Chapter 1
Introduction to Managerial Accounting
LEARNING OBJECTIVES:
When your students have finished studying this chapter, they should be able to:
1. Identify managers’ four primary responsibilities.
2. Distinguish financial accounting from managerial accounting.
3. Describe organizational structure and the roles and skills required of management accountants
within the organization.
4. Describe the role of CPA Canada and apply its guidelines for ethical behavior.
5. Discuss and analyze the implications of regulatory and business trends.
6. Describe a lean production system.
7. Describe and use the costs of quality framework.
OVERVIEW
This chapter provides an overview of the focus of management accounting and its role in organizations.
Section One: The chapter introduces managerial accounting along with the fundamental principle
of the text, which is the importance of using managerial accounting data in
decision-making. Students are introduced to the importance of cost of goods sold
and decision-making by discussing the primary responsibilities of a managerial
accountant: planning, directing, controlling, and decision-making.
Section Two: To help students understand the managerial accounting focus, financial and
managerial accounting are contrasted and compared. Managerial accounting has
internal users relying on relevant information prepared specifically for
management’s needs and financial accounting has external users using reliable and
objective information in the form of financial statements.
Section Three: The importance of using managerial accounting for decision-making is illustrated
through the presentation of organizational structures and the roles and skills
required of management accountants. In addition to their traditional costing and

reporting roles, management accountants also play an important role in developing
budgets that influence the organization’s culture and strategy.
Section Four: The importance of ethics is underscored. Ethical dilemmas are discussed and the Code
of Professional Ethics for Management Accountants is outlined.This section also
looks at Management accountants’ professional associations. Professional
accountants are now represented by the Chartered Professional Accountants of
Canada (CPA Canada) in addition to the provincial associations (eg CPA Ontario).
The three legacy accounting bodies in Canada are also discussed.
Section Five: The next section of the chapter presents the implications of regulatory and business
trends. These include the Sarbanes-Oxley Act of 2002, IFRS, XBRL, the shift
towards a service economy, competition in the global marketplace, sustainability
and social responsibility, time-based competition, advanced information systems,
and e-commerce.
Section Six: Traditional production systems are compared to lean production systems. The
advantages and drawbacks of lean production are discussed and the concept of just-
in-time inventories is introduced. Total quality management is presented as a key
to succeeding in the global economy and ISO 9001:2008 is also
discussed.Differences between traditional and lean production systems are presented
including the differences in equipment arrangement between the two systems.
Section Seven: The chapter concludes with a discussion of the costs of quality framework and the
four costs of quality: prevention, appraisal, internal failure, and external failure
costs. This framework is used to aid managers in their decision making

CHAPTER 1: OUTLINE
1. Identify managers’ four primary responsibilities{LO 1}
Management accounting can be described as the process of identifying, measuring, accumulating,
analyzing, preparing, interpreting, and communicating information that helps managers fulfill
organizational objectives.
Management accounting can be further divided into processes of planning and control. Planning
entails setting objectives and specifying how those objectives will be attained. Controlling entails
implementing plans and using feedback to attain objectives.
The management accountant’s role can be broken down into the following activities:
1. Planning:This involves setting goals and objectives for the company and determining how
to achieve them. This aspect quantifies the likely results of possible courses of action and
often recommends the best course of action to follow. Problem-solving is especially
important for long-range planning and special decisions.
2. Directing: This means overseeing the day to day operations of a company. Involves the
reporting and interpreting of information that helps managers focus on operational
problems, imperfections, inefficiencies and opportunities.
3. Controlling: This means evaluating the results of business operations against the plan and
making adjustments to meet its goals. Scorekeeping enables both internal and external
parties to evaluate the organization’s performance and position.
4. Decision Making: is central to all of the above activities. Managerial accounting gathers,
summarizes, and reports cost and revenue data relevant to the decisions being made in the
planning, directing and controlling phases.
TEACHING TIPS {LO1}
TIP #1 Exhibit 1-1 highlights Managers Four Primary Responsibilities. May want to draw this
table on the board (or show on PPT) and then discuss and write the main points of each type
of responsibility.
TIP #2: After covering managers’ four primary responsibilities, consider offering the following
example:
A manager may wish to expand a company’s custodial service from only cleaning private
homes to also cleaning corporate offices and plants. This goal is then developed into a
budget (planning). That budget is analyzed thoroughly to determine both the price points
and how to market the service (directing). After comparing the budget to the actual results,
the managerial accountant determines that the expansion into the new market is somewhat
slower than expected and decides to change its marketing strategy (controlling). Decision-
making is the fourth responsibility and occurs at all levels of the process. For example, if
the marketing strategy works and the corporation proceeds toward meeting its goals, the
managerial accountant focuses attention on which new services will be offered, how much
to charge for the services, and if loyalty discounts should be given to existing customers
who purchase these services (decision-making).
TIP#3 In teams or in partners, have students complete E1-26B Managers’ Responsibilities,
which should take about five minutes. Call on a student to give the answers.

2. Distinguish Financial Accounting from Managerial Accounting {LO 2}
At this point, the accounting student has most likely only been exposed to financial accounting.
Students sometimes have a difficult time making the adjustment from financial to managerial
accounting.
This is a great time to review the role of financial accountants in our society and then
explain the role of management accountants. In doing so, be sure to also point out some of the
similarities between financial and management accounting, as this will help students understand
that their study of management accounting focuses on external decision-makers, whereas
managerial accounting focuses on internal decision-makers.
TEACHING TIPS:{LO 2}
TIP #1: Use Exhibit 1-2 to emphasize the differences between financial and managerial
accounting. Consider presenting the following summarized version of the chart:
Managerial Accounting Financial Accounting
Users Internal (e.g. managers) External (e.g. banks)
Purpose To assist in management decision
making
To help external users make
investing and lending decisions
Primary
Accounting
Product
Any internal accounting report
worthwhile by management
Financial Statements
Content/Format Management determines what is
needed in report and how it is
formatted
Standards (IFRS, ASPE) must be
followed
Focus Future-oriented Historical basis
Emphasis Relevant Data Reliable and Objective Data
Business unit Segmented Information Company as a whole
Frequency of
Reports
Dependent on management’s needs Annually and quarterly
Audit requirement Not required Independent certified public
accountants audit required
Information
required by
outside group
No Yes. Each province has its own
security commissions that require
companies to issue audited
financial statements
Employee
Behavioural
Implications
Considered
Carefully Considered First concern is adequacy and
disclosure; behavioural
implications are secondary.
TIP#2: Use the following example: A manager is setting the price of items in the store. In order to
make this decision, the manager needs to know the cost of the items, the other
organizational costs, the sales prices for other similar items, etc. Of course, these matters
are of great importance to an internal management accountant. An external accountant
would not make the same decisions; instead, he/she would make decisions based on
information contained in the financial statements.
TIP #3: Have students complete E1-28B Identify users of accounting information (10 minutes).
Point out that most decisions impact non-accountants and stress theimportance for non-
accounting majors to understand managerial accounting.
3. Describe Organizational Structure and the Roles and Skills Required of

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Managerial Accounting, Third Canadian Edition Class Notes

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