RELEVANCE OF COST ACCOUNTING INFORMATION IN MANAGEMENT DECISION MAKING (A CASE STUDY OF GUINNESS NIGERIA PLC)


Content

ABSTRACT

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

Certification                                                             ii
Dedication                                                               iii

Acknowledgement                                                    iv

Abstract                                                                   v

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

References                                                               60
Appendix                                                                 61

Questionnaire                                                          62


CHAPTER ONE

INTRODUCTION

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.


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