The Importance Of Cost Accounting System In Manufacturing Industries: A Case Study Of Northern Cable Processing Manufacturing Corporation (NACACO)

Project and Seminar Material for Accountancy / Accounting

The Importance Of Cost Accounting System In Manufacturing Industries: A Case Study Of Northern Cable Processing Manufacturing Corporation (NACACO)


Abstract


Cost accounting is considered as the very managerial partner in the planning and control activities furnishing management with the necessary accounting tools for many Purposes such as control, decision making, and determination of price. The aims and objective of this study are to evaluate the cost accounting system, which brings out the real situation and existence of an organization. The study is aimed at providing solution to the problems of process cost accounting in industries which one way or the others do affect performance within the industry. This study has revealed that the major problem being faced by most of the manufacturing industries is the difficulties they do encounter in an attempt to account for the production incurred during the time the items were in process until it reaches its finishing stages and this is cause because because of lack of cost accounting department in many industries. The cost accounting data is manipulated during operation in order to ascertain records of production activities carried out within the company. The research findings can come to a decision as regards the operation of Northern cable processing and manufacturing company limited (NOCACO). The study serves am importance toward the writers programme as a part of the Kaduna polytechnic requirement which enable the completion of the national diploma programme.


Chapter One


1.0 Introduction

Cost accounting is considered as the managerial planning and control activities furnishing management with the necessary accounting tools to plan, control and evaluate operation. The term cost accounting as however published by the institute of cost and management accountant is define as “the application of costing and cost accounting principles, methods and techniques to the science art and practice of cost control and the ascertainment of profit”. It includes the presentation of information derived for the purpose of management decision making.

The basic difference between a merchandized business and a manufacture is that merchant purchases merchandise in a ready – to sell condition whereas the manufacturer produce the good it sells. In a merchandising business the cost of goods available for sale is based upon the cost of purchase in a manufacturing business on the other hand the cost of manufacturing the finished goods, as a result of this, there is the needs for every manufacturing business to be cost conscious in the course of manufacturing goods.

The cost accounting system depends upon the purpose for which the management requires the information for many Purposes such as control, decision making and determination of price.


1.1 Statement of General Problems

The production of items is not problem but knowing the cost involved during such production is the issue at stake. One just have to recover the investment committed in the production of an item through accounting for such cost and passing it to either the middle men or consumers Iclho pay for the items. This has created room for the existence of a production circle in most of our industries now. To account for the production of an items materials, labour and overhead must have their own share of cost which resulted to be the complete production of the production.

To this end, manufacturer find it littie bit difficult to adequately account for the production cost they incurred and not being able to recover from the item produced, he refinancing power of the organization concerned is reduced in one way or the other, therefore, the producer has to be conscious of cost incurred in the cost at a certain period of time the financing of the project plan becomes adversely affected or ever not possible.


1.2 Objective of the Study

The aims and objective of this study are to evaluate the cost accounting system, which brings out the real situation and existence of an organization. It is aimed at the determining the level of adequacy of cost accounting in the organization’s production activities. Through evaluating the system, the efficiency or inefficiency of such system will come to light which will create opportunity for discussing the ways by which an organization can account for cost of production adequately.

Without excluding certain cost incurred during the production. The study is aimed at providing solution to the problems of process cost accounting in industries which one way or the others do affect performance within the industry. It’s aimed at analysis the relevant of cost accounting system an industry and providing solution weaker system.


1.3 Statement of Hypothesis

  1. Alternative Hi – effective use of cost accounting as a means of control in manufacturing industries cannot minimize cost – Un11Ho – effective use of cost accountings as a means of control manufacturing industries cost minimize cost – UU! IHO effective use of cost accounting as a mean of control.
  2. Alternative – an efficient costing system helps an undertaking to ascertain it’s cost of operation.

1.4 Significance of the Study

The significance of the study can be reviewed in different perspective. The study serve am importance toward the writers programme as a part of the Kaduna polytechnic requirement which enable the completion of the national diploma programme.


1.5 Limitation of Study

Limitation of study are the constrains that restricts the writer from elaborating more on the project. In other words, they are restriction encounter by the writer in course of writing his project, which are beyond his control. The study was made based upon the presence of some restrictions. It will have been more them what it is but due to the constraints, this is what the writer was able to achieve.

The major obstacle is the co-operation of respondent quite a number of responses were made but not to the extent of warranting a through knowledge of the organization’s activities as a result, the study unable to meet the writer’s objective. The writer was faced with financial constraint and as a result could not go round getting more information for writing the project. This to some extent hampered the study.

Further more, availability of time for the research work was also a constraint to the study. This is due to the fact that the most writers time was spend in attending lectures writing semester test and assignment.


1.6 An Overview of the Organization

Northern cable processing manufacturing company limited (NOCACO) was incorporated in June with the aim of supplying vehide assembly plant with locally made cable and wires. The company’s equity share capital were distributed 40% the Nigeria share holders and 60% to the foreign Partners from Germany. The above distribution was due to the technical nature of the activities to be carried out to satisfy the schedule III of the enterprises promotion decree. The firm started with strength of 96 staff at the commencement of production, the firm now employ over 550 staffs and having the recognition as one of the most important cable manufacture in the northern Nigeria producing in accordance with national and international standards. NOCACO is correctly producing cable of about 400 different types. These cable including the house wiring cables. The insolated aluminum services cable, aluminum overhead line which is produced breed and steel re-enforce as well, the copper underground cables immured and un-armored as well as flexible cable fastening for the automobile industry and or the assemblers of air condition fridge and fretters. The firm principal factor of performances. Is the quality of its products. As a result, the company places a high premium on the quality of its products it designs and produce high quality of its products in accordance with national and international standard such as Nigeria industrial standard (NIS). International Electron – TECHNICAL COMMISSION (IEC). British standard and German Industrial standard to specific customer requirement .

The firm carries out rigorous quality control test on its products at every stage of the production process rather – then at the first inspection, so as to maintain the high standard throughout the length of conductor of cable.

The high quality maintenance in the organization can be proved the award worn by the company during one period or the other, the award are:

Nigeria industrial standard silver award, winner of PVC insolated (non armoured) electric cable for power of lighting and also hold the ordinary award on aluminum conductor.

Correctly, NOCACO has won the Nigeria best cable and wire production. The company is located in the heart of the Northern State of Nigeria Kaduna. Head office and factory is located along Marchibi road, Kakuri Industrial estate Kaduna.


Chapter Five


Summary, Conclusion and Recommendations

5.1 Summary

Cost accounting is that part of management accounting which establish budget and standard cost and actual cost of operation processes department or product and the analysis of variance, profitability or social sue of fund.

Cost accounting is also considered as the very managerial partner in the planning and control of activities, through this study has revealed that the major problem being faced by most of the manufacturing industries is the difficulties they do encounter in an attempt to account for the production incurred during the time the items were in process until it reaches its finishing stages and this is cause because of lack of cost accounting department in many industries.


5.2 Findings

This study revealed that cost accounting system is existing in the hand of the general manager of northern cable processing and manufacturing company limited (NOCACO) using the computer, cost accounting data is manipulated during operation in order to ascertain records of production activities carried out within the company.

This has shown that the company does not have an independent department responsible for cost accounting. The production department was found to be managed some how adversely in that, labourers in the filed tilt that they were not being motivated towered the work they perform and as such efficiency was hampered.

The hours of labout sometimes remain idle due to breakdown of machines as a result of the maiming in such equipment and this has been a long existing problem of the company.

The company was only able to serve within the industry due to the fact that is almost monopolized the production of cable and harness within northern Nigeria and as well as due to emphasis laid by the company on quality control.

Although the element of idle time exist which is detrimental to the company, her position within the cable industry makes the situation less vulnerable to the attainment of the objectives of the company.

The planning aspect of the company contains some adverse considerations and the company does not make analysis as regards the adverse effect of the planning as regards control measures taken in curbing adverse variance. The standard established by the company has defects sometime and control measures establishment was geared towards operational aspect of the company activities. Managers responsible for operation were being queried for adverse occurring by the planning system of the organization and feel responsible for the control of uncontrollable cost which does not allow justice within the organization activities prevail.

Some of the key types of budgets were not in existence within the company that is some transaction carried out were not properly estimated for at the beginning of the period. The company accounts for process as well as job orders from customers. The used in accounting for the activities is the first – in first out (FIFO) method. It had the method in use despite the economic condition of the environment as well as the drastic change in the method of accountability, which could change from one method to another.


5.3 Conclusion

From the summary of the research findings, one can come to a decision as regards the operation of Northern cable processing and manufacturing company limited (NOCACO).

The company can be referred to as monopolistic firm operating within Northern Nigeria at a very high standard of efficiency due to it quality of output. Is considered as one of the producers of harness in Nigerian and much emplaces and control are geared toward attainment of high quality cables in production. Despite the nature of the 4 operation of the company the writer level of performance. To mention but a few are the absence of an independent department responsible for cost accounting as of the organization; the absence of a wall equipped maintenance section if the company equipment as a result of breakages although power supply problem was overcome with the installation of a power generating plant.

The conflict which exist in the improvement condition of services by the most potential resources of the company that is the labour force. The absence of an independent cost accounting department has resulted in some various approaches toward ascertaining costs and their control as well. The native or element used in apportionment of overheads were selected using expertise knowledge on cost matter and sometimes an inappropriate element or factor is used in the apportionment.

Some budgetary estimates were not in existence as at the time of study such as production budget in particular period of time estimated on some overhead within the organization the benefits of the use of break – even analysis is neglected by the company due to the fact that most of the companies attention was forecasted on quality as the alternative for beating competitor on cable production. National electric power Authority, Nigeria Telecommunication limited, Peugeot Automobile Nigeria limited and other lost of reputable companies patronize the company’s product for their various activities such as infrestural supplies etc.


5.4 Recommendations

In manufacturing industry most of the companies found within such industry establish cost accounting department which becomes as responsible for action regarding production cost and controls. Northern cable company limited (NOCACO) was one amongst their absorbed into financial department of cost accounting responsibilities were found with the general manger.

The writer is therefore recommending for re-establishment of cost accounting department and a professional expert in cost accounting department and professional expert in cost accounting be employed to head of the department. Although the employment of an expert involves cost but the benefits to be derived from the presence of the expert will out weight the cost incurred. The writer is strongly advising the company to try and have cost accounting department in existence. The existence of such department should be cover all the cost accounting activities and apportionment of factory overhead such as materials, labour machine prime cost percentage rate be used in orders to absorb overhead proportional rate used in order centre benefit derived form the use of such overhead in relation to job orders produced variance analysis must of beyond operational factors but must include the company’s planning factors which shall direct measures of control adrese variance to wards the right direction. The operation section cannot only be held liable for adverse result in that source adverse are as result of the planning situation within the company.

NOCACO should try and incorporate the break even analysis with the operational activities and measures of control. This will help the company in knowing the level of output which break – even after if might have been sold out. This determination of break-even will enable the management realize the level of activity that yields profit commence and most importantly the level at which such yielding profit commence.

The company should embark upon the training of its staff in order to improve the efficiency and effectiveness if work performed within the company, it should try to have in existence a maintenance department well equipped to maintain the equipment within the company.

This will definitely arrest the losses occurring as a result of breakdown of machines causing idleness which increase cost of production.


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