horngren’s cost accounting pdf

horngren’s cost accounting pdf

The Evolution and Impact of Horngren’s Cost Accounting: A Comprehensive Analysis

1. Introduction to Horngren’s Cost Accounting

When does an accountant become a manager? – page two of the third edition of Cost Accounting by Charles T. Horngren – while the concept was developed in light of enterprise accounting, the original foundation provided by the “activities definition” of a responsibility action and the “decision making” function of an organized enterprise. If an organization is oriented toward goals, one feature is that activities must be initiated and completed by action agents/responsibility accountants who make decision/strategic control activities. These responsibilities are assigned and distinguished, achieved by the authorization process, conducted by active coordinators of team activities.

Do we believe students are more eager to learn today? The de-standardization movement began in higher education before a more appropriate study of management accounting possibly could have been occurring in the business policy class. More often in present programs, students have mini-cases in management accounting that focus their attention each week on yet another current business situation. The word ‘manager’ in ‘managerial accounting’ refers to the type of accounting, not the type of student. It means: What is of interest to a manager? Such a definition is broader than can be found in any accounting book that I know of – to wit: (1) the accountant who makes reports to the CEO, which will be the largest portion in some industries, (2) the accountant who writes a standard contribution report prepared by account.

The text, titled Introduction to Management Accounting prior to the Thirteenth Edition, is now designed to be as appropriate for a 2015 student as for a student dating back to the first edition in 1966 (previously, 1965). Cost Accounting is the study of accounting for costs, not omitted costs. There are enormous conceptual, procedural, and behavioral aspects to cost accounting. Schools a generation ago had separate courses in cost accounting and management accounting— cost accounting was primarily the record-keeping function; management accounting was the internal reporting system. Only four chapters of this text involve recordkeeping; the next seven chapters, which some might call management accounting (decisions).

Introduction to Horngren’s Cost Accounting (formerly Introduction to Management Accounting)

2. Key Concepts and Principles in Horngren’s Approach

In order to understand how the normative aspects of cost accounting are perceived (and are, consequently, applied), it is necessary to understand the concepts and principles on which both cost accounting and cost accounting theory are founded. There is, as yet, no universally agreed upon concept of cost. However, costs themselves are objective—they affect all the resources used in, and the performance of, an organization—and must be measured objectively. The principles on which such measurement and application are founded must derive from some broader, common concept. Horngren’s work is acknowledged generally as perhaps the most comprehensive in laying down a foundation from which a common concept of cost can be established. From that derived common concept he proceeds to derive the various accounting principles. It is from such a treatment of central governing principles that a normative, or rational, approach can be used in the design and implementation of cost accounting.

Horngren’s publication of Cost Accounting: A Managerial Emphasis in 1962 opened a new chapter in the development of management accounting in the Anglo-American sphere. The impact of this and subsequent editions was swift and severe, shaking many of us to the very roots—forcing us to reconsider what cost accounting is all about. Horngren answered many posed and unposed criticisms—many which it made against itself—with a multiplicity of ideas which wove many of the earlier disparate and somewhat disconnected ideas into a comprehensive conceptual framework which he has since been evolving in Cost Accounting Theory and other writings—including the US Accounting Trial Balance series.

3. Applications and Case Studies of Horngren’s Cost Accounting in Various Industries

A new cost accounting system is urgently required. It should be simple, internally structured to meet the information needs of operations managers, temporally discriminatory, and controllable by operations managers. For companies with low operating leverage, characterizing most– but not all– companies, a cost accounting system with the aforementioned attributes provides output costs that more closely approximate the actual operating costs of the production process in that they more closely– but not completely– reflect the effects of specific future major capacity changes.

The wide diversity of cost accounting designs implies that cost accounting must be utilized to meet a variety of information needs. The first of our two questions is “For what kinds of objectives can cost accounting be expected to be valuable?” The second is “In what ways should that cost accounting be developed to meet those various objectives?” Additionally, these questions can be answered only in terms of the primary work decision situations of business, i.e., production, distribution, and financing, applying to all business enterprises. Hence, it would appear that if the question of the need for cost accounting cannot be couched in terms of business’s purpose of satisfying demand for existing facilities at their capacity, it cannot be answered at all.

4. Critiques and Future Developments in Horngren’s Cost Accounting

Development of cost information and the necessary drive towards more focus on the management and not the product lead to diversified costs categories. It was divided based on the purpose of the management aim: direct cost, indirect, manufacturing cost, administrative cost, selling cost, R&D, etc. Two significant modern trends that management accounting focused on concerned the decomposition of the costs in costs, as well as the identification of products, processes, and cost units. Cost accounting related to the company’s objectives, to align them with the strategy, to structure the management system and budget organization (sales, investments). Providing an accurate picture for accounting and reporting is of great importance. The system allows the organization to schedule and prioritize investments, to make it easier to account for the costs incurred, to evaluate the efficiency and effectiveness of several resources, and to guarantee the accurate transmission of information to the stakeholders on the organization. It will foster effective decision-making, assist the control of the system and the profitability, success, and future prospects of the organization.

One of the critiques of cost accounting is the reliance on arbitrary or subjective allocation of joint costs. Many cost accounting systems provide no useful information in regards to success, waste, or inefficiency. With higher competition and globalization, traditional standard cost accounting produced more harm than benefits. Critics also point out that cost accounting exposed several problems with regard to ethics and ethics-related issues. A critical perspective also defines cost accounting as a way to prepare for future knowledge. Evolution in cost accounting can be summarized as a shift from industrial to knowledge systems, where business knowledge became more important than physical knowledge, from cost accounting to strategic cost management, and from physical to informational products, where profitability had less of a physical form, instead a customer and an informational orientation.