Managerial Accounting Chapter 1

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State the primary goal of managerial accounting.
to provide the information managers need for planning, control, and decision making. If your goal is to be an effective manager, a thorough understanding of managerial accounting is essential.
Describe how budgets are used in planning.
a profit budget indicates planned income, a cash-flow budget indicates planned cash inflows and outflows, and a production budget indicates the planned quantity of production and the expected costs; estimates used for planning.
Describe how performance reports are used in the control process.
Control of organizations is achieved by evaluating the performance of managers and the operations for which they are responsible; Managers can compare actual results with planned results and decide whether corrective action is necessary.
management by exception
managers investigate departures from the plan that appear to be exceptional; they do not investigate minor departures from the plan.
Distinguish between financial and managerial accounting.
1. Managerial accounting is directed at internal rather than external users of accounting information.

2. Managerial accounting may deviate from generally accepted accounting principles (GAAP).

3. Managerial accounting may present more detailed information.

4. Managerial accounting may present more nonmonetary information.

5. Managerial accounting places more emphasis on the future.

Variable Costs
Costs that increase or decrease in proportion to increases or decreases in the level of business activity
Fixed Costs
Costs that remain constant when there are changes in the level of business activity
sunk costs
Costs incurred in the past; These costs are not relevant for decision making because they do not change when decisions are made
opportunity cost
The value of benefits forgone when one decision alternative is selected over another
direct costs
Costs that are directly traceable to a product, activity, or department
indirect costs
costs that either cannot be directly traced to a product, activity, or department or are not worth tracing.
controllable cost
a cost that the managers can influence
noncontrollable cost
a cost that the manager cannot control
Explain the two key ideas in managerial accounting.
1.) Decision making relies on incremental analysis—an analysis of the revenues that increase (decrease) and the costs that increase (decrease) if a decision alternative is selected.
2.) You get what you measure
incremental analysis
involves the calculation of the difference in revenue and the difference in cost between decision alternatives.
incremental revenue/cost
The difference in revenue/cost of one alternative over another
value chain
comprises the fundamental activities a firm engages in to create value; When the value to the customer of receiving products and services exceeds the cost of these activities, firm value is created
Enterprise Resource Planning Systems
have ability to prepare a master production schedule and a bill of materials and generate purchase orders
Supply Chain Management Systems
the organization of activities between a company and its suppliers in an effort to provide for the profitable development, production, and delivery of goods to customers
Customer Relationship Management Systems
used to manage a variety of customer interactions
prepares reports for planning and evaluating company activities (e.g., budgets and performance reports) and provides the information needed to make management decisions (e.g., decisions related to purchasing office equipment or decisions related to adding or dropping a product). The controller also has responsibility for all financial accounting reports and tax filings with the Internal Revenue Service and other taxing agencies, as well as coordinating the activities of the firm’s external auditors.
Categories: Managerial Accounting