Evaluation of management accounting techniques on organization decision making process
project work attempts to evaluate the management accounting techniques used by
the manufacturing company (A case study of Cadbury Nigeria, PLC) on decision
making process. Lists of traditional and modern management accounting
techniques were identified and the extent of their use was evaluated. Some of
the techniques evaluated are; make or buy decision, opportunity cost, relevant
cost, incremental cost, just-in-time, inventory management, budgeting, standard
costing (variance analysis) cost-volume-profit analysis; activity based costing
and linear programming.
Survey design was employed with the use of a well
structured questionnaire. Respondents were selected based on simple random
sampling technique. Hundred (100)
Cadbury Plc. were sampled.
Two hypotheses were formulated and tested with the
use of Chi-Square analysis. The analysis resulted to rejecting both hypotheses
and hence accepting the two alternate hypotheses.
Based on decisions of the tested hypotheses
conclusions were reached that application of management accounting
techniques by manufacturing companies influence decision making process and There
is significant relationship between the management accounting technique used on
organization decision making process and the effective result of the decision
were proffered to Cadbury Nigeria Plc and the entire manufacturing companies.
ONE : INTRODUCTION
1.1 Background of the Study
1.2 Objectives of the Study
1.3 Statement of the
1.4 Research Questions
1.5 Statement of Hypotheses
1.7 Significance of the Study
1.8 Scope and Limitations of the Study
1.9 Organization of the Study
1.10 Definition of Terms
CHAPTER TWO: LITERATURE REVIEW
2.2 Opportunity Cost
Importance of Opportunity Cost to
Decision Marking Process
2.3 Relevant Cost
There are Six Steps in Decision Making Process in an Organization
Usefulness of Relevant Cost to Organization Decision Making Process
2.4 Incremental Cost
2.5 Cost Volume Profit Analysis
Application of Cost Profit Volume Ratio in a Manufacturing Company
2.5.2 The Application of the Cost Volume Profit
2.6 Make or Buy Decision
2.6.1 Consideration that Favours Make or Buy
2.6.2 Factors that May Influence a Manufacturer to
Buy a Part Externally
Elements of “Make” Analysis
2.6.4 Element of “Buy” Analysis
2.7 Standard Costing (Variance Analysis)
2.7.1 Basic Variances
2.8 Inventory Control Techniques
2.8.1 Objective of Inventory Control
2.8.2 Factors Considered for Effective Inventory
Control in a Manufacturing Company
2.8.3 The Reasons why Manufacturing Companies Hold
2.8.4 Factors Influencing Stock Holding Decision
2.8.5 Inventory Control System in a Manufacturing
2.9 Just – In – Time Technique
2.10 Linear Programming Technique
2.11 Activity Based Costing
CHAPTER THREE: RESEARCH
3.2 Research Design
3.3 Source of Data
3.4 Population of the Study
3.5 Sample and Sampling Techniques
3.6 Research Instrument
3.7 Restatement of Hypotheses
3.8 Method of Data Analysis
CHAPTER FOUR: DATA PRESENTATION,
ANALYSIS AND INTERPRETATION
4.2 Analysis of Respondent Bio-Data
4.3 Analysis of Questions from Problem Area
4.4 Testing of Hypotheses
4.4.1 Test of Hypothesis One
4.4.2 Test of Hypothesis Two
CHAPTER FIVE: SUMMARY CONCLUSION
5.4 Suggestions for Further Studies
1.1 BACKGROUND OF THE STUDY
Management accounting techniques have in no small measure assisted
different organizations especially manufacturing companies, in their decision
making processes. It is a known fact that techniques change over the time
largely because business themselves and the societies that they operate change
as well. What was considered as a good management technique year ago may be
considered ineffective in making decision in the future.
Also, changing external business environment has resulted in further
developments in the tools and techniques used for management accounting.
Traditional management accounting techniques had certain limitations associated
with them, for instance, absorption costing methods have been found to be
inappropriate in the modern environment. Similarly, standard costing
suitability with respect to its general philosophy and detailed operations has
come under severe criticism. It is believed that, traditional management
accounting performance measures can produce the wrong type of response. However,
the current techniques used by the management in making their decisions such
as; make or buy, cost-volume-profit analysis,
just-in-time, inventory management,budgeting,variance analysis, activity based costing,
linear programming, relevant cost, incremental cost and opportunity cost are
the techniques to be discussed in this write-up.
Decision making may be simply defined as choosing a course of action from
among many alternatives. If there are no alternatives, then no decision is
required. A basis assumption is that the best decision is the one that involves
the most revenue or the list amount of cost. The task of management with the
help of management accountant is to find the best alternative. From the
descriptive model of the basic features and assumptions of the management
accounting perspective of business, it is easy to recognize that decision
making is the focal point of management accounting. The concept of decision
making is a complex subject with a vast amount of management literature behind
it. In management accounting, it is useful to classify decisions as:
In any organization,
whether a decision is good or acceptable depends on the goals and objectives of
management. Consequently, a prerequisite to decision making is that management
have set the organization’s goals and objectives. For instance, management must
decide strategic objectives such as the company’s product line, pricing strategy, quality of product, willingness
to assume risk, and profit objective. All these can be
efficiently achieved when appropriate technique(s) is applied.
1.2 STATEMENT OF
It is more or less easy
to notice the usefulness of management accounting techniques in decision making
process. Therefore, there arise questions as;
§ Does the management accounting
techniques really useful on organization’s profit maximization decision making
§ What led to the dependence of the company
on the use of techniques considered to be modern?
§ Does application of management
accounting techniques in organization decision making improve their
§ Indeed, all the above points would
take me into a comprehensive research on the effectiveness of management
accounting techniques on decision making process in manufacturing industry (CADBURY
1.3 OBJECTIVES OF
The main aim of this
study is an attempt to:
the effectiveness of management accounting techniques on organization decision
how useful the management accounting techniques are to the manufacturing
company when making decision.
by using some variables in calculating how each of these techniques will
influence organization decision making process if practically implemented.
the benefits of using management accounting techniques in organization
1.4 RESEARCH QUESTIONS
questions are those interrogative statements that arise often from the course
of study or alternatively they can be defined as research objectives stated in
interrogative form. Research questions are meant to generate possible answers
to different aspects of the research problem and they should be clearly stated
such that they act as guides in identification, collection and analysis of
relevant data. In order to achieve the purpose of this research study, the
to provide answers to the following research questions in order to arrive at a
Does using management accounting techniques in
making decision have tremendously enhance rapid growth for the company?
ii. Is there any significant relationship between
the management accounting technique used on organization decision making
process and the effective result of the decision made?
iii. What are the yardsticks or parameters to
measure the effectiveness of management accounting techniques used in the
iv. Are there significant challenges attached to
the use accounting technique in making their decision?
1.5 STATEMENT OF HYPOTHESES
order to do justice to this research work, the following hypotheses are
formulated to act as guides for my findings.
Ho: Application of management accounting
techniques by manufacturing company does not influence decision making process.
HI: Application of management accounting
techniques by manufacturing companies influence decision making process.
Ho: There is no any significant relationship
between the management accounting technique used on organization decision
making process and the effective result of the decision made
HI: There is significant relationship between
the management accounting technique used on organization decision making
process and the effective result of the decision made
1.7 SIGNIFICANCE OF
The researcher strongly
believe that evaluating some of the techniques used by the management of
manufacturing company in the decision making process will be beneficial to both
the management accountants and manufacturing companies in general.
1.8 SCOPE AND
LIMITATION OF THE STUDY
This research will
evaluate some of the techniques used by the management of manufacturing
company(s) in their decisions making processes.Also,the research intends to
study essential problems encountered by industries using management accounting
techniques as their decision making tools.
The study would be
limited to Cadbury Nigeria Plc.This is due to constraints like degree of
precision, cost and time involve. As a result of this, I will limit myself to
data collected (brief history) at Cadbury Nigeria Plc, primary and secondary
1.9 ORGANISATION OF THE STUDY
study will be divided into three chapters.
one, which is the introduction will include the problem statement where the
problems of the study that prompted the researcher will be stated. Objectives
intended to be achieved in carrying out this research work will also be listed
here; the research questions will also be specified in the chapter. Answers to
these questions will be provided at the end of the research work. Other
sections of the chapter will include; Scope and limitations of the study,
significance of the study, definition of terms and finally historical
background of the study.
two, which is the literature review examine the existing literatures on management
accounting techniques. The chapter will include history, definitions, theories
and concepts in accounting.
three, this section includes; the research design, population of study, method
of data collection and method of data analysis.
four is the presentation of data analysis. It includes the presentation of
data, analysis and testing the hypothesis.
five, which is the summary, conclusion and recommendation. This will be the
final chapter and will summarize the findings of the research, drawn
conclusions from these findings and proffer recommendations to staff and
management of organizations in Nigeria.
1.10 DEFINITION OF
This study intends to
examine various concepts used in research work in order to make them
understandable to those who are not in this filed (Accounting/Finance)
JUST-IN-TIME: This is a technique whereby
production only takes place when there is actual customer demand for the
RELEVANT COST: According to chartered institute of
management “relevant costs are the cost appropriate to a specific management
OPPORTUNITY COST: An opportunity cost is a level of
profit forgone by the pursuit of a particular course of action.
MARGINAL COSTING: This is also known as direct costing
or variable costing. It is a system of segregating manufacturing costs between
fixed and variable components, and charging the product manufactured only with
variable manufacturing costs. It comprises direct material costs, direct labour
cost and direct expenses (i.e. Prime cost) and variable manufacturing
ACTIVITY BASED COSTING: This is a costing techniques that
identifies activities in an organization and assigns the cost of each activity
resource to all products and services according to the actual consumption by each.
It assigns more direct costs overhead)into direct costs.
TECHNIQUE: A practical method, skill, or art
applied to a particular task. It can be defined as procedure used to accomplish
a specific activity or task.
is a sequence of independent and linked procedures which, at every stage,
consumer one or more resource (employee, energy, machines, money) to convert
inputs (data, materials, parts etc.)into outputs. These outputs then serve as inputs
for next until a known goal or end result is reached.
MANUFACTURING: Any industry that makes products
from raw materials by the use of manual labour or machines and that is usually
carried out systematically with a division of labour.In a more limited sense;
manufacturing is the fabrication or assembly of components into finished
products on a fairly large scale. Among the most important manufacturing
industries are those that produce aircraft, automobiles, chemicals, clothing,
computers, electrical equipment, furniture, heavy machinery, refinery petroleum
products, ships, steel and tools.
DECISION: Decision-making is not a separate
function of management. In fact, decision-making is intertwined with the other functions,
such as planning, coordinating, and controlling. These functions all require
that decisions be made. For example, at the outset, management must make a
critical decision as to which of several strategies would be followed. Such a
decision is often called a strategic
decision because of its long-term impact on the organization. Also;
managers must make scores of lesser decisions, tactical and operational, all of
which are important to the organization’s well-being.
.R.Y. (2001): Management Accounting in Focus: Rakson Nigeria Limited
.R.Y. (2001):Fundamental of Cost Accounting: Rakson Nigeria Limited Cadbury
Nigeria PLC (2005): Annual Report and Accounting