CH 1 Guide

Chapter
1
Managerial Accounting, the
Business Organization, and
Professional Ethics
LEARNING OBJECTIVES:
When you have finished studying this chapter, you should be able to:
1. Explain why accounting is essential for decision makers and managers.
A. To understand how the organization’s decisions, affect costs and revenues; to be

better decision maker
B. Plan and control organization’s operations. Plan is for how to achieve objectives
and Control is the process of performance evaluation and systems.
2. Describe the major users and uses of accounting information.

Accounting system – A formal mechanism for gathering, organizing, and
communicating information about an organization’s activities.
USERS:
1. Management Acc: Organization managers at various levels.

2. Financial Acc: Outside parties such as investors and government agencies (but also
org. managers)
USES:
1. Decision making.
2. Scorekeeping: The accumulation, classification, and reporting of data that help
users understand and evaluate performance.
3. Attention directing: Reporting and interpreting information that helps managers to
focus on operating problems, imperfections, inefficacies, and opportunities.
4. Problem-solving: Analysis of possible courses of action and identification of the
best course to follow.
3. Explain the role of budgets and performance reports in planning and control.
Performance reports: provide feedback by comparing results with plans and by
highlighting variances. Organizations use perf. Reports to judge managers’ decisions
and the productivity of organizational units. Perf.reports compare actual results to
budgets, thereby motivating managers to achieve the objectives.
Budget: the quantitative expression of a plan of action and an aid to coordinating and
implementing the plan.
4. Describe the cost-benefit and behavioral issues involved in designing an accounting

system.
Cost-benefit balance: weighing estimated costs against probable benefits – is the

primary consideration in choosing among accounting system and methods.
Behavioral implications: system’s effect on employees’ decisions and behavior. If

managers make decisions that disbalance performance report, they may lose
confidence in the system and not let it influence future decision.
5. Discuss the role accountants play in the company’s value-chain functions.
Value Chain – the set of business functions or activities that add value to the
products or services of an organization.
1. Research and development - is the process of coming up with new products or

improving existing products.
2. Design includes detailed plans for products and how those products will be
produced in sufficient quantities and in ways that are acceptable to society. This is
the step where the engineering takes place. If research and development are how to
create the product, the design is how to build the product.
3. Production and Purchasing - the company allocate resources to making or
purchasing its product. For a manufacturing company, the company must purchase
materials, pay for labor, and pay for the costs to run the facilities used in the
production process.
4. Marketing - to spread the word about our product and convince customers that
they can’t live without it. All marketing avenues cost resources. Getting celebrities to
endorse a product is expensive. Placing ads on television and in print media is
expensive.
5. Distribution: delivery
6. Customer Service: support activities provided to the customers.
6. Identify current trends in management accounting.
7. Explain why ethics and standards of ethical conduct are important to accountants.
CHAPTER 1: Quiz/Demonstration Exercises
Learning Objective 1
1. The major internal users of accounting information are .
a. managers who use information for day-to-day operating decisions

b. investors for investment decisions
c. government authorities
d. none of the above
2. In the European Union external reporting must comply with .
a. GAAP
b. IFRS
c. IRS
d. FASB
Learning
Objective 2
3. Which of the following should be considered in the selection of an accounting

system?
a. behavioral effects of the system on managers

b. costs of buying and operating the system
c. improved decision-making power resulting from the system
d. all the above
4. Concentrating on areas that need attention and ignoring areas that appear to be
running smoothly is called .
a. variance analysis
b. management by exception
c. management smoothing
d. budget analysis
5. Which of the following is not an example of a special report?
a. cash flow report

b. customer survey
c. competitor analysis
d. advertising impact analysis
6. The various stages through which a product passes are called:
a. planning cycle
b. control period
c. budget cycle
d. product life cycle
1. Conception and product development
2. Introduction into the market
3. Maturation of the market
4. Withdrawal from the market
7. The focus on customers occurs in which functions of the value chain?
a. research and development

b. production
c. marketing
d. distribution
e. all of the above
8. The value-chain is a set of business functions that .
a. are of equal importance

b. are non-value added functions
c. are preferable functions
d. are value-added functions
e. are only related to distribution
9. The functions of planning for control, evaluating and consulting, and governmental
reporting are typically assumed within organizations by .
a. the company treasurer

b. the company controller
c. the company vice president of marketing
d. external auditors
ACCOUNTANT’S ROLE IN THE ORGANIZATION:

- Collecting and compiling information
- Preparing standardized reports
- Interpreting and analyzing information
- Being involved in decision making
10. he treasurer function includes
a. tax administration
b. evaluating and consulting
c. investor relations
d. economic
appraisal
The CMAs (certified management accountant) must pass an exam that includes .
e. financial control
f. financial decision making
g. financial planning
h. all of the above
11. Which designation is the internal accountant’s counterpart to the CPA?

(certified public accountant)
a. CA chartered accountant
b. CMA
c. CFP
d. none of the
above Learning Objective 6
12. Trends that are causing changes in management accounting today include:
a. advances in technology
b. increased global competition
c. a shift from a manufacturing to a service-based economy
d. A and B
e. A, B, and C
13. A step-in change in business process management to gain efficiency by continuous

process improvement to eliminate waste from the entire enterprise is called .
a. just in time
b. lean manufacturing
c. waste management
d. none of the
above Learning Objective 7
14. Ethical obligations of management accountants are governed by the IMA

Statement of Ethical Professional Practice, which outlines responsibilities
regarding .
a. incompetence, full disclosure of all information, moral decay, and partisanship

b. assisting in maximizing profits regardless of the means necessary
c. competence, confidentiality, integrity, and objectivity
d. none of these
15. In the IMA’s Statement of Ethical Professional Practice, which of the following is
not an
example of Competence?
a. provide decision support information and recommendations that are accurate

b. avoid actual or apparent conflicts of interest
c. maintain an appropriate level of professional expertise
d. perform professional duties in accordance with relevant law
Tuesday: Reading guide, slides, theory, exercises (not as homework)
Thursday: Mechanics

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Chapter

1. Explain why accounting is essential for decision makers and managers.

A. To understand how the organization’s decisions, affect costs and revenues; to be

2. Describe the major users and uses of accounting information.

1. Management Acc: Organization managers at various levels.

4. Describe the cost-benefit and behavioral issues involved in designing an accounting

Cost-benefit balance: weighing estimated costs against probable benefits – is the

Behavioral implications: system’s effect on employees’ decisions and behavior. If

5. Discuss the role accountants play in the company’s value-chain functions.

1. Research and development - is the process of coming up with new products or

1. The major internal users of accounting information are .

a. managers who use information for day-to-day operating decisions

2. In the European Union external reporting must comply with .

3. Which of the following should be considered in the selection of an accounting

a. behavioral effects of the system on managers

5. Which of the following is not an example of a special report?

a. cash flow report

6. The various stages through which a product passes are called:

7. The focus on customers occurs in which functions of the value chain?

a. research and development

8. The value-chain is a set of business functions that .

a. are of equal importance

a. the company treasurer

ACCOUNTANT’S ROLE IN THE ORGANIZATION:

11. Which designation is the internal accountant’s counterpart to the CPA?

above Learning Objective 6

13. A step-in change in business process management to gain efficiency by continuous

above Learning Objective 7

14. Ethical obligations of management accountants are governed by the IMA

a. incompetence, full disclosure of all information, moral decay, and partisanship

a. provide decision support information and recommendations that are accurate

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