COST ACCOUNTING INFORMATION AND PRODUCT COSTING IN SELECTED PAINT MANUFACTURING COMPANIES PORT HARCOURT
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COST ACCOUNTING INFORMATION AND PRODUCT COSTING IN SELECTED
PAINT MANUFACTURING COMPANIES PORT HARCOURT
COST ACCOUNTING INFORMATION AND PRODUCT COSTING IN SELECTED
PAINT MANUFACTURING COMPANIES PORT HARCOURT
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 cause of action in light of
some objectives. Cost accounting information has a main purpose of accumulating
cost of an organizational products and services. Managers of manufacturing
companies can use cost accounting information as a guide in setting selling
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 the predetermination of cost and comparison of predetermination
budgeted or standard cost with the actual cost.
Product costing which is closely linked with the budgeted is
predetermined per unit cost, usually analyzed into elements including Direct
Material, 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 the
control of expenditures within predetermined levels, which entails the
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 improving efficiency and quality by ensuring that the right resources
are provided 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:
1. To determine the
usefulness of cost accounting information in paint manufacturing companies in
Port Harcourt
2. To examine the
relationship between cost accounting information and product costing in some
selected paint manufacturing companies in Port Harcourt
3. To ascertain other
factors influencing product costing in paint manufacturing companies in Port
Harcourt
1.4 Research
Questions
1. What is the
usefulness of cost accounting information in paint manufacturing companies in
Port Harcourt?
2. What is the
relationship between cost accounting information and product costing in some
selected paint manufacturing companies in Port Harcourt?
3. 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:
1. 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.
2. Finance: Inadequate
finance affects data collection, frequent visits to the companies and other
relevant source of information.
3. 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.
REFERENCES
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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