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Preface
Welcome to Managerial Accounting. Our book presents managerial accounting in the context of a big-picture, decision oriented, business setting. It integrates traditional coverage with cutting-edge topics such as lean accounting, activity-based management, customer profitability analysis, and value chain analysis. It does this with an eye toward 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.
APPROACH
Managerial accounting focuses on using fi nancial and nonfi nancial information by managers and associates of a fi rm 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, the tools of managerial accounting are 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 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.
EMPHASIS
We emphasize the use of managerial accounting information for decision making within the context of organizational strategy. The organization and content of our book refl ect 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.
The following illustrate the big picture, decision orientation, of our book.
- Strategic Focus Our book uses concepts from the management literature such as strategic position analysis and value chain analysis. Strategic position analysis considers the consequences of managerial decisions on how a business competes in the marketplace (such as with low price/cost, product differentiation and innovation, and market niche). Those decisions affect managers’ need for and use of accounting information. It also places managerial decision making within the context of a company’s internal and external value chains. Examples include:
Chapter 1 pages 8–10
Chapter 8 pages 252–256
- Activity-Cost Concepts Emphasize Decisions Activity concepts are presented not only within the context of product costing but also within the context of improved decision making about products, customers, budgets, and performance assessment. This decision orientation provides a framework for understanding the use of activity-cost concepts for activity-based management. It aids students in thinking outside the product costing box. Examples include:
Chapter 2 pages 42–44
Chapter 6 pages 191–193
Chapter 9 page 290
- Deemphasize distinction between Product and Period Costs The accounting distinction between product and non-product costs (introduced early in most books) is not the central theme of Managerial Accounting. Instead we focus on analysis of the complete value chain for both manufacturing and nonmanufacturing organizations, rather than presenting managerial accounting within the context of product costing for a manufacturing organization. This book successfully avoids the product/period cost trap.
Although the focus of this book is on decision making tools, an important element of any managerial accounting text is product costing. In this edition, traditional product costing techniques are presented in Chapters 5, 6, and 7, after the introduction of key managerial accounting concepts (Chapter 2–Cost Behavior and Cost Estimation; Chapter 3–Cost-Volume-Profi t Analysis; Chapter 4–Relevant Costs for Decision Making). Chapter 5 presents traditional product costing techniques; Chapter 6 deals with indirect overhead cost assignment, including activity-based costing; and Chapter 7 discusses service department cost allocation, along with lean production and just-in-time concepts.
ETHICS
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 and 9. “Business Insight” features and numerous end-of-chapter problems and cases in Chapters 1, 3, 8, 9, 10, and 11 include a variety of decision situations involving ethical dilemmas. The following excerpt is from Chapter 9:
"Because most wrongful activities related to budgeting are unethical, rather than illegal, organizations often have difficulty dealing with them. However, when managers’ actions cross the gray area between ethical and fraudulent behavior, organizations are not reluctant to dismiss employees or even pursue legal actions against them.
Although most managers have a natural inclination to be conservative in developing their budgets, at some level the blatant padding or building slack into the budget becomes unethical. In an extreme case, it might even be considered theft if an inordinate level of budgetary slack creates favorable performance variances that lead to significant bonuses or other financial gain for the manager. Another form of falsifying budgets occurs when managers include expense categories in their budgets that are not needed in their operations and subsequently use the funds to pad other budget categories. The deliberate falsification of budgets is unethical behavior and is grounds for dismissal in most organizations.
Ethical issues might also arise in the reporting of performance results, which usually compares actual data with budgeted data. Examples of unethical reporting of actual performance data include misclassification of expenses, overstating revenues or understating expenses, postponing or accelerating the recording of activities at the end of the accounting period, or creating fictitious activities. The views of the former CEO of Phillips Petroleum on this type of behavior and the competitive environment from which it is often motivated are summarized in the following Business Insight."
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