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RELEVANCE OF COST ACCOUNTING INFORMATION IN MANAGEMENT DECISION MAKING (A CASE STUDY OF GUINNESS NIGERIA PLC)
This research is centred on “Cost Accounting” as a yardstick for management decision-making. It is endeavour to examine critically what is exactly meant by cost accounting and how far it is used by most management when making decisions. The objectives and purpose of preparing cost accounting statements can only be just fled and accomplished if the user of such statements is able to interpret and read meaning to the figures contained in the statements. It was revealed that the necessity for managers of all business functions to understand the essential principles and conventions of cost accounting if they have fulfill part in the development of system of planning and controlling which must have a financial as well as a costing basis. Even this untrained in cost accounting and related subject will find by a review of this project that the principles, conventions and practice of cost accounting are not mysteries but amendable to the logic of common sense. Finally, meaningful suggestions were not put forward on the basis of the analysis and findings to ensure a more efficient adoption of an appropriate costing system that can lead to profitability and maximization of the value of a firm.
TABLE OF CONTENTS
Title Page i
Table of Contents vii
Chapter one: Introduction 1
1.1 Background to the Study 1
1.2 Statement of Problem 2
1.3 Research Questions 3
1.4 Objectives of the Study 3
1.5 Statement of Hypothesis 4
1.6 Significance of the Study 4
1.7 Scope of the Study 5
1.8 Limitation of the Study 5
1.9 Definition of Terms 6
Chapter Two: Review of Related Literature 9
2.1 Introduction 9
2.2 Cost Classifications 10
2.2.1 Cost Classification by Behaviour 10
2.2.2 Cost Classification by Function 11
2.2.3 Production Cost 11
2.2.4 Administrative Costs 11
2.2.5 Selling Costs 12
2.2.6 Distribution Costs 12
2.2.7 Development Cost 12
2.2.8 Research Cost 13
2.2.9 Cost Classification by Association 13
2.3 Cost Classification by Cost Element 14
2.3.1 Cost Accounting System 14
2.3.2 Process Costing 15
2.3.3 Job Costing 15
2.3.4 Batch Costing 16
2.3.5 Operating Costing 16
2.3.6 Single or Output Costing 17
2.3.7 Contract Costing 17
2.3.8 Service Costing 17
2.3.9 Composite or Multiple Costing 18
2.4 Fundamental of Cost: Cost Accounting 18
2.4.1 Management Control System 22
2.4.2 Setting Standard 22
2.4.3 Cost Control Measures 24
2.4.4 Budgeting Planning and Control Measures 25
2.4.5 Purpose of Budgeting 26
2.4.6 Budget Period 28
2.4.7 Fixed and Flexible Budget 28
2.4.8 Limiting Factor 29
2.4.9 Operational Control System 29
2.5 Standard Costing and Variance Analysis 30
2.6 Relevance of Cost Accounting Information in
Management Decision Making 32
Chapter three: Research Method and Design 34
3.1 Introduction 34
3.2 Research Design 34
3.3 Description of Population of the Study 35
3.4 Sample Size 36
3.5 Sampling Techniques 36
3.6 Sources of Data Collection 37
3.7 Method of Data Presentation 39
3.8 Method of Data Analysis 39
Chapter Four: Data Presentation, Analysis
and Interpretation 41
4.1 Introduction 41
4.2 Presentation of Data 44
4.3 Data Analysis 44
4.4 Hypothesis Testing 45
Chapter Five: Summary of Findings, Conclusion
and Recommendations 53
5.1 Introduction 53
5.2 Summary of Findings 53
5.3 Conclusion 55
5.4 Recommendations 57
1.1 Background to the Study
Guinness (Nig) Plc, Benin was opened in 1972 after the incorporation of it’s headquartering at Ikeja, Lagos State in the year 1962.
The original name of incorporation was Guinness (Nig) Ltd. It was changed to Guinness (Nig) Plc due to government directives to distinguish public limited liability companies from other limited companies.
Guinness (Nig) Plc, Benin is located along Benin-Agbor Oregbeni Housing Estate, Ikpoba Hill, Benin City.
Each person like every business requires some measures of both financial position and financial performance in assessing his financial conditions. The financial position depicts one’s wealth at ascertain point in time while one’s financial performance describes once.
Financial statements are like compasses which navigators use to locate their bearing and find direction. People use them to gauge their financial positions at
1.3 Research Questions
The following research questions were raised for the study:
1. Has there been any impact or relevance of cost accounting information in management decision making?
2. Has the implementation of cost accounting information helped in effective and efficient management decision making?
3. Has cost accounting information helped to achieve the goal and objective of the organization?
4. Why are organizations interested in cost accounting information?
1.4 Objectives of the Study
i. What is the place of cost accounting in business organization?
ii. Is the system in use appropriate for the need of the organization under study?
iii. What is the rationale behind the adoption of the use of the system?
iv. A view of the system to find out the control system put in place by management.
1.5 Statement of Hypothesis
The hypothesis of this research is divided into two as Null (Ho) and Alternative (HI). If the Null hypothesis were rejected, then the alternative hypothesis is accepted and vice-versa.
The hypothesis is to be tested as follows:
Ho: Cost Accounting is not relevant in management decision making.
HI: Cost Accounting is relevant to management decision making.
1.6 Significance of the Study
The significance of the study is to be able to ascertain the relevance of costing system in an organization overall performance. It’s specific function and contribution to efficiency in production processes.
It will enable management to know the importance of costing system, thus ensuring them to look at the purchase department with seriousness in any organization in which it is found.
This project will also be relevant to both the students and Government. For the Government, it will help in the prudent management of scarce resources and for the interested student, it will equipped them more on the understanding of costing system as a concept.
1.7 Scope of the Study
As a result of time constrain, it will be delimited to those areas that are necessary for the purpose of this research. Hence, the relevance of cost accounting and costing system or techniques will be covered. This study focuses on the cost accounting department of Guinness (Nig) Plc, Benin City, Edo State.
1.8 Limitations of the Study
During this research work, a lot of constraints and limitations were encountered. During the course of such academic exercise, some of these constraints encountered were unusual and boring. Collection of primary data for this study was a major constraint, as the researcher has to be on field personally in all the data collected processes. Inadequate internet facilities on the research work.
1.9 Definition of Terms
Cost Accounting: It is also defined as ‘the establishment of budgets, standard costs, actual cost of operations, processes, activities or products and the analysis of variances, profitability or the social use of funds’.
Cost: Cost is the value of economic resources used as a result of producing or doing the thing being costed.
Cost Unit: A Cost Unit is a unit of production or services to which cost can be related. The nature of the cost unit will obviously depend on the type of goods being produced or the type of services by the business concerned.
Cost Centre: According to Abohi (2002), Cost Centre can be defined as “a location, person or item of equipment (or group of these) for which costs may be ascertained and use for the purpose of cost control”. It can also be defined as a department or geographical area, a machine or person to which cost can be related.
Cost Control: This refers to the ability of management to monitor and supervise expenditure (i.e. current and capital) in order to ensure that things are going according to plan and that actual results are obtained for comparison against planned result so that appropriate corrective action (s) can be taken on the variance that is bound to arise before it is too late.
Activity Level: Activity Level constitutes the main basis for forecasting costs especially where changes or future changes are to be measured.
Variance: This is the difference between an actual amount and a predetermined standard amount. That is where actual cost is different from the estimated standard cost.
Decision Making: According to Reason (1990), is the mental process resulting in the selection of a course of action among several alternative scenarios.