CHAPTER 1:
INTRODUCTION
1.1 Background
of the Study
The
studies of modern cost accounting yield an insight into both the accountant and
management roles in an organization especially with relation to product
costing. Management in most cases wants to know how to determine the cost of
the products and often depend on cost accounting information for guiding their
decisions. Decision making can be seen as making purposeful choosing from among
a set of alternative cause of action in light of some objectives. Cost
accounting information has a main purpose of accumulating cost of an organizational
products and services. Managers of manufacturing companies can use cost accounting
information as a guide in setting selling prices and for inventory valuation
and profit determination (Adeniyi, 2000). However, this research is aimed at
determining the relationship between cost accounting information and product
costing in some selected paint manufacturing companies in Port Harcourt, Rivers
State, Nigeria.
It
is worthy to note that cost accounting is a process of collecting, analyzing,
summarizing and evaluating various alternative courses of action. Its goal of
the information obtained from cost accounting is to advise the management on
the most appropriate course of action based on the cost efficiency and
capability. Cost accounting provides the detailed cost information that
management needs to control current operations and plan for the future
including product costing. Since managers are making decisions only for their
own organization, there is no need for the information to be comparable to
similar information from other organizations. Instead, information must be
relevant for a particular company. Cost accounting information is commonly used
in financial accounting information, but its primary function is for use by managers
to facilitate making decisions (Wikipedia, 2015).
Unlike
the accounting systems that help in the preparation of financial reports
periodically, the cost accounting systems and reports are not subject to rules
and standards like the Generally Accepted Accounting Principles (GAAP). As a
result, there is wide variety in the cost accounting systems of the different
companies and sometimes even in different parts of the same company or
organization.
According
to Adeniyi (2000), product cost control/reduction involves the predetermination
of cost and comparison of predetermination budgeted or standard cost with the
actual cost.
Product
costing which is closely linked with the budgeted is predetermined per unit
cost, usually analyzed into elements including Direct Material, Direct Labour
and Factory overhead. Standard cost is an effective aid to control, due to the
link with budget plans and decision making, because it represents anticipated
cost, that is, a cost which will exist in the future and is likely to be
affected by decisions made by the management.
Carroll
(1953), product cost control always refers to as the control of expenditures
within predetermined levels, which entails the minimization of resources so as
to achieve a given objective which is aided by cost accounting information. These
controls should be a continuous activity aimed at improving efficiency and
quality by ensuring that the right resources are provided and efficiently used.
1.2 Statement of the Problem
The
private sectors driven economic trend in Nigeria, calls for serious cost
accounting information consciousness among manufacturing companies. In light of
this, manufacturing companies in Nigeria faced with the task of not only profit
maximization, but a quest for survival through proper product costing amidst
competition, legal, government, economic and environmental constraints.
Moreover,
external factors such as inconsistency in fiscal policies do not lend
themselves to be manipulated by manufacturing companies in Nigeria. Example is
deregulation etc, have left Nigerian Manufacturing Companies with low capacity
utilization with its attendant high cost of fixed overhead per unit production,
high cost (fluctuations) of foreign exchange which causes high cost of raw
materials and plants and machinery which will invariably influence product
costing.
The
effects of high cost of local quality products are that the consumers boycott
these quality products to cheaper one on high quantity but low quality. These
limits the scope of market for these manufacturing industries and in the
unlikely prospect of export, the final consequences is rationalization of work
force. Furthermore, nonchalant attitude of many managers or lack of
professional cost accountants to cost accounting information, has affected the product
costing of many Nigeria manufacturing companies, including government owned
companies. Relevant, reasonable and unreasonable costs are incurred and charged
to profits of the companies. This affects the growth of the companies, and also
affects their qualities/quantities which are the greatest intents of the
consumers. In the light of this, the researcher is out to examine the
relationship between cost accounting information and product costing of some
selected paint manufacturing companies in Port Harcourt, Rivers State, Nigeria.
1.3 Purpose/objectives of the Study
The
following are the objectives of this study:
1. To
determine the usefulness of cost accounting information in paint manufacturing
companies in Port Harcourt
2. To
examine the relationship
between cost accounting information and product costing in some selected paint
manufacturing companies in Port Harcourt
3. To ascertain other factors influencing product costing in
paint manufacturing companies in Port Harcourt
1.4 Research Questions
1. What
is the usefulness of cost accounting information in paint manufacturing
companies in Port Harcourt?
2. What
is the relationship
between cost accounting information and product costing in some selected paint
manufacturing companies in Port Harcourt?
3. What are the other factors influencing product costing in
paint manufacturing companies in Port Harcourt?
1.5 Research Hypothesis
HO:
There is no significant relationship
between cost accounting information and product costing in some selected paint
manufacturing companies in Port Harcourt
HA:
There is significant relationship
between cost accounting information and product costing in some selected paint
manufacturing companies in Port Harcourt
1.6 Significance of the Study
It is
expected that findings from this study will help manufacturing companies in
Nigeria to see areas of shortfall and remedial solutions. Managers of such
firms especially paint manufacturing companies will benefits from the study as
they will have more understanding on cost information system and product
costing.
Following
the completion of this work, and the result made available to them, the
processors will be in a position to re-examine their cost accounting
information and product costing techniques and update them so as to enjoy these
benefits available to firms with good cost accounting and product costing
methods.
With
adequate application of good cost accounting information and method of product
costing, the firms will expand and consumers will enjoy value for quality
products.
Finally,
the company’s expansion will improve economy of employment opportunities and
this study will help to highlight the problems of manufacturing companies.
1.7 Scope of the Study
This
study restricted to the cost accounting information as it affects some selected
paint manufacturing companies in Port Harcourt, Nigeria and it’s utilization in
product costing.
1.8 Limitation of the study
The
following three factors posed problems to the research and they are:
1. Environmental Factors: This research needs facts and figures as inputs, however,
the paint manufacturing companies are skeptical in releasing information on
sensitive areas of its production, cost accounting information and methods of
product costing.
2. Finance:
Inadequate finance affects data collection, frequent visits to the companies
and other relevant source of information.
3. Time limit: As a student the researcher had time constraint due to other
schedules, academic work and series of appointment with the managements of some
of the paint manufacturing companies under review.
1.9 Definition of Terms
Cost
accounting:
Horngren (1990); This is the process of identifying, analyzing, computing and
reporting cost information to the management. Cost accounting information
provided data for planning and controlling routine operations, non-routine
decisions, policy making and long range planning for inventory valuation and
cost determination.
Budgeted
Cost: This
is an information system through which cost can be estimated and controlled.
Management most often base its price policy on budget cost or estimated price
through observed trends in economic activities.
Cost
Analysis: This
is the process of classifying and estimating the total amount of expenditure to
be incurred in the course of manufacturing a product or rendering a service.
Cost
Control: This
is the control of expenditure within predetermined levels. It is concerned with
understanding how and why costs change setting of performance standard and
monitoring of actual results against these standards.
Standard
Costing: This
is the process of estimating the total cost of production per unit. It
represents an estimate or pre-determined total cost of products per unit for an
organization standard costing help to build budgets, obtains product price and
save book-keeping costs, Brown (1975).
Budgetary
Control: This
is a system of accounting in which cost and revenue are analyzed in accordance
with areas of personal responsibilities so that the performance of the budget
holders can be monitored.
Cost
Reduction: This
is reduction in unit cost of goods and services without in pairing suitability
for the use intended.
REFERENCES
Adeniji A.A.(2001) An Insight
into Management Accounting Corporate Publishers, Yaba Lagos.
Caroll R.T (1953): Management
Accounting, an Introduction Pitman BOOKS London 1961 pg. 28
Charles T. Horngren: Cost
Accounting a Managerial Emphasis (Presentice Hall India) sixth Edition (1990)
Brown L.W.: (1984), Cost
Accounting Analysis and Control. London Macmillan Publisher Ltd.
Nwabuzor R.: (2001) ICAN
preparatory Note and Management Accounting.
www.wikipedia.com