Abstract

This study seek to examine the relevant of cost accounting information for management decision making (A case study of Guinness Nigeria Plc, Benin City). The study also explained the possible connection between the definition, relevance terms and also the background of Guinness Nigeria Plc. It is aimed at ascertaining the place of cost accounting in business organization. The data obtained were analyzed using simple percentage while chi-square was used in testing the hypotheses. From the test carried out, it was discovered that costing system have not been properly installed and wastage had been properly minimized with efficiency in production. It was recommended that the negative impact of cost accounting in Guinness Nigeria Plc should be tackled without delay for improved efficiency. It was concluded that industries have outgrown the era of rule of thumb and guess-work, and that, for business to survive they must know what they are doing in order to face these threats. 

TABLE OF CONTENTS

Title Page                                                                                i

Certification                                                                            ii

Dedication                                                                              iii

Acknowledgments                                                                  iv

Abstract                                                                                  v

Table of Contents                                                                   vi

Chapter One: Introduction                                        1

1.1    Background to the Study                                                      1

1.2    Statement of Problem                                                            2

1.3    Research Questions                                                               2

1.4    Objectives of the Study                                                          3

1.5    Statement of Hypotheses                                                       4

1.6    Significance of the Study                                                       4

1.7    Scope of the Study                                                                 6      

1.8    Limitations of the Study                                                        6

1.9    Definition of Terms                                                                6

Chapter Two: Review of Related Literature                11

2.1              Introduction                                                                 11    

2.2              Cost Classifications                                                      14    

2.2.1           Cost Classification by Behaviour                                14

2.2.2           Cost Classification by Function                                  17

2.2.2.1       Production Cost                                                           17

2.2.2.2       Administrative Costs                                                    18

2.2.2.3       Selling Costs                                                                 18

2.2.2.4       Distribution Costs                                                        18    

2.2.2.5       Development Cost                                                        18    

2.2.2.6       Research Cost                                                              19

2.2.3           Cost Classification by Association                              19

2.2.4           Cost Classification by Cost Element                           21    

2.3              Cost Accounting System                                              22    

2.3.1           Process Costing                                                            23

2.3.2           Operating Costing                                                        26

2.3.3           Single or output costing                                               27

2.3.4           Job Costing                                                                   27    

2.3.5           Batch Costing                                                               31    

2.3.6           Contract Costing                                                          31

2.3.7           Service Costing                                                             33

2.3.8           Composite or Multiple Costing                                    34    

2.4              Fundamental of Cost: Cost Accounting                      34

2.4.1           Management Control System                                      38    

2.4.1.1       Setting Standard                                                          38    

2.4.1.2       Cost Control Measures                                                40    

2.4.1.3       Budgeting Planning and Control Measures               41

2.4.2           Purpose of Budgeting                                                  43

2.4.3           Limiting Factor                                                             43

2.4.4           Setting responsibility center                              45

2.4.5           Operational control system                                         46

2.5              Standard Costing and Variance Analysis                   47    

2.5.1           Advantages of standard costing                                  48

2.5.2           Problems of standard costing                                      48

2.5.3           The standard costing circle                                         49

2.5.4           Variance analysis                                                         52

2.5.5           Disposition of variance                                                54

2.5.6           Design of a costing system                                           55

2.6              Activity-Based Costing (ABC)                                      56

2.6.1           Objective of Activity Based Costing                             57

2.6.2           Implementation of Activity Based Costing                  58

2.6.3           How Activity Based Costing System improves Costing Process                                                                      59

2.7              Target costing                                                               61

2.7.1           Process of Target Costing                                            63

2.7.2           Factors affecting Target Costing                                  68

2.8              Marginal Costing                                                          68

2.8.1           Need for Marginal Costing                                           68

2.8.2           Features of Marginal Costing                                      69

2.8.3           Advantages of Marginal Costing                                  70

2.9              Relevance of Cost Accounting Information in

Management Decision Making                                    71

Chapter Three: Research Method and Design             73

3.1    Introduction                                                                           73

3.2    Research design                                                                     73

3.3    Description of the Population of the Study                          74

3.4    Sample Size                                                                            74

3.5    Sampling Techniques                                                            75

3.6    Sources of Data Collection                                                    75

3.7    Method of Data Presentation                                                75

3.8    Method of Data Analysis                                                       76

3.9    Method of Data Collection                                                     76

Chapter Four: Data Presentation, Analysis

and Interpretation                                                                 77

4.1    Introduction                                                                           77

4.2    Presentation of Data                                                              78

4.3    Data Analysis                                                                         78

4.4    Hypothesis Testing                                                                 89

Chapter Five: Summary of Findings, Conclusion and Recommendations                                                             96

1. Introduction                                                                           96
2. Summary of Findings                                                             96
3. Conclusion                                                                                       98
4. Recommendations                                                                 99

References                                                                              102 Appendix I: Cover Letter                                                       104

Appendix II: Questionnaire                                                   105

CHAPTER ONE

INTRODUCTION

Cost accounting has long been used to help managers understand the costs of running a business. Cost accounting today is recording, budgeting, analyzing and determining cost for products manufactured.

Modern cost accounting originated during the industrial revolution, when the complexities of running a large scale business led to the development of systems for recording and tracking cost to help business owners and managers make decision.

The basic objective of this study is to examine comprehensively how cost accounting information is being presented in a large organization. Cost accounting system of any organization is the foundation of the internal financial information plan, to control and make decision.

The information provided by costing system are cost per unit of production, process cost of running a sector or department, wages cost of a unit of production scrap cost etc.

1.1   BACKGROUND TO THE STUDY

Guinness (Nig) Plc, Benin was opened in 1972 after the incorporation of its headquarter 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.

The objective of the company are:

1. To provide employment for members of the community.
2. To contribute to the general welfare of the community by providing good quality bear and non-alcoholic malt.
3. To contribute to economical development of the economy.

1.2   STATEMENT OF PROBLEM

The growth of business activities in production process and information provision, aid management in taking timely, accurate and effective decision which brought out the need for an appropriate cost accounting system that will meet the need of the organization as an entity.

When an appropriate system is installed, output is increased efficiency and profit maximization is recorded, therefore, this study aims to highlight the relevant of cost accounting system using Guinness (Nig) Plc, Benin as a case study.

1.3   RESEARCH QUESTIONS

The following research questions were raised for the study:

1. Has there be any impact or relevant of cost accounting information in management decision making?
2. Has cost accounting information helped to achieve the goals and objective of the organization?
3. Has the implementation of cost accounting information helped in effective and efficient management decision making?
4. Why are organizations interested in cost accounting information?

1.4   OBJECTIVE OF THE STUDY

i.      To ascertain the place of cost accounting in business organization.

ii.     To ascertain the system in use, appropriate for the need of the organization under study.

iii.    To know the rationale behind the adoption of the use of the system.

iv.    To ascertain 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:

Hypothesis I

Ho:  Cost accounting is not relevant in management decision making.

HI:    Cost accounting is relevant in management decision making.

Hypothesis II

Ho:  Cost accounting is not a management control system.

HI:    Cost accounting is a management control system.

1.6   SIGNIFICANCE OF THE STUDY

The significance of the study is to 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 kook 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 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   LIMITATION

During this research work, a lot of constraints limitations were encountered. During the course of such academic exercise, some of these constrains encountered were unusual and boring. Collection of primary data for this study was a major constraints, 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

Constant Cost: Cost of production may be fixed for variable. The fixed or content cost are those that do not change with changes in production. The variable cost of production do change with the volume of production. If reference is made to unit cost of production then many of the fixed cost of total production will become variable unit cost.

Cost Unit: A cost unit is a unit of production or service to which cost can be related. The nature of the cost unit will obviously depend on the types 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 those) for which costs may be ascertained and use of 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 cost 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 were actual cost is different from the estimated standard cost.

Decision Making: According to Pearson (1990) is the mental process resulting in the selection of a course of action among several alternatives scenarios.

Time Ticket: A document that indicates the employer, the hour worked, the account and job to be charged, and the total labour cost.

Job Cost Sheet: A form used to record the cost chargeable to a specific job and to determine the total and unit cost of the completed job.

Overapplied Overhead: A situation in which overhead assigned to work process is greater than the overhead incurred.

Cost Driver: Any factor or activity that has a direct cause-effect relationship with the resources.

Underapplied Overhead: A situation in which overhead assigned to work in process is less than the overhead incurred.

Conversion Cost: The sum of labour cost and overhead costs.

Just-In-Time Processing: A processing system dedicated to producing the right products (or parts) as they are needed.

Activity-Based Costing (ABC): ABC costing can be used for both job costing and process costing analysis. You use ABC costing to assign cost to your product more specifically. ABC costing analyses the activities that causes you to incur cost; you then connect the cost to the activity.

Inventoriable Costs: These are costs that are directly related to the product. Production costs are inventoriable cost for a manufacturer. If you are a retailer, your cost to purchase inventory is also an inventoriable. Other cost you incur are included, such as shipping and storage cost.

Actual Cost: This is the specific amount paid or incurred for direct labour, direct material, and such other charges that are directly related to production.

Budgeted Cost: Planned or pre-determined cash outlay used by management as a tool for controlling the cost within the boundaries of the projected or forecasted profit margin.

Differential Cost: A cost that can be avoided by considering its relevance. If necessary, management may decide to use alternative means.

Distribution Cost: This refers to the cost incurred by the business from mobilizing its goods from different point of consumption.