Cost Accounting Information
Disclosure and Management Decision Making
(A Case Study of Coca Cola Bottling
Company)
Research Project
By
My Name
Matric. Number
Presented to the Department of
Accounting, University of ..... in Partial Fulfillment
of the Requirement for the Award of The Degree of Bachelor of Science (B.Sc.)
Accounting of University of ,,,,,,,,,,
December 2017
CHAPTER
ONE
INTRODUCTION
1.1 Background of Study
Today’s
managers operate in dynamic business environment that are ever bereted with
uncertainties. To make decisions geared towards achievement of organisations’
objectives, managers need information. Cost accounting information is vital in
managerial decision making and problem solving. Managers in making their
decisions, be they programmed, non-programmed, repetitive, innovative,
adaptive, operational or strategic decisions may need such cost accounting information
like quantities of raw materials in use, cost of labour, machine hourly rate of
production, unit of goods to produce, total production quantity, overhead
expenses, variable cost information, fixed cost information, variances, sales
volume, selling price and other vital information which are contingent in
achieving organizational objectives.
According
to the Institute of Cost Accountants of India (2012), Accounting is a very old
science which aims at keeping records of various transactions. The accounting
is considered to be essential for keeping records of all receipts and payments
as well as that of the income and expenditures. Accounting can be broadly
divided into three categories. Financial Accounting, aims at finding out profit
or losses of an accounting year as well as the assets and liabilities position,
by recording various transactions in a systematic manner. Cost Accounting helps
the business to ascertain the cost of production/services offered by the
organization and also provides valuable information for taking various
decisions and also for cost control and cost reduction. Management Accounting
helps the management to conduct the business in a more efficient manner.
ICAN
(2014) defined costing as the establishment of budgets, standard costs and
actual costs of operations, processes, activities, or products and the analysis
of variances, profitability or he social use of funds.
Institute
of Cost Accountants of India (2012) noted that in the modern days of cut throat
competition, any business organization has to pay attention towards their cost
of production. Computation of cost on scientific basis and thereafter cost
control and cost reduction has become of paramount importance. Hence it has
become essential to study the basic principles and concepts of cost accounting.
These are discussed in the subsequent paragraphs. They went and defined the
following terms in relation to cost accounting:-
Cost
:- Cost can be defined as the expenditure (actual or
notional) incurred on or attributable to a given thing. It can also be
described as the resources that have been sacrificed or must be sacrificed to
attain a particular objective. In other words, cost is the amount of resources
used for something which must be measured in terms of money. For example – Cost
of preparing one cup of tea is the amount incurred on the elements like
material, labor and other expenses; similarly cost of offering any services
like banking is the amount of expenditure for offering that service. Thus cost
of production or cost of service can be calculated by ascertaining the
resources used for the production or services.
Costing
:- Costing may be defined as ‘the technique and process
of ascertaining costs’. Costing is classifying, recording, allocation and
appropriation of expenses for the determination of cost of products or services
and for the presentation of suitably arranged data for the purpose of control
and guidance of management. It includes the ascertainment of every order, job,
contract, process, service units as may be appropriate. It deals with the cost
of production, selling and distribution. If we analyze the above definitions,
it will be understood that costing is basically the procedure of ascertaining
the costs. As mentioned above, for any business organization, ascertaining of
costs is must and for this purpose a scientific procedure should be followed.
‘Costing’ is precisely this procedure which helps them to find out the costs of
products or services.
Cost
Accounting :- Cost Accounting primarily deals with
collection, analysis of relevant cost data for interpretation and presentation
for various problems of management. Cost accounting accounts for the cost of
products, service or an operation. It is defined as, ‘the establishment of
budgets, standard costs and actual costs of operations, processes, activities
or products and the analysis of variances, profitability or the social use of
funds’, ( Institute of Cost Accountants of India 2012).
Cost
Accountancy :- Cost Accountancy is a broader term and
is defined as, ‘the application of costing and cost accounting principles,
methods and techniques to the science and art and practice of cost control and
the ascertainment of profitability as well as presentation of information for
the purpose of managerial decision making.’ If we analyze the above definition,
the following points will emerge; cost accounting is basically application of
the costing and cost accounting principles; this application is with specific
purpose and that is for the purpose of cost control, ascertainment of
profitability and also for presentation of information to facilitate decision
making. Cost accounting is a combination of art and science, it is a science as
it has well defined rules and regulations, it is an art as application of any
science requires art and it is a practice as it has to be applied on continuous
basis and is not a one time exercise.
According
to CPA Australia (2012), the terms ‘cost
accounting’ and ‘management
accounting’ are often used interchangeably. It is not correct to do so.
Cost accounting is part of management accounting. Cost accounting provides
source data for the management accountant to use. Cost accounting is concerned with the following:- preparing
statements (e.g. the construction of budgets and costing statements); cost data
collection; measuring inventory costs, and the costs and profitability of
products and services. Management
accounting on the other hand is concerned with the following;-
interpretation and assessment of financial and accounting data, and
communicating it as information to users, for example as financial targets or
performance measurements.
Decision
making is the process of identifying alternatives and choosing one of the
alternatives to solve a problem or to attend to a need. Managers irrespective
of their managerial levels make decisions. Cost accounting information plays
vital roles in managerial decision making. In fact all types of organizations,
from large multinational manufacturing companies like Ford Motor Company to small
custom-furniture manufacturers, have a need for cost accounting information.
Retailers, such as Wal-Mart and others like FedEx, law firm, accounting firms,
consultants, and even nonprofit organizations, such as the American Red Cross
and small local museums and homeless shelters need cost accounting information.
This information is needed by internal managers in their day-to-day decision
making. All decisions require using judgment. The quality of the decision often
depends on how good that judgment is. Judgment refers to the cognitive aspects
of the decision-making process (Institute of Cost Accountants of India, 2012).
They further defined cognitive, to mean taking a logical, thinking approach to
making decisions rather than just making decisions on the spur of the moment.
1.2 Statement of Problem
Decision making is a vital function of
every manager. To perform this role better, and to ensure that corporate
objectives are actualized, cost accounting information is very essential.
Unfortunately, such vital information upon which managerial decision making are
contingent upon are not readily available as at when needed. Some cost
accounting information may be available but not on time and in the right
quantity. These trends do negatively impacts on the managerial decision making
processes and the outcomes of managerial decisions. Decisions that are
quantitative information dependent are their heuristically made using rule of
the thumb or guesses rather than adopting quantitative approach to decision
making. Instead of abdicating responsibility for establishing standards, the
management would scientifically study all facets of an operation and carefully
set a logical and rational standard. Instead of guessing or relying solely on
rule – of – the thumb or trial and error, the management should go through the
time consuming process of logical study and scientific research to develop
answers to the business problems through information gathering and proper
analysis of the information being obtained. The situation in the organization
being studied is the management is still using the unscientific method of
decision making. Rarely do they make use of the cost accounting information as
aid in making their managerial decisions. Also rather than making use of the
cost accounting methods and techniques like marginal costing, standard costing,
budgetary and budgetary controls, job costing, batch costing, process costing,
operating costing, and contract costing, they are still using some crude
methods and techniques that are unscientific.
Due to their use of crude costing
methods and costing techniques, often time, there are frequency of production
problems and bottlenecks. Often time, actual production time/hours are usually
above standards or budgeted time. The cost of man-hour resulting from
production activities are often above budgeted man-hour; actual production
overheads and associated costs are usually above budgeted. All these have
sporadically increased the overall cost of production thereby affecting the
organizations performance and profitability. It is in the bid of the researcher
to provide lasting solutions to these problems that the researcher deemed it
necessary to carry out this study.
1.3 Research Questions
i.
How does the use of cost accounting
information enhance managerial decision making?
ii.
How does cost accounting information
disclosure contribute to organizational profitability?
iii.
How does cost accounting information
disclosure enhance managerial effectiveness?
iv.
What are the various costing techniques
that are being used mostly in Nigerian organizations?
1.4 Objectives of the study
The main aim of this study is to examine
how Cost Accounting Information Disclosure impacts
on Management Decision Making. Other
objectives of this study include;-
i.
To determine how managerial decision
making are enhanced through the use of cost
accounting
information.
ii.
To determine how cost accounting
information disclosure contribute to organizational profitability.
iii.
To determine how cost accounting
information disclosure enhances managerial effectiveness
iv.
To determine the various costing
techniques that are being used mostly in Nigerian organizations.
1.5 Statement of Hypotheses
i.
H0: The use of cost
accounting information does not enhance managerial decision making.
H1: The use of cost
accounting information do enhance managerial decision making.
ii.
H0: Cost accounting
information disclosure does not contribute to organizational profitability.
H1: Cost accounting
information disclosure contributes to organizational profitability.
iii.
H0: Cost accounting
information disclosure does not enhance managerial effectiveness.
H1: Cost accounting
information disclosure enhances managerial effectiveness.
1.6 Significance of the study
Information are essential in making
managerial decision. To ensure managerial effectiveness, managers need
information. Cost accounting information is a veritable tool in the hand of
managers in achieving organizational objectives. Cost accounting help managers
in bringing down costs through cost control and cost reduction. Cost control
implies various actions taken in order to ensure that the cost do not rise
beyond a particular level while cost reduction means reducing the existing cost
of production. This study shall be useful to both the cost accountants and
other managers that are in-charge of operational activities. The study shall
avail readers with various cost control techniques, the methodologies to adopt
in achieving their cost targets and ensuring effective and efficient
utilization of organizational resources. This study shall also avail readers
with cost techniques and other cost accounting disclosure information that are
essential in ensuring corporate success. The significance of this study can
thus be summarized as follows:
(i)
The findings is to enable
management appreciate the need to carefully examine cost accounting information
in order to improve a better and more effective business performance.
(ii)
The companies are supplied with
information to help them make good decisions in the performance of their
business.
(iii)
This study helps the cost
accountants and the organization to understand and appreciate the use cost
accounting information disclosure as a useful tool in managerial decision
making..
(iv)
This research
provides a guide as to which cost accounting data and information is or is not
relevant to managers, and which should help the preparers of cost accounting
information in order to enhance future cost accounting information provision.
1.7 Justification of the study
Cost
control is an essential element of operational management. Excessive costs can eat
deep into revenue and can significantly affect profitability. Effective cost
control and cost reduction mechanism is a key for achieving competitive advantage
for an organization that is pursuing cost leadership strategy. Empirical
studies have shown that it is those organizations that are able to maintain
tight control on cost of production while at the same time satisfying
customers’ expectations that will be able to achieve superior performance in
the market place. Managers need cost related information to have effective
control on operation and other overhead costs. Such information is made
available by cost accounting. Such information needed by management may include
information about the units of goods produced, price per unit of goods sold,
labour rate, cost per unit of goods produced, number of units in the inventory,
total volume of products budgeted, budget variances, materials variance and sales
variance etc. All these information are essential for planning and in making
managerial decisions to enable management achieve organizational objectives.
Without these information it will be difficult for an organization to achieve
its overall objectives.
1.8 Scope of the Study
This study focuses on Cost Accounting
Information Disclosure and Management Decision Making, a case study of Coca
Cola Bottling Company. The study shall examine how the use of cost accounting information enhances managerial
decision making; how cost accounting information disclosure contributes to
organizational profitability; how cost accounting information disclosure
enhance managerial effectiveness and also the identification of the various
costing techniques that are used mostly in Nigerian organizations. The study
shall be restricted to Lagos state.
1.9 Definition of Terms
Absorption
Costing:- In this type of costing system, costs
are absorbed in the product units irrespective of their nature. In other words,
all fixed and variable costs are absorbed in the products. It is based on the
principle that costs should be charged or absorbed to whatever is being costed,
whether it is a cost unit, cost center.
Cost: Cost is the amount of money paid to acquire a resource, a product or
service
Costing
:- Costing may be defined as ‘the technique and process
of ascertaining costs’. Costing is classifying, recording, allocation and
appropriation of expenses for the determination of cost of products or services
and for the presentation of suitably arranged data for the purpose of control
and guidance of management. It includes the ascertainment of every order, job,
contract, process, service units as may be appropriate. It deals with the cost
of production, selling and distribution.
Cost
Accounting :- Cost Accounting primarily deals with
collection, analysis of relevant of cost data for interpretation and presentation
for various problems of management. It is defined as, ‘the establishment of
budgets, standard costs and actual costs of operations, processes, activities
or products and the analysis of variances, profitability or the social use of
funds.
Cost
Center :- Cost Center is defined as, ‘a production
or service, function, activity or item of equipment whose costs may be
attributed to cost units. A cost center is the smallest organizational sub unit
for which separate cost allocation is attempted’. To put in simple words, a
cost center is nothing but a location, person or item of equipment for which
cost may be ascertained and used for the purpose of cost control.
Fixed
Costs :- Out of the total costs, some costs
remain fixed irrespective of changes in the production volume. These costs are
called as fixed costs. The feature of these costs is that the total costs
remain same while per unit fixed cost is always variable. Examples of these
costs are salaries, insurance, rent, etc.
Marginal
Costing :- In Marginal Costing, only variable costs
are charged to the products and fixed costs are written off to the Costing
Profit and Loss A/c. The principle followed in this case is that since fixed
costs are largely period costs, they should not enter into the production
units. Naturally, the fixed costs will not enter into the inventories and they
will be valued at marginal costs only.
Profit
Center :- Profit Center is defined as, ‘a segment
of the business entity by which both revenues are received and expenses are
incurred or controlled’. A profit center
is any sub unit of an organization to which both revenues and costs are
assigned.
Semi-variable
Costs :- Certain costs are partly fixed and
partly variable. In other words, they contain the features of both types of
costs. These costs are neither totally fixed nor totally variable. Maintenance
costs, supervisory costs etc are examples of semi-variable costs. These costs
are also called as ‘stepped costs’.
Variable
Costs:- These costs are variable in nature, i.e.
they change according to the volume of production. Their variability is in the
same proportion to the production.
REFERENCES
CPA Australia (2012) Management Accounting, Australia: BPP
Learning Media Ltd, www.cpaaustralia.com.au/learningsupport.
The
Institute of Cost Accountants of India (2012), Cost and Management Accounting, India: Repro India Limited
The
complete part of this project is available for sale
PROJECT PROPERTIES
Project Status
|
Available
|
Number
of Chapters
|
5
|
Number
of Pages
|
79 |
Number
of Words
|
17,739
|
Number
of References
|
13
|
Project
Level
|
M.Sc.
|
Price
|
N15,000
(Non-Negotiable)
|
Abstract,
Sample of Questionnaire are included
|
|
How
to Pay for this Project . . . .23408028177177 or via email danikingconsulting@yahoo.com
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