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Management & Cost Accounting



Management & Cost Accounting PDF

Author: Colin Drury

Publisher: Cengage Learning EMEA

Genres:

Publish Date: 2017

ISBN-10: 9781473748873

Pages: Pages

File Type: PDF

Language: English

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Book Preface

The aim of the tenth edition of this book is to explain the principles involved in designing and evaluating management and cost accounting information systems. Management accounting systems accumulate, classify, summarize and report information that will assist employees within an organization in their decision-making, planning, control and performance measurement activities. A cost accounting system is concerned with accumulating costs for inventory valuation to meet external financial accounting and internal monthly or quarterly profit measurement requirements. As the title suggests, this book is concerned with both management and cost accounting, but with emphasis placed on the former. A large number of cost and management accounting textbooks have been published. Many of these books contain a detailed description of accounting techniques without any discussion of the principles involved in evaluating management and cost accounting systems. Such books often lack a conceptual framework and ignore the considerable amount of research conducted in management accounting in the past three decades. At the other extreme, some books focus entirely on a conceptual framework of management accounting with an emphasis on developing normative models of what ought to be. These books pay little attention to accounting techniques. My objective has been to produce a book that falls within these two extremes. This book is intended primarily for undergraduate students who are pursuing a one-year or two-year management accounting course, and for students who are preparing for the cost and management accounting examinations of the professional accountancy bodies at an intermediate or advanced professional level. It should also be of use to postgraduate and higher national diploma students who are studying cost and management accounting for the first time. An introductory course in financial accounting is not a pre-requisite, although many students will have undertaken such a course.

STRUCTURE AND PLAN OF THE BOOK

A major theme of this book is that different financial information is required for different purposes, but my experience indicates that this approach can confuse students. In one chapter of a typical book, students are told that costs should be allocated to products including a fair share of overhead costs; in another chapter, they are told that some of the allocated costs are irrelevant and should be disregarded. In yet another chapter, they are told that costs should be related to people (responsibility centres) and not products, whereas elsewhere no mention is made of responsibility centres. In writing this book, I have devised a framework that is intended to overcome these difficulties. The framework is based on the principle that there are three ways of constructing accounting information. The first is cost accounting with its emphasis on producing product (or service) costs for allocating costs between cost of goods sold and inventories to meet external and internal financial accounting inventory valuation and profit measurement requirements. The second is the notion of decision-relevant costs with the emphasis on providing information to help managers to make good decisions. The third is responsibility accounting and performance measurement that focuses on both financial and non-financial information; in particular, the assignment of costs and revenues to responsibility centres. This book is divided into six parts. Part One consists of two chapters and provides an introduction to management and cost accounting and a framework for studying the remaining chapters. The following three parts reflect the three different ways of constructing accounting information. Part Two consists of five chapters and is entitled ‘Cost Accumulation for Inventory Valuation and Profit Measurement’. This section focuses mainly on assigning costs to products to separate the costs incurred during a period between costs of goods sold and the closing inventory valuation for internal and external profit measurement. The extent to which product costs accumulated for inventory valuation and profit measurement should be adjusted for meeting decision-making, cost control and performance measurement requirements is also briefly considered. Part Three consists of seven chapters and is entitled ‘Information for Decision-Making’. Here the focus is on measuring and identifying those costs that are relevant for different types of decision. The title of Part Four is ‘Information for Planning, Control and Performance Measurement’. It consists of six chapters and concentrates on the process of translating goals and objectives into specific activities and the resources that are required, via the short-term (budgeting) and long-term planning processes, to achieve the goals and objectives. In addition, the management control systems that organizations use are described and the role that management accounting control systems play within the overall control process is examined. The emphasis here is on the accounting process as a means of providing information to help managers control the activities for which they are responsible. Performance measurement and evaluation within different segments of the organization is also examined. Part Five consists of three chapters and is entitled ‘Strategic Performance and Cost Management and Challenges for the Future’. The first chapter focuses on strategic performance management, the second on strategic cost management and value creation. The third chapter concentrates on the emerging issues that are likely to have an impact on management accounting and considers some potential future developments in management accounting. Part Six consists of three chapters and is entitled ‘The Application of Quantitative Methods to Management Accounting’. In devising a framework around the three methods of constructing financial information, there is a risk that the student will not appreciate that the three categories use many common elements, that they overlap, and that they constitute a single overall management accounting system, rather than three independent systems. I have taken steps to minimize this risk in each section by emphasizing why financial information for one purpose should or should not be adjusted for another purpose. In short, each section of the book is not presented in isolation and an integrative approach has been taken. When I wrote this book, one important consideration was the extent to which the application of quantitative techniques should be integrated with the appropriate topics or considered separately. I have chosen to integrate quantitative techniques whenever they are an essential part of a chapter. For example, the use of probability statistics are essential to Chapter 12 (Decision-making under conditions of risk and uncertainty) but my objective has been to confine them, where possible, to Part Six. This approach allows for maximum flexibility. Lecturers wishing to integrate quantitative techniques with earlier chapters may do so but those who wish to concentrate on other matters will not be hampered by having to exclude the relevant quantitative portions of chapters.

MAJOR CHANGES IN THE CONTENT OF THE TENTH EDITION

The feedback relating to the structure and content of the previous editions has been extremely favourable and therefore no major changes have been made to the existing structure. The major objective in writing the tenth edition has been to produce a less complex and more accessible text and incorporate appropriate recent developments in the management accounting literature. This objective created the need to thoroughly review the entire content of the ninth edition and to rewrite, simplify and improve the presentation of much of the existing material. Many of the chapters have been rewritten and some new material has been added (e.g. time-driven activity-based costing, environmental and sustainability issues, ethical considerations and the impact of the emergence of the knowledge base economy). In addition, a new chapter (‘Challenges for the future’) has been added that focuses on the emerging issues that are likely to have an impact on management accounting and considers some potential future developments in management accounting. The end result has been an extensive rewrite of the text. Substantial changes have been made to the end-of-chapter assessment material that contains the solutions in a separate section at the end of the book. Finally, most of the ‘Real world views’ that provide examples of the practical application of management accounting have been replaced by more recent examples that provide better illustrations of the practical applications. Suggested outline solutions to the answers to the questions accompanying the ‘Real world views’ have been added to the Instructor’s Manual accompanying this book.

LEARNING NOTES

Feedback from previous editions indicated that a significant majority of the respondents identified specific topics contained in the text that were not included in their teaching programmes, whereas a minority of respondents indicated that the same topics were included in their teaching programmes. In order to meet the different requirements of lecturers and different course curriculum, various topics are included as learning notes that can be accessed by students and lecturers in the digital support resources accompanying this book. Examples of topics that are incorporated as learning notes include: determining the cost driver denominator level for use with ABC systems, the contingency approach to management accounting and statistical variance investigation models. The learning notes tend to include the more complex issues that often do not feature as part of the content of other management accounting textbooks. All learning notes are appropriately referenced within the text. For example, at appropriate points within specific chapters the reader’s attention is drawn to the fact that, for a particular topic, more complex issues exist and that a discussion of these issues can be found by referring to a specific learning note in the digital support resources accompanying this book.

CASE STUDIES

Over 30 case studies are available in the digital support resources for this book. Both lecturers and students can download these case studies from the book’s companion website at [insert url when available]. Teaching notes for the case studies are only available for lecturers to download. The cases generally cover the content of several chapters and contain questions to which there is no ideal answer. They are intended to encourage independent thought and initiative and to relate and apply your understanding of the content of this book in more uncertain situations. They are also intended to develop your critical thinking and analytical skills.

HIGHLIGHTING OF ADVANCED READING SECTIONS

Feedback relating to previous editions has indicated that one of the major advantages of this book has been the comprehensive treatment of management accounting. Some readers, however, will not require a comprehensive treatment of all of the topics that are contained in the book. To meet the different requirements of the readers, the more advanced material that is not essential for those readers not requiring an in-depth knowledge of a particular topic, has been highlighted using a vertical coloured line. If you do require an in-depth knowledge of a topic, you may find it helpful to initially omit the advanced reading sections, or skim them, on your first reading. You should read them in detail only when you fully understand the content of the remaining parts of the chapter. The advanced reading sections are more appropriate for an advanced course and may normally be omitted if you are pursuing an introductory course. For some chapters, all of the content represents advanced reading. Where this situation occurs, readers are informed at the beginning of the relevant chapters and the highlighting mechanism is not used.

INTERNATIONAL FOCUS

The book has now become an established text in many different countries throughout the world. Because of this, a more international focus has been adopted. A major feature is the presentation of boxed exhibits of surveys and practical applications of management accounting in companies in many different countries, particularly on the European mainland. Most of the assessment material has incorporated questions set by the UK professional accountancy bodies. These questions are appropriate for worldwide use and users who are not familiar with the requirements of the UK professional accountancy bodies should note that many of the advanced-level questions also contain the beneficial features described above for case study assignments.

RECOMMENDED READING

A separate section is included at the end of most chapters providing advice on key articles or books which you are recommended to read if you wish to pursue topics and issues in more depth. Many of the references are the original work of writers who have played a major role in the development of management accounting. The contribution of such writers is often reflected in this book but there is frequently no substitute for original work of the authors. The detailed references are presented in the Bibliography towards the end of the book.

ASSESSMENT MATERIAL

Throughout this book, I have kept the illustrations simple. You can check your understanding of each chapter by answering the review questions. Each question is followed by page numbers within parentheses that indicate where in the text the answers to specific questions can be found. More complex review problems are also set at the end of each chapter to enable students to pursue certain topics in more depth. Each question is graded according to the level of difficulty. Questions graded ‘Basic’ are appropriate for a first-year course and normally take less than 20 minutes to complete. Questions graded ‘Intermediate’ are also normally appropriate for a first-year course but take about 30–45 minutes to complete, whereas questions graded ‘Advanced’ are normally appropriate for a second-year course or the final stages of the professional accountancy examinations. Fully worked solutions to the review problems not prefixed by the term ‘IM’ (Instructor’s Manual) are provided in a separate section at the end of the book. This book is part of an integrated educational package. A Student Manual has been extensively rewritten and provides additional review problems with fully worked solutions. Students are strongly recommended to purchase the Student Manual, which complements this book. In addition, the Instructor’s Manual provides suggested solutions to the questions at the end of each chapter that are prefixed by the term ‘IM’. The solutions to these questions are not available to students. The Instructor’s Manual can be downloaded free by lecturers. Also available to lecturers is a Cognero testbank offering 18001questions and answers tailored to the content of the book, for use in classroom assessment.


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