Cambridge Business Publishers

Preface

Welcome to our book, Managerial Accounting. Our book presents managerial accounting in the context of a big-picture, decision oriented, business setting. It integrates traditional coverage with new, cutting-edge, topics such as strategic analysis, value chain, value added, virtual integration, process mapping, upstream, downstream, internal failure, external failure, structural cost drivers, outsourcing, managerial ethics, and cost hierarchy. It does this with an eye toward simplicity and accessibility for the general business student since a book is not useful if it is not read. An overriding aim of our book is to engage students to read further and understand the materials presented.

Managerial accounting focuses on using financial and nonfinancial information by insiders to make strategic, organizational, and operational decisions. Our book provides a framework for identifying and
analyzing decision alternatives and for evaluating success or failure in accomplishing such organizational goals. Although accountants are important in the managerial accounting process, managerial accounting
is more about managerial tools than processes. In our era of global competition, continuous improvement, process reengineering, and employee empowerment, managerial accounting is used by decision
makers at all levels, rather than just by “managers.” One goal of our book is to introduce students to this reality.

Our book is written for all business students - not just accounting students. We place managerial accounting in a broad business context, relating it to other business areas. We also avoid details that are
appropriate for advanced cost accounting books. Like the trunk of a tree, our book serves as a strong base for students’ future knowledge growth and as a means of unifying the branches of business management.

We also emphasize use of managerial accounting information for decision making within the context of organizational strategy. The organization and content of our book reflect our belief that students
who understand the big picture are better learners, are better decision makers, and are better able to apply what they learn. That is, if we have or know how to develop a map of the forest, we are less apt to
get lost among the trees. The following illustrate the big picture, decision orientation, of our book.

• Strategic Position Analysis Our book uses concepts from the management literature such as strategic position analysis ascribed to Michael Porter. Strategic position analysis considers the consequences of managerial decisions on how a business competes in the marketplace (e.g., low price/cost, product differentiation and innovation, and market niche). Those decisions affect managers’ need for and use of accounting information. An example is:
  • Chapter 1 pages 7–9
    
• Structural, Organizational, and Activity Cost Drivers Most managerial books consider only activity cost drivers, which is not reality. Our book recognizes additional cost drivers as evidenced in the management literature. Specifically, decisions regarding size, location, and target customers involve structural cost drivers, decisions regarding organization of processes and design of products and services involve organizational cost drivers, and the performance of tasks involve activity cost drivers. This broader and more realistic framework allows students to see that costs must be managed when making structural and organizational decisions as well as when performing activities. Examples are:
  • Chapter 1 pages 13–16
  • Chapter 5 pages 152–154
    
• Activity-Cost Concepts Emphasize Decisions Activity cost concepts are introduced when explaining cost analysis/planning, profitability analysis/planning, and business decisions; and not simply as an alternative for product costing. This decision orientation provides a framework for understanding the use of activity-cost concepts for activity-based management. It also aids students in thinking outside the product costing box. Introducing ABC as an alternative for product costing is flawed in that it places students in a product costing box that we must then help them get out of, and many never do. Examples are:
  • Chapter 2 pages 45–47
  • Chapter 3 pages 84–87
  • Chapter 4 pages 106–110
    
• Deemphasize distinction between Product and Period Costs The accounting distinction between product and nonproduct costs (introduced early in most books) is not the central theme of managerial accounting, is misleading for students, diverts attention from analysis of the
  complete value chain, and forces an unnecessary distinction between manufacturing and nonmanufacturing organizations. This book successfully scales this trap.
  
• Unit Level-Hierarchical Framework for Analysis We use a unit level-hierarchical framework to show how activity-based approaches to cost estimation, profitability analysis, and budgeting relate to, yet differ from, approaches based on the variable-fixed cost dichotomy. We explain
  when each is appropriate and the pitfalls of the unit level approach in situations involving variations in complexity or volume of products and services. Examples are:
  • Chapter 2 pages 32–44 & 49–52
  • Chapter 3 pages 72–75 & 84–86
  • Chapter 11 pages 398–400
    
• Value Chain, Internal Processes, and Activities within Processes We place activities within a broad context of internal processes and the external value chain for a product or service. This big picture orientation is better for student learning and application of activity concepts. Students also better retain a frame of reference when immersed in the details of activity management. To foster big-picture learning, the first example of ABC is extended across all internal processes, rather than being limited to product costing. Examples are:
  • Chapter 5 pages 148-152 for value chain orientation
  • Chapter 5 pages 157-165 for ABC across internal processes
    
• Activity-Based Costing and Organizational-Based Costing We relate product costing applications of ABC to traditional costing concepts, which we identify as organizational-based costing. This context and reference points foster learning and retention, as well as provide a basis for extending concepts to new situations. Examples are:
  • Chapter 6 pages 199–200 for obtaining information for financial reporting
    from full activity-based costs
  • Chapter 7 pages 253–256 for discussion of organizational-based costing
    and product costing continuum
  • Chapter 8 pages 294–296 for inventory valuation comparisons
    from theory of constraints to full ABC

We take a cost driver approach within the context of an organization’s entire value chain. The result is a book that is more relevant, interesting, and usable for students. Traditional financial reporting issues related
to inventory costing are deferred until after students have studied cost drivers, the value chain, activitybased management, and activity-based costing. Students use knowledge gained in the early chapters to better
understand inventory cost system alternatives, rather than using basic ‘product costing’ concepts (developed for financial reporting) as a learning foundation. Instructors also avoid the need to explain the
shortcomings of traditional approaches to product costing to students in the first few weeks of class.

Global business activities, employee empowerment, the value chain, process management, activity based costing, and competition on the basis of cost, quality, and service are woven into the book. Managerial
ethics receives extensive coverage. For example, ethics is introduced in the context of measurement and management in Chapter 1 and discussed further in Chapters 4, 9, and 11. “What’s Happening”
features in Chapters 1, 10, 11 and 12 also highlight the importance of managerial ethics. Assignments dealing with ethics are included in numerous chapters.

Our book includes pedagogical tools that help motivate and teach students. Examples follow:

• Opening vignettes involve real companies in real industries; they add context to chapter
  materials and the learning experience
• Service, merchandising, and manufacturing examples fill the text to show relevance of
  managerial accounting to a diverse set of organizations
• “What’s Happening” boxed features illustrate how real companies use managerial
  accounting for insights in solving real problems
• “Research Shows” boxed features report on applied managerial accounting research
• Assignments are reliable, class-tested, and help students learn and instructors teach; they include questions, exercises, problems, and cases, with solutions written by the authors

These and other pedagogical tools help make our book a powerful learning tool for students and teaching tool for instructors.