost object
• Non-traceable – so these costs need to be allocated/assigned
• Relationship cannot easily observed
Allocation – when an indirect cost is assigned to a cost object using a reasonable and convenient
method
Fixed costs – costs that, in total are constant as the level of output increases or decreases
• Remains fixed with activity level
Variable costs – costs that, in total, varies in direct proportion to changes in output (activity level)
