Book review: "MANAGERIAL ACCOUNTING", Don R. Hansen, Maryanne M. Mowen

This textbook starts with a historical flashback and the description of the role of managerial accounting as well as a description of the difference between management accounting and financial accounting. In later chapters emphasis is given to the role of the management accountant in the company’s structure and the importance of ethical behavior, through the application of the code of conduct and certain standards. On the side of certification, a short presentation takes place, relevant to the standards required to achieve the CMA, CPA or CIA designations.

Of course, of primary importance is the study of the allocation and measurement of costs, either in a manufacturing firm or a service organization. This can be achieved through the application of functional based management or activity based management. The various aspects of those two approaches are thoroughly studied, analyzed and compared.  

There is a special reference to the present focus of management accounting to the customer’s needs, the achievement of cross-functional perspective in the more generalized framework of total quality management and the development of e-business. On another perspective, there is a clear distinction between the different cost assignments methods of direct tracing, driver tracing and allocation and classification of the costs, depending on behavior. The role of the income statement, in the control and decision-making process of a manufacturing firm and a service organization is stressed and analyzed.

A number of methods, such as the linearity assumption, the high-low method, the Scatterplot method and the method of least squares are thoroughly presented and combined, with the use of statistical measures, such as the coefficient of correlation. The final aim and outcome of all the above procedures is the reduction of the size and complexity of the activity-based system. The actual measures of activity performance, as given by the author are: the value and non-value reporting, the trend reporting, the kaizen standards, the application of benchmarking and the evaluation of drivers and behavioral effects.

When combined, the above result in the association of cost flows with job-order costing, taking into consideration the factor of work-in-progress, through the FIFO and weighted average methods, which can be direct, sequential or reciprocal ways of allocating costs.

The transition, from pure accounting and finance, to managerial concepts, takes place with the practical application of the aforementioned methods of activity-based-costing-as well as the preparation of budgets-to the decision making models. The primary managerial control is realized through the application of variance analysis of materials, labor and overhead costs, the results of which, after their transformation by segmented reporting and the evaluation of the investment centers, provide an accurate operating picture of the company. Major role in this approach play the concept of return on investment, the residual income and the economic value added, as well as the break even point.

The central theme of the book is based on the reciprocal concepts of cost, volume and profit (CVP) and, tactical decisions, such as make-or-buy, keep-or-drop, special-order, sell or process further, are in fact the core subject located at the heart of managerial accounting. Always considering, of course, the significance of capital investment decisions, which can be the payback period, the application of non-discounting, the net present value, the internal rate of return, inflation and taxes.

The final part of the book is dedicated to the influence of inventory and its management, in the company’s overall management accounting system. Notions such as the economic order quantity, the setup carrying costs and shutdown and process reliability are analyzed at length, in the context of just-in-time, the theory of constraints, the lifecycle cost and the balanced scorecard frameworks. In the last two chapters there is a description of the aspects of the environmental cost management and international issues faced by management accountants of import-export companies, wholly owned subsidiaries and ventures.