horngren’s cost accounting online

horngren’s cost accounting online

The Evolution and Impact of Horngren’s Cost Accounting in the Digital Age

1. Introduction to Horngren’s Cost Accounting

In a swiftly evolving international market, an impressive array of publications is readily available, each serving a broad mix of objectives framed by government regulation, traditional and contemporary models of social entities, networking within and across public and private technical, commercial, and voluntary sectors, and globalization. Any one publication may address only a specific blend of these needs, as determined by coverage scope, pedagogical strength, regional clarity, ease of market access, and various other considerations that accommodate each discrete market niche. This collective diversity and vibrancy of instructional materials would not have emerged had the earlier editions of our flagship cost accounting textbook – Horngren’s Cost Accounting – not been a guiding force and a powerful exemplar.

Today, accounting is often cited as “the language of business.” Its structural basis as a subject of study and practice, however, is cost accounting, whose rich history can be traced back over a couple of centuries. Just as spoken language evolves to suit the environment and context of use, so also has cost accounting transformed itself to respond to the changing needs of myriad organizations wherein it is used. Evidence of the speed and direction of change is evident in the emerging, contemporary models of business firms and other organizations. These structures notably differ from those of even a decade earlier where people have gathered together in some regular pattern to address their needs mutually. So important to these organizational systems is the effective use of cost accounting that the foremost authorities influencing cost accounting’s evolution are found in the most senior ranks of the land – governments, corporate boards, and other oversight groups. Governing actions can range from setting legal requirements, so as to codify the use of cost accounting into generally accepted practice, to allowing a free hand in the full customization of cost accounting practices to suit the diverse and evolving needs of entirely privatized organizations. In the broad middle ground, individual organizations turn to professional cost accountants – “management accountants” in some cultural settings – for guidance.

On the occasion of writing the twelfth edition of Horngren’s Cost Accounting, it is an appropriate time to reflect on the remarkable growth of cost accounting, identify the trends that are affecting how it is variously taught and used by students and managers of organizations, and determine the opportunities and responsibilities for our profession to harvest its potential in the digital age. What has caused this significant transformation of cost accounting, and what are its consequences? Our focus will be on the educational market for these publications, largely undergraduate college accounting courses, but also being recognized are the clearly visible ways that the content, teaching and learning methods, and types of learning resources and support aids have converged in response to the changes that the digital age has brought about. Such convergence and collective adaptation call for insightful engineering and design processes for interactive media, underpinned by sound pedagogical theory and content.

2. Key Concepts and Principles in Cost Accounting

By 1871, the field of cost had been advanced sufficiently through the works of Cairnes, Mill, McCulloc, Say, Gossen, Jevons, Taylor, and Menger for Carl Menger in Austria to define costs as a decision tool. His definition in his book Principles of Economics was the usual long-run definition: costs are expenditures that cannot be avoided without a change in volume and nature. But Menger also became the first to explore the concept of scarcity and the opportunity concept of costs. T. A. Wally, in the same year, formally introduced the opportunity concept of costs in his Principles of Political Economy. Later in 1872, Alfred Marshall presented all the concepts of cost accumulation, classification, and decision making in his influential Keynsian work, Principles of Political Economy. Finally, in 1882, C. E. Marshall wrote The Economics of Industry and presented decision models that linked long-run fixed costs to short-run productivity planning.

What is the historical significance of cost? The first recorded work that connected the term “cost” to a productivity concept is N. W. Senior’s 1827 book. Senior argued that the “real cost of production is the toil and trouble of acquiring and maintaining that capital, or in other words, of obtaining from that capital as much produce for a given quantity of labour, as, by a different application of labour and capital, might be obtained from some other primary substance.” Senior’s work was the same year that J. B. Say separated fixed and variable costs in his Traitsé d’Economie Politique. J. R. McCulloc, in his pioneering work A Treatise on the Principles and Practical Influence of Taxation, also first wrote about the relation between fixed costs and long-run planning. Senior, McCulloc, and Say are considered to be the founders of the long-run theory of costs and are also the earliest proponents of variable costing. J. S. Mill in 1848 was the first to contrast fixed and variable costs in his Discussion on Income in its Relation to Expenditure. In 1851, Mill repeated the rationale for variable costing in the second edition of his Principles of Political Economy. The first analysis of the implications of variable cost for decision making, including accept-reject decisions on pricing and inventory management, was done by Mill’s good friend and colleague, Henry Fawcett, in his influential book Manual on Political Economy. The first textbook to present cost from the long-run perspective was J. E. Cairnes’s 1854 edition of the Character and Logical Method of Political Economy. The first recording of a learning to produce curve was done in the same year by W. S. Jevons, in his Theory of Political Economy. T. J. Taylor wrote The Retaliation of Income Tax in 1859 and was the first to use cost curves in English literature.

This chapter introduces the key concepts and principles in cost accounting. We begin with a brief historical overview of the concept of cost, take a closer look at the four perspectives of cost presented in this book, and outline Horngren’s key models, principles, and concepts in cost accounting, which serve as the foundation of our teaching and learning model.

3. The Digital Transformation of Cost Accounting

Today, the accounting function is performed by employees scattered throughout an organization, rather than by an independent unit. Business processes have become the focal point of accounting; the embedded micro decisions taken during standard processes create much of the value of an organization. Financial accounting provides investors and other external parties with useful decision-making information about a firm. This information is summarized and publicly reported—often after transactions have occurred. Cost accounting provides managers with the micro-level information needed to manage the firm. This digital transformation and evolution of the accounting function have internal decision value. They impact the structure, focus, rigor, and delivery of traditional cost accounting content, as companies adapt to a new business model and react to the challenges of globalization, innovation, sustainability, regulation, and changing capital market needs.

Technology is transforming the production and communication of accounting data. Digitization is altering the way firms operate, affecting both the economy as a whole and the accounting function. This has implications for the future of the cost accounting course. Over the years, cost accounting has seen significant change. The new cost accounting for the information economy requires substantive changes in accounting reports and the way information is presented and applied by managers and accountants.

4. Case Studies and Practical Applications of Horngren’s Cost Accounting Online

This article aims to provide an overview of the research in the field of cost and management accounting related to the transition of accounting education from the conventional to the digital age. The results show that the increasing use of technological tools can favor the learning of concepts and contents but requires a rethinking of methodologies, educational practices, and the use of tools, seeking to develop the skills and competencies to use these tools to obtain information and generate knowledge and support decision-making and problem-solving. These findings suggest that the importance of traditional and digital tools with real applications in combination with the scenario-based approach demonstrates active learning, contributing to the development of management judgment and decision-making managerial skills, and help people to think in an integrated manner. Horngren’s theory is especially useful for the development of this teaching model.

There has been a great worldwide reception of the Horngren Cost Accounting text in many countries, and the relevance and importance of Edward O. Thorngren’s framework in teaching cost accounting has been reinforced with the publication of Horngren’s Cost Accounting: A Managerial Emphasis, 16th International Edition. We propose to analyze this evolution and discuss the main reasons for this success and some methodologies, case studies, and educational processes which involve management accounting concepts using Horngren’s approach in the digital age, in order to enhance the educational purpose of the book and align it with the recent and future trends of the Brazilian higher education system and the demands for management accounting professionals.

5. Future Trends and Innovations in Cost Accounting

The new possibilities made available by the powerful new tools that make up the digital revolution continue to bring far-reaching implications to the practice of cost and management accounting. For example, data extraction tools, data storage warehousing technologies, inexpensive, large memory, high-speed personal computers, tools for sophisticated data manipulation (relational databases), data sorting, data mining, and data visualization software, as well as powerful presentation software programs, continue to improve and lower the costs of analyzing, storing, presenting, and distributing information. Moreover, utilizing proprietary intellectual property software that the firm develops to sell its products or services is an essential element of many businesses, particularly as we continue to transform from goods-producing agricultural, industrial, and manufacturing firms to information society, knowledge-producing, service businesses. Additionally, the increasing speed of product conversions makes inventory and how or if it is accounted for unsuitable in many of the new just-in-time systems. The honing of new technologies can give competitors an edge as it hastens time to market, lowers costs, and improves quality. The future undoubtedly holds even more significant, far-reaching implications.

Changes in the business environment and advances in technology continue to generate a multitude of challenges for management and hence for management accountants. The trend is towards a greater emphasis on knowledge, flexibility, speed, and competence. Given the access to and use of better data, and rapidly advancing developments in communications and artificial intelligence, the potential exists to add tremendous additional value to both our firms and our customers through cost and management accounting decisions.