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CHAPTER 1: INTRODUCTION
1.1 Background of the Study
The studies of modern cost accounting yield an insight into both the accountant and management roles in an organization especially with relation to product costing. Management in most cases wants to know how to determine the cost of the products and often depend on cost accounting information for guiding their decisions. Decision making can be seen as making purposeful choosing from among a set of alternative causeof action in light of some objectives.Cost accounting information has a main purpose of accumulating cost of anorganizational products and services. Managers of manufacturingcompanies can use cost accounting information as a guide in settingselling prices and for inventory valuation and profit determination (Adeniyi, 2000). However, this research is aimed at determining the relationship between cost accounting information and product costing in some selected paint manufacturing companies in Port Harcourt, Rivers State, Nigeria.
It is worthy to note that cost accounting is a process of collecting, analyzing, summarizing and evaluating various alternative courses of action. Its goal of the information obtained from cost accounting is to advise the management on the most appropriate course of action based on the cost efficiency and capability. Cost accounting provides the detailed cost information that management needs to control current operations and plan for the future including product costing.Since managers are making decisions only for their own organization, there is no need for the information to be comparable to similar information from other organizations. Instead, information must be relevant for a particular company. Cost accounting information is commonly used in financial accounting information, but its primary function is for use by managers to facilitate making decisions (Wikipedia, 2015).
Unlike the accounting systems that help in the preparation of financial reports periodically, the cost accounting systems and reports are not subject to rules and standards like the Generally Accepted Accounting Principles (GAAP). As a result, there is wide variety in the cost accounting systems of the different companies and sometimes even in different parts of the same company or organization.
According to Adeniyi (2000), product cost control/reduction involves thepredetermination of cost and comparison of predeterminationbudgeted or standard cost with the actual cost.
Product costing which is closely linked with the budgeted ispredetermined per unit cost, usually analyzed into elements including DirectMaterial, Direct Labour and Factory overhead. Standard cost is an effective aid to control, due to the link with budget plans and decision making, because it represents anticipated cost, that is, a cost which will exist in the future and is likely to be affected by decisions made by the management.
Carroll (1953), product cost control always refers to as thecontrol of expenditures within predetermined levels, which entailsthe minimization of resources so as to achieve a given objective which is aided by cost accounting information.These controls should be a continuous activity aimed at improvingefficiency and quality by ensuring that the right resources areprovided and efficiently used.
1.2 Statement of the Problem
The private sectors driven economic trend in Nigeria, calls for serious cost accounting information consciousness among manufacturing companies. In light of this, manufacturing companies in Nigeria faced with the task of not only profit maximization, but a quest for survival through proper product costing amidst competition, legal, government, economic and environmental constraints.
Moreover, external factors such as inconsistency in fiscal policies do not lend themselves to be manipulated by manufacturing companies in Nigeria. Example is deregulation etc, have left Nigerian Manufacturing Companies with low capacity utilization with its attendant high cost of fixed overhead per unit production, high cost (fluctuations) of foreign exchange which causes high cost of raw materials and plants and machinery which will invariably influence product costing.
The effects of high cost of local quality products are that the consumers boycott these quality products to cheaper one on high quantity but low quality. These limits the scope of market for these manufacturing industries and in the unlikely prospect of export, the final consequences is rationalization of work force.Furthermore, nonchalant attitude of many managers or lack of professional cost accountants to cost accounting information, has affected the product costing of many Nigeria manufacturing companies, including government owned companies. Relevant, reasonable and unreasonable costs are incurred and charged to profits of the companies. This affects the growth of the companies, and also affects their qualities/quantities which are the greatest intents of the consumers. In the light of this, the researcher is out to examine the relationship between cost accounting information and product costing of some selected paint manufacturing companies in Port Harcourt, Rivers State, Nigeria.
1.3 Purpose/objectives of the Study
The following are the objectives of this study:
- To determine the usefulness of cost accounting information in paint manufacturing companies in Port Harcourt
- To examine the relationship between cost accounting information and product costing in some selected paint manufacturing companies in Port Harcourt
- To ascertain other factors influencing product costing in paint manufacturing companies in Port Harcourt
1.4 Research Questions
- What is the usefulness of cost accounting information in paint manufacturing companies in Port Harcourt?
- What is the relationship between cost accounting information and product costing in some selected paint manufacturing companies in Port Harcourt?
- What are the other factors influencing product costing in paint manufacturing companies in Port Harcourt?
1.5 Research Hypothesis
HO: There is no significant relationship between cost accounting information and product costing in some selected paint manufacturing companies in Port Harcourt
HA: There is significant relationship between cost accounting information and product costing in some selected paint manufacturing companies in Port Harcourt
1.6 Significance of the Study
It is expected that findings from this study will help manufacturing companies in Nigeria to see areas of shortfall and remedial solutions. Managers of such firms especially paint manufacturing companies will benefits from the study as they will have more understanding on cost information system and product costing.
Following the completion of this work, and the result made available to them, the processors will be in a position to re-examine their cost accounting information and product costing techniques and update them so as to enjoy these benefits available to firms with good cost accounting and product costing methods.
With adequate application of good cost accounting information and method of product costing, the firms will expand and consumers will enjoy value for quality products.
Finally, the company’s expansion will improve economy of employment opportunities and this study will help to highlight the problems of manufacturing companies.
1.7 Scope of the Study
This study restricted to the cost accounting information as it affects some selected paint manufacturing companies in Port Harcourt, Nigeria and it’s utilization in product costing.
1.8 Limitation of the study
The following three factors posed problems to the research and they are:
- Environmental Factors: This research needs facts and figures as inputs, however, the paint manufacturing companies are skeptical in releasing information on sensitive areas of its production, cost accounting information and methods of product costing.
- Finance: Inadequate finance affects data collection, frequent visits to the companies and other relevant source of information.
- Time limit: As a student the researcher had time constraint due to other schedules, academic work and series of appointment with the managements of some of the paint manufacturing companies under review.
1.9 Definition of Terms
Cost accounting: Horngren (1990); This is the process of identifying, analyzing, computing and reporting cost information to the management. Cost accounting information provided data for planning and controlling routine operations, non-routine decisions, policy making and long range planning for inventory valuation and cost determination.
Budgeted Cost: This is an information system through which cost can be estimated and controlled. Management most often base its price policy on budget cost or estimated price through observed trends in economic activities.
Cost Analysis: This is the process of classifying and estimating the total amount of expenditure to be incurred in the course of manufacturing a product or rendering a service.
Cost Control: This is the control of expenditure within predetermined levels. It is concerned with understanding how and why costs change setting of performance standard and monitoring of actual results against these standards.
Standard Costing: This is the process of estimating the total cost of production per unit. It represents an estimate or pre-determined total cost of products per unit for an organization standard costing help to build budgets, obtains product price and save book-keeping costs, Brown (1975).
Budgetary Control: This is a system of accounting in which cost and revenue are analyzed in accordance with areas of personal responsibilities so that the performance of the budget holders can be monitored.
Cost Reduction: This is reduction in unit cost of goods and services without in pairing suitability for the use intended.
Adeniji A.A.(2001) An Insight into Management Accounting Corporate Publishers, Yaba Lagos.
Caroll R.T (1953): Management Accounting, an Introduction Pitman BOOKS London 1961 pg. 28
Charles T. Horngren: Cost Accounting a Managerial Emphasis (Presentice Hall India) sixth Edition (1990)
Brown L.W.: (1984), Cost Accounting Analysis and Control. London Macmillan Publisher Ltd.
Nwabuzor R.: (2001) ICAN preparatory Note and Management Accounting.
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