1.1 BACKGROUND TO THE STUDY
Cost accounting (CA),
which measures and reports financial and non-financial information
related to the organization’s acquisition or consumption of resources, has
an exceptionally important position within the entire accounting
information system of an organization because it provides information to
both management accounting and financial accounting as subsystems of
the accounting information system. When its information is intended for
the financial accounting it measures product costs in compliance with
the strict legal and professional regulations. When its information is
used for internal purposes it provides the basis for planning, control,
and decision-making. Accounting data used for external reporting very
often do not completely satisfy managers? needs for decision-making
purposes. Attempts at slight modifications of financial accounting
systems for managerial purposes rarely end happily and far from
effective (Wikipedia, 2015).
According to the Institute of Management Accountants (IMA):
"Management accounting is a profession that involves partnering in
management decision making, devising planning and performance management
systems, and providing expertise in financial reporting and control to
assist management in the formulation and implementation of an
The primary focus of economic planning and management in Nigeria over
the years has been the transformation of the economy through
industrialization, however, desired results are yet to be obtained. The
Nigerian economy is far from being fully industrialized and the
manufacturing sector is yet to take a prominent place in the scheme of
things (Ayodele & Falokun, 2003). The country has not been able to
shift its export base, from crude oil and agriculture to manufactures.
Up to date, on the average, the manufacturing sector’s contribution to
gross domestic product (GDP) has been unimpressive ranging between 3 to 6
percent since the turn of the millennium. For instance, manufacturing
contribution to GDP declined from about 6% in 2000 to 3.91% in 2006 and
between 4.03% and 4.17% from 2007 to 2010 (National Bureau of Statistics
2011). The need to increase company level efficiency has been a
dominant suggestion offered as the key to reversing this unimpressive
performance. As Soderbom and Teal (2002) suggested, a key policy issue
the Nigerian government should face is to understand and address the
factors that will enable the efficiencies of companies and consequently
their competitiveness to increase. Ayodele and
Falokun (2003) also suggested the adoption of the combination of
suitable management techniques with suitable technology and other
resources in addressing the low productivity of the sector.
Cost accounting and management accounting has been suggested as one
of such important management techniques that can help ensure efficiency
in the use of companies’ resources (IFAC, 1998). Traditionally, the main
objective of the cost accounting and management accounting systems has
been to provide information for costing products and for promoting
efficiency in the use of labour and materials (Johnson & Kaplan,
1987). Such traditional method adopt practices and techniques such as
standard costing and flexible budgeting for cost control, cost
allocation and product cost measurements; incremental analysis for
decision-making; measurement of profit, contribution and return on
investments for performance monitoring; and the full integration of
internal cost accumulation systems with the external financial reporting
systems (Shillinglaw, 1989).
Company performance is the net result of the combined efforts of all
individuals and groups in an organization (Khandwalla, 1977). Companies
referred to in this study are the manufacturing companies. The
definition of company performance is problematic because it varies,
depending on the viewpoint from which it is being assessed. For example,
from society’s viewpoint, performance may be assessed in terms of
efficiency of production of products or services needed by the society.
From the owners’ viewpoint, profitability and growth rate in earnings
may be the criteria, while employees may assess performance from how
well employees are being treated. Customers may look at product quality,
prompt delivery and competitive pricing. Since management must take
into account the various expectations of these groups in setting its
goals, management’s criteria for assessing company performance may be
assumed to adequately reflect the concerns of others groups such as the
society, employees, suppliers and customers (Khandwalla, 1977). However,
the researcher is examining the effect of use of cost accounting and
management accounting as a tool for performance evaluation in
1.2 STATEMENT OF THE PROBLEM
Even though a cost
accounting and management accounting system is supposed to assure that
manufacturing work is done according to the company strategy, this has
not been the reality in many companies. It has been known for many
decades that management and production systems used in manufacturing
have not developed in harmony. This misalignment is a reason for why
unfavourable decisions are encouraged in manufacturing (Skinner, 1971;
When reviewing publications regarding cost accounting and management
accounting systems, it is obvious that the interest in the topic has
grown in recent years. However, the researcher will provide an overview
of cost accounting and management accounting as a tool for performance
evaluation in manufacturing company.
1.3 OBJECTIVES OF THE STUDY
The general objective
of this study is to analyze cost accounting and management accounting as
a tool for performance evaluation in manufacturing company. However,
the following are the specific objectives:
- To find out if cost accounting can be a tool for performance evaluation in manufacturing company
- To find out if management accounting can be a tool for performance evaluation in manufacturing company
- To examine the effect of cost accounting and management accounting on manufacturing company performance.
1.4 RESEARCH QUESTIONS
- Can cost accounting be used as a tool for performance evaluation in manufacturing company?
- Can management accounting be used as a tool for performance evaluation in manufacturing company?
- What is the effect of cost accounting and management accounting on manufacturing company performance?
HO: Cost accounting and management
accounting cannot be used as a tool for performance evaluation in
manufacturing company HA: Cost accounting and management accounting can
be used as a tool for performance evaluation in manufacturing company
1.6 SIGNIFICANCE OF THE STUDY
The following are the significance of this study:
- It will be a guide for manufacturing companies basically on how cost
accounting and management can be used as a tool for performance
evaluation. It will also educate stakeholders in the manufacturing
sector on how cost accounting and management accounting can be sued to
boost productivity and profitability.
- This research will also serve as a resource base to other scholars
and researchers interested in carrying out further research in this
field subsequently, if applied, it will go to an extent to provide new
explanation to the topic.
1.7 SCOPE/LIMITATIONS OF THE STUDY
The scope of
this study on cost accounting and management accounting as a tool for
performance evaluation in manufacturing company will cover all the
manufacturing companies in Lagos State by carefully examining their
respective performance evaluation tools.
LIMITATION OF STUDY Financial constraint-
Insufficient fund tends to impede the efficiency of the researcher in
sourcing for the relevant materials, literature or information and in
the process of data collection (internet, questionnaire and interview).
The researcher will simultaneously engage in this study with other
academic work. This consequently will cut down on the time devoted for
the research work.
1.8 DEFINITION OF TERMS
the part of the management process that is focused on adding value to
organizations by attaining the effective use of resources in dynamic and
competitive contexts (Sharman, 2003). Management accounting consists of
both cost accounting and performance measurement. It contains all the
information which is officially gathered to support the decision making
in production. It is used for internal purposes and therefore different
from financial accounting which is used for reporting for external
Cost accounting:is the process of
accumulating and accounting for the flows of costs in a business. It is
defined as a technique or method for determining the cost of a project,
process, or thing through direct measurement, arbitrary assignment, or
systematic and rational allocation. The appropriate method of
determining cost often depends on the circumstances that generate the
need for information (Swamidass, 2000). This can be information such as
material cost, production cost, product cost, investment calculations,
Performance measurement:is the process of
quantifying actions, where measurement is the process of quantification
and performance is the result of action (Slack, 1997). These
measurements show how well the production is performing in categories
such as quality, delivery precision, service level, time per operation,
set up time and so on.
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Massachusetts: Harvard Business School Press. Kaplan, R. S. (1983).
Measuring manufacturing performance: A new challenge for managerial
accounting research. The Accounting Review, 58(4), 686-705. Khandwalla, P. N. (1977). The design of organizations. New York: Harcourt Brace Jovanovich Inc. National Bureau of Statistics, (2011).The review of the Nigerian Economy, 2010. Retrieved from http://www.nigerianstat.gov.ng/pages/download/40. Shillinglaw, G. (1989). Managerial cost accounting: present and future. Journal of Management Accounting Research,
1, 33-46. Soderbom, M. and Teal, F. (2002). The performance of Nigerian
manufacturing firms report on the Nigerian manufacturing enterprise
survey, 2001. UK center for the study of African Economies. Retrieved
from www.unido.org/file_storage/download/ ?file_id=8152. Skinner, J. L. (2003). Accounting for decision making and control. (4th ed.). Boston: McGraw Hill Higher Education.