IMPACT OF COST ACCOUNTING INFORMATION ON PRICE DETERMINATION : Case study of some Nigerian manufacturing companies

Amount: ₦5,000.00 |

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1-5 chapters |




ABSTRACT

This research study was conducted to determine the impact of cost accounting information on price determination in some manufacturing  companies  in  Nigeria.  The  objectives  of  the  study were  to  determine  the  components  of  manufacturing  cost information and also to identify the lapses therein. Literature review on the topic was aimed at cost determination, cost control concept, cost performance evaluation, direct and indirect cost and fixed/variable cost. Data collected were analysed using frequency table and chi-square. The result of data analysed showed that cost accounting information contribute a lot on price determination of products.

CHAPTER ONE INTRODUCTION

1.1 BACKGROUND OF STUDY

The studies of modern cost accounting yield an insight into both the accountant  and  management  roles  in  an  organization. Management in most cases wants to know how performance is measured and often depend on accounting information for guiding their  decisions.  Decision  making  in  this  context  is  defined  as making purposeful choosing from among a set of alternative cause of action in light of some objectives.

Cost accounting has a main purpose of accumulating cost of an organizational products and services. Managers of manufacturing companies can use product cost information as a guide in setting selling prices and for inventory valuation and profit determination. According to Adeniyi (2000:10), cost control/reduction involves the predetermination of cost and comparison of predetermination budgeted or standard cost with the actual cost.

Standard cost which is closely linked with the budgeted is predetermined per unit cost, usually analyzed into elements: 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),  Cost  control  information  always  refers  to  as  the control of expenditures within predetermined levels, which entails the  minimization  of  resources  so  as  to  achieve  a  given  objective. These controls should be continuous activity aimed at improving efficiency and quality by ensuring that the right resources are provided  and  efficiently  used.  It  is  on  this  basis  of  this  cost accounting information functions, that, this research is embarked upon to ascertain to what extent some Nigerian Manufacturing Companies “Nigerian Breweries plc, Aqua-Rapha Nig. Ltd, and Anammco Nig. Ltd.” have used this cost accounting information in the determination of its product prices.

Attempts will also be made in the course of this study to ascertain whether   in   practical   situations,   those   techniques   in   literature review are operational in some Nigerian manufacturing companies. The  major  point  is  that  the  focus  of  a  modern  cost  accounting information system is on helping manages to deal with both the immediate and the distant futures.

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 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.

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 profitability of many Nigeria manufacturing companies, especially 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. Other problems are:

(a)     To highlight on management inadequate concern over proper pricing guide through cost information.

(b)     To take necessary condition for a costing system.

(c)     To  evaluate  the  present  state  of  the  application  of  the  cost accounting information in the determination of prices.

(d)     To appropriate basis of preparation of the cost.

(e)     To determine problems affecting the effective application of the cost information in prices determination.

(f)      To react to the application.

(g)     To recommend a more effective and efficient way of applying cost information.

1.3    OBJECTIVE OF THE STUDY

There  is need for management in manufacturing industries to re- appraise its methods, techniques, procedures adopted and attitude towards cost information.

This has become necessary given the inflationary trend in the economy   and   the   resultant   passing   of   manufacturing   cost   of products.  Whether  incurred  recklessly  or  otherwise  to  the consumers.

The underlying objectives also compelled the researcher:

a.     To identify the standard components of manufacturing cost information.

b.      To  examine  and  compare  the  cost  accounting  information system used by Nigerian manufacturing companies, like Nigerian Brewery Plc, Aqua-Rapha Nig. Ltd and Anammco Nig. Ltd.

c.      To identify lapses in cost accounting information system and price determination of products and remedial solutions.

d.      To  determine  an  appropriate  condition  and  environment  for proper comparison and analysis of costs.

1.4    HYPOTHESES

(i)      The   cost   accounting   information   on   price   determination techniques assists in price control.

(ii)     The cost information on price determination techniques do not assist in price control.

1.5   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 will benefits from the  study as they will be made more on cost information system and price determinations of products.

It  is  hoped  that  by  improving  the  profitability  of  these  firms  this study will benefit the economy as a whole.

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  price  determination techniques and update them so as to enjoy these benefits available to firms with good cost accounting and price determination techniques.

With adequate application of good cost accounting information and price  determination  techniques,  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.

1.6    SCOPE OF THE STUDY

This study restricted to the cost accounting information as it affects some Nigerian manufacturing companies and it’s utilization in price determination of products.

This research is divided into five chapters. The first chapter is the introductory  aspect  of  the  study.  Second  chapter  deals  on  an overview of cost accounting information and its application in the determination  of  products  prices  in  some  Nigerian manufacturing companies. In this overview from allocation for planning and controlling  of  costs  to  the  establishment  of  standard  system  for price determination has been treated in detail.

Furthermore, budgetary control and variance have only be defined and related cost control as they affect it. Chapter three discuss the methodology used in this project research. Chapter four deals with the presentation and analysis of data observations while  the final chapter five deals on recommendations, findings and conclusion of this research study.

1.7    LIMITATION OF THE STUDY

The following three factors posed problems to the research and they are:

i.       Environmental  Factors:  This  research  needs  facts  and figures  as  inputs,  however,  the  manufacturing  companies are skeptical in releasing information on sensitive areas of its production, cost accounting information and price determination techniques.

ii.      Finance:    Inadequate    finance    affects    data    collection, frequent visits to the companies and other relevant source of information.

iii.   Time limit: As a part-time student the researcher had time constraint due to employment schedules, academic work and series of appointment with the managements of some of manufacturing companies under review.

1.8    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 income 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.

  Indirect costs: These are element of cost that are associated with or caused by two or more cost objectives jointly, but that are  not  directly  traceable  to  each  of  them  individually.  Its nature is that cost that is not possible or at least not feasible, to measure directly how much of the cost is attributable to a single cost objective.

  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).

  Variance  Analysis:  This  is  the  difference  between  the  standard cost of production and the actual cost of production. Its process of classification into sub-variances is term variance analysis.

  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.

  Efficiency: The efficiency of management affects the cost if its products. Efficiency can result from proper control of the enterprises activities and adequate work supervision.



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IMPACT OF COST ACCOUNTING INFORMATION ON PRICE DETERMINATION : Case study of some Nigerian manufacturing companies

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