Preface

Management Accounting, Fourth Canadian Edition, focuses on the use of
accounting, financial, and other types of information by managers of organizations. Managers of all organizations, whether in manufacturing, wholesale, service, e-commerce, non-profit or government, must make decisions in an increasingly complex and changing environment. Information is used by managers to assess the relative merits of alternative courses of action for any given decision. Management accounting involves generating and using this information.

Based upon feedback from students and faculty, this Fourth Edition has been reorganized to present the material in a framework that reflects the use of management accounting by managers. Part One, Management Accounting, Information and Decisions, describes how managers make decisions. The relationship between management accounting and other business fields is discussed so students understand the subject within the context of the field of management education. Part One also deals with the generation of management accounting information used by managers, and covers various cost classifications and cost systems that managers use to generate information. A common objective of this information is to indicate the effect of a decision on the organization’s profits or goals. Without a firm understanding of the costs, a manager is unable to fully understand and evaluate the impact of alternative courses of action. Part Two, Management Decisions, considers marketing and production decisions that are common to many organizations. In addition, it considers decisions that have long-term strategic implications and require more significant capital investments. These decisions require an understanding of management issues that are covered in other subject areas. However, students are provided with sufficient information to use management accounting information to make a decision in a real-world context. These chapters focus on making decisions that will maximize shareholder value. Part Three, Management Accounting for Planning and Control, recognizes that a potential conflict exists between the goals of managers and the organizations’ shareholders. To assess the performance of an organization and its managers, planning and control systems are needed to establish plans and goals and to reward successful performance. Part Four, Financial Statement Analysis, considers the use of financial information that is reported to external shareholders. This part does not deal with the preparation of this information but rather its use by decision-makers such as analysts, creditors, and investors. The four parts can be covered in sequence. However, some may prefer an alternative sequence and this book has been written to accommodate this flexibility by reorganizing the parts as modules of the subject of management accounting.

The four parts are presented as segments to the book, but they are interrelated. Part One helps managers use the information generated by various techniques and systems within the decision process outlined. Part Two provides students an opportunity to make decisions that enhance the value of the organization. Part Three provides various means of assessing the success of these decisions and of rewarding managers. Part Four considers the impact on external shareholders when organizations successfully use management accounting information and decision processes, as outlined throughout this book.

As noted in the acknowledgments, senior managers of a number of leading Canadian companies have reviewed chapters of the book to ensure that the material reflects the issues that exist in a globally competitive world. Their comments and suggestions have been incorporated to ensure that students are exposed to current and relevant material. In addition, the book includes Company Strategies, which have been written by managers to provide an example of the application of the material to an issue faced by their organization. The Perspectives On Decision Making boxes have been selected to further illustrate the application of management accounting to actual business problems.

The assignments have been selected and organized to enhance the use of the book in a variety of applications. Questions address conceptual and discussion-oriented material and are generally used to engage the student to understand the issues in the context of management decisions. Problems involve assignments that are primarily quantitative and have directed requirements. Spreadsheets are available for problems flagged with a spreadsheet logo. (See our Companion Website for further details.) A Collaborative Learning Exercise has also been provided in each chapter to encourage team building and group learning skills. Cases require a management decision. Thus, the cases provide students with the opportunity to apply the concepts in practical situations faced by managers of organizations. Many cases are provided by professional accounting organization such as CMA-Canada, the Institute of Chartered Accountants of Ontario, and the Certified General Accountants of Canada, and are designated by the filefolder logo.

The book has been used successfully as either an introductory or advanced course in management accounting at both the graduate and undergraduate levels. Some may use the cases in introductory courses in both MBA and undergraduate programs where students are interested in the subject as part of their business education, and likely do not plan to undertake a career in accounting. The book has also been used for accounting students in an introductory course, which uses the questions and problems, and in an advanced course which uses the case assignments. The book is also appropriate for management and executive development programs given its focus on management decision making.

Features of the Fourth Canadian Edition

Assignment materials: Collaborative Learning Exercises have been created for this edition to encourage group problem-solving skills. More questions, problems, and cases have been added to the end-of-chapter assignment materials and existing assignments have been updated. The colour band at the edge of the page now makes it easy to identify assignment pages in the text.

Shorter, more concise text: By reorganizing the cost systems material from the Third Canadian Edition, we’ve reduced the number of chapters from 17 to 16, producing a slimmer, more focused book.
On-the-spot key term definitions: Key terms with definitions are placed in the margins opposite the text that introduces the concepts, while within the text key terms are bolded for easy reference. This feature helps students reinforce their understanding of new concepts as they are introduced, while the Accounting Vocabulary list at the end of the chapter (with page references) facilitates review of the new terminology. In the Subject Index, the pages on which key terms are defined have been printed in bold, sending students back to the original context whenever they look up a term.

Internet connections: Weblinks in the margins give students access to Internet resources for companies and organizations discussed in the text, enhancing their understanding of real-world issues. The Destinations section of the book’s Companion Website provides hyperlinks and regular updating of the URLs for all Weblinks (see www.pearsoned.ca/horngren).
Videos for accounting students: Our supplements package includes CBC videos, based on Venture episodes that illustrate current issues in Canadian business.

Real-world insights 1: New Perspectives on Decision-Making boxes have been included throughout the text. These boxes present the latest issues and decisions from Canadian companies, from “New Tools–New Mindsets for Management Accountants” in Chapter 1 to such topical issues as “Marketing in the Cost Competitive Airline Industry” in Chapter 8 and “Aligning IT Investments with Business Strategy” in Chapter 15.
Real-world insights 2: Company Strategies boxes continue our presentation of the real-world application of concepts and techniques presented in each chapter.

Alternative Ways of Using This Book

Instructors tend to disagree markedly about the sequence of topics in a course in management accounting. Criticisms of any sequence in a textbook are inevitable. Consequently, this book tries to provide a modular approach that permits hopping and skipping back and forth with minimal inconvenience. In a nutshell, our rationale is to provide a loosely constrained sequence to ease diverse approaches to teaching. Content is of primary importance; sequence is secondary.

Teaching is highly personal and is heavily influenced by the backgrounds and interests of assorted students in various settings. To satisfy this audience, a book must be a pliable tool, not a straitjacket.

As the authors, we prefer to assign the chapters in the sequence provided in the book. But we are not enslaved by this sequence. We have assigned an assortment of sequences, depending on the readers’ backgrounds.
Part One, “Management Accounting, Information and Decisions,” provides a bedrock introduction, so we assign it in its entirety. If there is time in the course for students to become more familiar with budgeting and standard costing, Chapters 12 and 13 can be assigned immediately after Chapter 5. Furthermore, there is a logical appeal to studying the chapters on capital budgeting (Chapters 10 and 11) immediately after the chapters on planning and control (Chapters 12 through 15). However, we have avoided placing these chapters there because of tradition and because of their link to relevant costing. Moreover, the Fourth Canadian Edition has maintained coverage of capital budgeting over two chapters to ensure comprehensive attention to issues such as risk and rate of return at schools where these topics are not covered in compulsory related courses. In addition, because the master budget is often covered in finance courses, Chapter 12 is frequently skipped in accounting courses.
Part Four introduces financial statement analysis. This chapter covers basic financial statement analysis in capsule form with heavy stress on interpretation of financial statements, and little attention given to the accumulation of the information.

Chapter 16 may be skipped entirely or may be used in a variety of ways:

1. In courses or executive programs where the students have no accounting background but where the main emphasis is on management rather than financial accounting.
2. In courses where this chapter may be used as a quick review by students who have had some financial statement analysis.

Moreover, some teachers may want to use this chapter to teach the fundamentals of financial statement analysis to students with no prior background. Classroom testing has shown that such teaching can be done successfully.

Supplementary Material

The following items are available to supplement the text:
Instructor’s Solutions Manual: Includes solutions to all questions, problems, and cases in text. All solutions were prepared by the authors and technically checked by a professional accountant. ISBN 0-13-060797-5

Instructor’s Resource Manual: Includes a sample lesson plan, chapter overview, chapter outline (linked to learning objectives and quiz questions), quiz/demonstration exercises, and suggested readings. ISBN 0-13-060798-3

Test Item File: Every chapter has an average of 15 true/false, 60 multiple choice, and 15 short answer questions, for a total of over 1600 questions. Answers, difficulty ratings, and page references to the text accompany each question. ISBN 0-13-060790-8

WIN PH Custom Test: Prentice Hall’s computerized test file uses a state-of-the-art software program to provide fast, simple, and error-free test generation in Windows. Entire tests can be previewed on screen before printing. PH Custom Test can print multiple variations of the same test by scrambling the order of questions and multiple choice answers. ISBN 0-13-060801-7

Transparency Resource Package: This package includes 100 slides of key figures from the text, prepared for electronic presentation in PowerPoint 4.0, plus black-and-white masters that can be duplicated for distribution in class. ISBN 0-13-031389-0

Solutions Acetates: When producing a test with such a rich support package as Management Accounting, it is important that we consider the environmental and
production costs that result when instructors use only a few transparencies. In response to concerns about these costs, we are offering a special package that
contains an unbound copy of the Instructor’s Solutions Manual, a set of dividers, and a supply of 300 clear acetates. Thus, instructors who adopt the test are provided with the opportunity to organize and produce transparencies for the specific solutions that they choose to show in their classroom. We hope you find this a creative response to concerns about waste and the environment. ISBN 0-13-060803-3

Prentice Hall/CBC Video Library: In an exclusive partnership, the CBC and Pearson Education Canada have worked together to develop an exciting video package consisting of six segments from the prestigious series Venture. At an average of seven minutes in length, these segments show students how real Canadian companies are affected by current issues in accounting. Case write-ups with teaching notes and questions will be posted on the book’s Companion Website. (Please contact your Pearson Education Canada sales representative for details. These videos are subject to availability and terms negotiated upon adoption of the text.)

Companion Website with Online Study Guide and Excel Templates: Our exciting new Website includes a comprehensive online study guide that presents students with numerous review exercises and research tools. There is a detailed review of key concepts for every chapter and practice tests with true/false and multiple choice questions, completion exercises, and accounting problems. Students obtain instant feedback for questions and exercises, and they may view full solutions to problems. A page reference to the text is supplied with every answer, while Destinations (hyperlinks to the text’s Weblinks) and search tools facilitate further research into key organizations and topics discussed in the text. The Companion Website also provides Excel templates for all problems flagged in the text with the spreadsheet disk icon, as well as a syllabus builder for instructors, CBC video case updates, and more. See www.pearsoned.ca/horngren and explore.

Pearson Education Canada is also proud to introduce Accounting Central, a dynamic, online resource centre for instructors and students. Be sure to bookmark this site at www.pearsoned.ca/accounting.

For the Student:

Student Solutions Manual: Designed for student use, this supplement contains fully worked-out solutions for all even-numbered questions, problems, and cases in the textbook. The Student Solutions Manual may be purchased with the instructor’s permission. ISBN 0-13-060804-1

Charles T. Horngren

Gary L. Sundem

William O. Stratton

Howard D. Teall