The Application Of Cost Accounting To Management Planning, Control And Decision Making
This research work is aimed at highlighting the role played by Cost accounting information to the planning, control and decision making process of the management of an organization using Nigeria bottling company (NBC) as a case study. The researcher has used both descriptive and analytical methods which suit the nature of the present study which is mostly based on field work and the theoretical underpinnings. A group of previous studies related to the subject of the study have been utilized in the construction of study tools (questionnaires) which have been distributed the Nigeria Bottling Company, Lagos state. The study targeted accounting costs, accountants, auditors and managers of financial department’s in industrial companies. Data analysis through the Statistical Package for Social Sciences (SPSS) was the use of scientific statistical methods “Frequencies and percentages, SMA, Standard deviation, t-test, Cronbach’s alpha test. The results indicate that the cost of the accounting system applied in industrial companies provides quality accounting information; there is an impact of this information on the pricing decision-making; there are areas in which pricing decisions much depend on the information provided by the cost accounting systems. This study contributes to the literature by providing an analysis of the role of cost information in pricing decisions within industrial companies in Nigeria.
1.1 Background to the Study
In every business organization today, Management Accounting serves as the ‘language’ used by businesses to communicate both financial information and non-financial information to individuals and groups who have an interest in how the business is performing.
From a management accounting point of view the primary purpose of management is to plan, control and make decisions that may be classified as marketing, production, and financial. The tactical decisions which must be preceded by strategic decisions provide the historical data from which the accountant prepares financial statements. The business firm or enterprise is an organizational structure in which the basic activities are departmentalized as line and staff. The organization is run or controlled by individuals collectively called management.
Every organization has managers, however, these managers have a responsibility to the organization’s stakeholders to manage the organisation in the most-effective and most-efficient way, to maximize the organisation’s potential, thus it involves the managers undertaking adequate planning for the short-term and long-term future of the business, ensuring that the business is being properly controlled to ensure plans succeed, and making decisions that will enable the business to survive and grow in the future.
The management faces a broad array of decisions, including production, marketing, financial and other decisions. Having in mind that decision making is a fundamental part of management such decisions about the acquisition of equipment, mix of products, methods of production and pricing of products and services confront managers in all types of organizations.
Though, the fundamental objective of planning is to assist management in deciding how to allocate an organization’s resources, while Control is a key feature of management accounting and follows on from planning, it can be exercised at a strategic and / or an operational level, while decision making process.
Management accounting equips managers with information required to carry out these tasks. Management accounting is an important part of the economic information system, with a key role in decision making, whether we talk about small and medium enterprises or large companies. However, management accounting is superficially treated in most economic entities.
The format and content of management accounts depend upon the specific requirements of management. Different businesses will have different information requirements and their individual management accounts will reflect this. As internal reports, management accounts will often contain business-sensitive information for a restricted audience and can focus on both financial information and non-financial information, such as critical success factors (measures of factors or aspects of an organization’s performance deemed to be critical, or essential, to its competitive advantage and thereby its success).
Early studies place management accounting in a service function with the scope to provide all levels of management with high-quality scorekeeping, attention-directing and problem-solving information and also to provides management with data in order to establish policies, develop plans and control operations.(Simon et al.1954).
Management accounting In a general sense, managerial accounting is an integral part of management that deals with identifying, presenting and interpreting information used for strategies, decision making, resource optimization, employee information, asset protection planning and control of activities, information of associates or other external information users. (Briciu, and Căpuşneanu, 2011: 57-68).
Furthermore, there is a separate division within management accounting which captures cost accounting, cost analysis, cost control and cost reduction. Singer (1961) and Bruns and McKinnon (1993) pointed out that management accounting captures collecting (financial) information which is useful.
It should be noted that, in addition to principals of financial analysis, the application of management accounting in an organization captures good knowledge of the business the firm operates in, fluent communication skills and knowledge of (change) project management.
Further analysis has clarify that the emergence of team-oriented management accounting roles (management accountants)nowadays need to have hybrid skills from the traditional roles, this is because management accounting is becoming wider involved in integrated business situations, agendas and decision-making forums.
It is against this issue, ideas, information that this study tends to analyze, explain, and assess the application of management accounting in organizational planning, control and decision making process.
1.2 Statement of the Problem
The business world has changed totally. As a result, the role of management accountant is very different now than it was years ago.
In the past, management accountants operation is strictly staff capacity usually separated from the managers for whom they provided reports and information.
Also from a broad perspective, financial reporting is one of the significant objectives for an accountant, due to its major effect in highlighting and examining the financial information of a company. The quality of reporting financial information is an international issue and the decision making skills of the accountant plays a major role in reaching the overall company objectives, but most organization today lag behind when reporting financial activity of the company as a result of inadequate application of Management accounting skills and functions, this sometimes diminish the integrity and reputation of the organization.
In any organization where there is an effective and adequate management accounting technique, it provides vital information for internal reporting manager’s use in decision-making and formulation of long term plan.
In corporations that derive much of their profits from the information economy, such as banks, publishing houses, telecommunications companies and defence contractors, IT costs are a significant source of uncontrollable spending, which in size is often the greatest corporate cost after total compensation costs and property related costs. A function of management accounting in such organizations is to work closely with the IT department to provide IT cost transparency. Presumably most of this function are not applied in most organization, thereby leading to inability of the manager to plan, control and make IT cost decisions.
Although many agree about the important role of management accountants in organizations plan, control and decision making, moreso certain studies show a certain lack of involvement by management accountants. Even though quantifiable information is important for planning and decision making, accountants are not engaged in it because of the absence of the appropriate techniques. “They are not perceived as having a positive contribution to decision-making, unless the contribution is to legitimize decisions arrived at through a political process, whereas this poses serious challenges to the organization business activity.
Finally, the inability of some organization to use management accounting techniques in their decision-making has resulted to non-effective and efficient accomplishment of the firm’s or organizational goal. Therefore, the aim of this research work is to have a look at or show the information, management can derive from management accounting techniques, then usefulness or lack of it for decision making in business organization.
1.3 Objectives of the Study
The main objective of the study is to examine the application of Management Accounting on organizational planning, control and decision making.
The specific objectives are:
- To ascertain whether management accounting information are provided at the right time for planning and decision making.
- To identify whether the management accounting information system is computerized.
- To eliminate the constraint affecting the application of management accounting information on organization decision making.
- To identify the effect of poor management planning and decision making.
- To determine how effective the management accounting information system is in the company.
- To find out the differences between management accounting and other fields of accounting.
1.4 Research Questions
For the purpose of the research study, the following research questions were asked:
- Are management accounting information provided at the right time for planning and decision making?
- Are there any constraint affecting the application of management accounting information on organization decision making?
- What are the effect of poor Management planning and decision making?
- How effective are the management accounting information system is in the company?
- Is the management accounting information system computerized?
- Are there any differences between management accounting and other fields of accounting?
1.5 Significance of the Study
Management accounting has evolved over time and is influenced by the continually changing environment in which it has developed. This type of accounting is focused on internal use by management rather than external reporting. At this time, management accounting has appeared to have matured and the current principles provide the basis for management accounting of the future. All types of accounting share a common objective: to measure entity capital and its changes through use over time. The principal end products of management accounting are the forecast balance sheet and the forecast profit plan. However, management must also consider historical reporting and must use the same concepts for planning and reporting to provide comparable results. On this note, this research work when completed will be very useful to the followings:
Business/Organizations: To this group, the research work will provide them with the requisite knowledge of management accounting in making provision and interpretation of information required by management at all levels for formulating organizational policies, planning and good decision making.
The study will also be of importance to government corporation, companies, regulators and policy makers who are involved in regulating the accounting Standards and guidelines, it will also educate the general public and entrepreneurs on application of management accounting practices, types, it application, and benefits, It will also enable a better understanding of common management accounting techniques in relation to other fields of accounting.
This research would contribute to the existing literature by focusing on tax administration in Nigeria with a view to identifying the critical problems that are confronting the tax system so that appropriate measures could be taken to tackle them.
This study will contribute to the understanding of an accountants’ role in the formulation of company decisions.
This research will reveal the most important factors that lead to increasing accountant’s involvement in the managerial process of Nigerian companies.
Finally this study will be of great significance to schools and students, it will serve as a reference point for future researchers who will want to research more on the topic.
1.6 Statement of Hypotheses
HO1: The quality of information is provided by the cost accounting system at Coca Cola Bottling Company.
HO2: The Effect of the information provided by the cost accounting system in making pricing decisions at Coca Cola Bottling Company.
HO3: The accreditation areas of pricing decisions on cost information system at Coca Cola Bottling Company
1.7 Scope of the Study
From the foregoing discussion, the research focuses on management accounting and its application to organizational, planning, control and decision making using Coca Cola Bottling Company, Lagos State as study area.
1.8 Limitation of the Study
Limitations envisage in this research work are:
Uncooperative attitude of the staff in the organization; this is a major limitation which increase the time spent in completing the research work.
Monetary constraints: this factors serves as a deficiency for the research work, and as a result of low financial capability, it was not enough to give us desired results. Protocols of getting to the top management of the firm for more information was also one of the limitation to the study.
1.9 Definition of Terms
1. Management Accounting:
This is the process of identifying measuring, analyzing, interpreting and communicating information in pursuit of an organizational goal.
This is the process by which business systems are administered. It is also a process of planning, controlling and decision-making in an organization.
This refers to a legal entity that carryout business in its name.
This is a process of ensuring that organization operates in the intended manners and achieves its goal.
This refers to a recognized business entity of enterprise that carryout business activity.
An accountant is any person who possesses a professional license to practice accountancy from a recognized professional body and has legal capacity and authority to carry out the duties of accountants in taxation and audit practice.
7. Strategic Planning:
This establishes, for management, the shape and direction to be taken by the organization. This type of planning is normally ad-hoc and is driven by the recognition of a need for the revision / change of priorities. This normally results from seeing actual results achieved and / or projected outcomes under a variety of proposed strategies.
8. Cost Accounting:
The part of management accounting that is concerned with costs is often known as cost accounting. It is generally made up of the following five parts, input measurement basis, an inventory valuation method, cost accumulation method, a cost flow assumption and a capability of recording inventory cost flows at certain intervals.
Conclusion and Recommendation
There is a significant positive relationship between the Role of Cost Accounting System in the Pricing Decision-Making in the Coca Cola Bottling Company. In the context of the present results with the results of (Lane& Durden2013) Pricing decisions and the role of cost accounting systems and cost information in tourism organizations matched. The role of cost information has a significantly positive effect on the decision-making in the Case study of Annales Universitatis Apulensis. The research findings match with Topor et al. (2011).
Management accounting researchers have long considered the impact that a business „costing system has on the way pricing decisions are reached. This study has been conducted that the quality of information provided by the cost accounting system have been shown by statistical analysis tools, the responses show the subjects about the quality of information that is provided by cost accounting systems in the pricing decision making in the short term where the arithmetic mean of the axis (3.8239), a degree of approval by the members of the sample and this means that the systems provide information relevant high quality used in making pricing decisions. The results are in parallel with the research findings of Namazi (2009), Azizi (2012), and Fartookzadeh (2014).
The impact of information in making pricing decisions have been showed by statistical tools the views of respondents on the impact of the information provided by the cost accounting system in making pricing decision. It appears the arithmetic average of the axis (4.1212), a degree of approval accepted by members of the sample and this means that there is an impact of the information provided by the system in making pricing decisions. . The results are in correlation with the findings of Topor et al (2011) and Hoque (2000). Other results showed that the adoption areas of pricing decisions on cost information system where the arithmetic mean of the axis (3.9141), a degree of approval by the members of the sample and got (.64313) on a standard deviation, which indicates that there is concentration in the sample opinions about this axis, and this means that there are areas of the adoption pricing decisions on cost information system in industrial companies. The research results are in correlation with findings of (Martin & Stevens, 2011).
If appropriate information based on reliability in making pricing decisions for products is used in a timely manner to make predictions, it will help companies win over others in competitions. Quality can be achieved, efficiency increased in the performance of pricing decisions, the cost of decisions reduced, and the skills of the decisions makers improved at the aid of the information provided by the cost system. There are some areas adopting the pricing decisions on the basis of cost information related to major products, they add more economic value in the light of the plans and programs of companies.
Through what has been reached from the results, the researchers suggests management companies which operate in the field of manufacturing as follows:
- Expansion to take advantage of cost accounting systems in all public and private industrial facilities, especially in the area of pricing decisions.
- Adopting a new vision in the design of such systems in order to provide high quality information to get benefit chances.
- Do studies in companies to verify the extent of adoption of the applications of cost systems and the role of these applications in promoting and strengthening pricing decisions.
- Promote specialty departments to provide cost accounting information for the costs that are of high quality in order to make the optimal resolution and thus lower cost.+
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