COST ACCOUNTING, AS A TOOL FOR MANAGEMENT DECISION MAKING PROCESS

COST ACCOUNTING, AS A TOOL FOR MANAGEMENT DECISION MAKING PROCESS (A CASE STUDY OF UNITED TEXTILE INDUSTRY KADUNA STATE)

ABSTRACT

The study, cost accounting, as a tool for management decision making process (a case study of united textile industry Kaduna State) is targeted at exploring the various ways which cost accounting information  could help the management of enterprises especially manufacturing and processing companies in the formation of polices and making of sound and reliable decisions. In order that this purpose could be established, the researcher formulated various relevant research questions and also two major hypotheses were also formulated. Interview was conducted with the aid of instrument known as questionnaires which were administered to the staff of the said company. The chi-square method was used for testing the hypotheses. The result obtained therefore revealed that cost accounting is an aid to management decision making. Also, to be clear of every sentiment, relevant literatures complied in authorities in the relevant fields were reviewed. The opinion of authorities were not different, showing that costing information is necessary for fixing selling price, valuation of inventory, inventory control, labour remuneration,  waste reduction, capacity utilization, cost control ascertainment of profitability. Thus, the study proves that cost accounting is a tool for management decision making process.

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Omuya (1990) defined “accounting as a language of business, it is used in the business world to describe the transaction entered into by all kinds of organization. An analysis of the above definition shows that accounting centres on transforming data into information that would be useful to many users. It takes care of the financial communication of the entry as it supplies the financial information in a way and, form so desired by the users.In a similar case Millichamp (1992) defined accounting as “the art of recording, classifying and summarizing in a  significant manner and in terms of money, transactions and events which are in part at least of financial statement”. These users include owners, (shareholders) managers, suppliers, customers, government employees, etc. The users of these statements are expected to read, interpret and analyze them. Objectives of financial statements are not accomplished when many users of the statement cannot understand them, let alone interpret and analyze them. The information the users attempt to gain from financial statement are; the ability of the business to pay its way and survive in the long run, the quality of management and the rightness of decision made, information that guide the future.

Accounting information is the language of business as it is the basic tool for recording, reporting and evaluating economic events and transactions that affect business enterprises. It processes all documents of a business financial performance from payroll, cost, capital expenditure and other obligations to sale revenue and owners’ equity. It provides financial information about ones business to the internal and external users, such as managers, investors and others. It is sometimes referred to as a means to an end, with the ending being the decision that is helped by the availability of accounting information (Arneld & Hope, 2009). The making of decision, as everyone knows from personal experience is a burdensome task (Wada, 2006). In most cases indecision is as disastrous as making a wrong one, therefore a plan of action is indispensable. Management is constantly confronted with the problem of alternative decision making especially knowing that resources are alternatively scarce and limited. It is therefore pertinent that good accounting information be made available for proper and accurate decision making, maximization of profitability and optimal utilization of scarce resources. Accounting information is not only necessary for evaluation of the past and keeping the present on course; it is useful in planning the future of the enterprise. According to Mbanefo (1997), planning may conventionally be call budget/budgeting targets, which give meaning and direction to operations of the organization within a defined period. At the end of the budget period the external results are compared with budgeted performance and discrepancies (variance) are analyzed for purposes of exposing the causes so as to prevent re-occurrence. Budgeting uncovers potential bottlenecks before they occur, coordinates the activities of the entire organization by integrating the plans and objectives of various parts. The budget ensures that the plans and objectives of the parts are in consistency with the broad goals of the organization. It compels managers to think ahead before formalizing their planning efforts and finally provides defined goals and objectives which serve as benchmarks for evaluation of subsequent performance.

Management uses both financial and non-financial information to make effective decisions that would help achieve the goals and objectives of the organization (Melisssa Bushman, 2007). Financial information used by management accountants include sale growth, profits, return on capital employed and market shares, non-market shares, non-financial information include customer satisfaction level, production quality, performance of competing products and customer loyalty. Decision making is however, the choosing of alternative courses of action using cognitive processes. Making decision is necessary when there is no one clear course of action to follow. Accounting systems can aid decision making by providing information relevant to the decision and to the decision makers. Accounting systems provides a check for the validity through the process of auditing and accountability (Gray et al., 2006). Effective and efficient accounting information plays a central role in management decision making.

The management accounting is considered one of the most important components of the system of the administrative information in the company by providing the economic and financial information and collecting information taken from other systems of information in the company so it looks as accounting for inner affairs that helps the administration in making decisions, planning, controlling and evaluating the performance of the company’s activities , therefore it is not restricted to the known accounting principles but it depends on basis and regulations concerning the content and the shape of the inner reports (Al-Matarna, 2003).

1.2 STATEMENT OF THE PROBLEM

Regrettably, the inability of users of these financial statements to comprehend, interpret and analyze the and still has always contributed to harmful business and investment decision by the users of these statements. As a result of these wrong business decisions, many users of these statements have been rendered poor, whereas others are afraid and show indifference to investment and business opportunities. Cases abound where these financial statements users, individual and corporate, have lost millions of naira merely because of wrong business decisions.The manufacturing sector consist of strings of financial activities whose major end is profit making, over the years the means and manner of measuring this financial performance remain issue of concern, the variables to use in the measurement of this performance is germane to growth and stability, the issue therefore is determining the variables to use in financial performance measurement and how well do these variables can measure the performance in the manufacturing sector.

1.3 OBJECTIVES OF THE STUDY

The objectives of this study are to find out the following:i) To find out the impact of accounting ratios in the management decision makingii) To examine whether accounting ratio aid in the effectiveness of an organization.iii) To determine the techniques used in analysis financial statements.iv) To identify the usefulness of accounting ratios in measuring and predicting the performance of Guinness Nigeria Plc.v) The make useful recommendations based on the findings of this study.

TOPIC: COST ACCOUNTING, AS A TOOL FOR MANAGEMENT DECISION MAKING PROCESS (A CASE STUDY OF UNITED TEXTILE INDUSTRY KADUNA STATE)

Chapters: 1 - 5
Delivery: Email

Number of Pages: 81

Price: 3000 NGN

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