EVALUATING THE EFFECTIVENESS OF COST ACCOUTING ON COMPANY PERFORMANCE
ABSTRACT
The study examined the effectiveness of cost accounting as a panacea for performance evaluation in manufacturing companies. The data used in the study was obtained from primary sources. The collection of primary data was done through the administration of questionnaire on respondents who are staff of manufacturing firms in Lagos State Nigeria. A questionnaire was designed and administered to 46 respondents from a population of 455 in which the completed ones were returned and used in the completion of this study. Taro Yamane’s formula was used in determining the sample size. The data collected were analyzed with the use of Statistical Package for Social Sciences (SPSS). Results showed that there is significant relationship between direct material and performance of manufacturing companies, there is significant relationship between direct labour and performance of manufacturing companies, overhead cost has significant effect on the performance of manufacturing companies and Cost accounting has significant effect on the performance of manufacturing companies in Nigeria. Consequently, the study concluded that cost accounting is a very efficient and effective panacea for performance evaluation in manufacturing companies. However, to prepare a good and workable costing technique, establishments must know its goals and objectives, as well as where it is heading to. Nevertheless, cost accounting control is a managerial tool and not a substitute for management.
TABLE OF CONTENTS
TITLE PAGE - - - - - - - ii
DECLARATION - - - - - - - - iii
CERTIFICATION - - - - - - - - iv
DEDICATION - - - - - - - - v
ACKNOWLEDGEMENTS - - - - - - vi
CHAPTER ONE: INTRODUCTION
1.1 Background to the Study - - - - - - 1
1.2 Statement of Problem - - - - - - 4
1.3 Objective of the Study - - - - - - 4
1.4 Research Questions- - - - - - - 5
1.5 Statement of the Hypothesis - - - - - 5
1.6 Significance of Study - - - - - - 6
1.7 Scope of the Study - - - - - - 6
1.8 Definition of Key Terms - - - - - - 7
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction - - - - - - - - 8
2.2 Conceptual Framework - - - - - - 8
2.3 Theoretical Framework - - - - - - 30
2.4 Empirical Review - - - - - - - 38
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Research Design - - - - - - 45
3.2 Population of the Study - - - - - - 45
3.3 Sample Size - - - - - - - - 45
3.4Sampling Technique - - - - - - - 46
3.5 Method of Data Collection - - - - - - 46
3.6 Technique for Data Analysis - - - - - 46
3.7 Model Specification and Variable Definition - - - 46
3.8 Measurement of Variables - - - - - - 48
CHAPTER FOUR: PRESENTATION AND ANALYSIS OF DATA
4.1 Presentation of Data - - - - - - 39
4.2 Discussion of Findings - - - - - - 44
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary - - - - - - - - 46
5.2 Conclusion - - - - - - - 48
5.3 Recommendations - - - - - - - 49
References - - - - - - - - 52
Appendix - - - - - - - - 57
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Cost accounting (CA), which measures and reports financial and non-financial information related to the organization’s acquisition or consumption of resources, has an exceptionally important position within the entire accounting information system of an organization because it provides information to both management accounting and financial accounting as subsystems of the accounting information system. When its information is intended for the financial accounting it measures product costs in compliance with the strict legal and professional regulations. When its information is used for internal purposes it provides the basis for planning, control, and decision-making. Accounting data used for external reporting very often do not completely satisfy managers‟ needs for decision-making purposes. Attempts at slight modifications of financial accounting systems for managerial purposes rarely end happily and far from effective (Wikipedia, 2015).
According to the Institute of Management Accountants (IMA): "Management accounting is a profession that involves partnering in management decision making, devising planning and performance management systems, and providing expertise in financial reporting and control to assist management in the formulation and implementation of an organization's strategy".
The primary focus of economic planning and management in Nigeria over the years has been the transformation of the economy through industrialization, however, desired results are yet to be obtained. The Nigerian economy is far from being fully industrialized and the manufacturing sector is yet to take a prominent place in the scheme of things (Ayodele & Falokun, 2023). The country has not been able to shift its export base, from crude oil and agriculture to manufactures. Up to date, on the average, the manufacturing sector’s contribution to gross domestic product (GDP) has been unimpressive ranging between 3 to 6 percent since the turn of the millennium. For instance, manufacturing contribution to GDP declined from about 6% in 2020 to 3.91% in 2016 and between 4.03% and 4.17% from 2007 to 2010 (National Bureau of Statistics 2021). The need to increase company level efficiency has been a dominant suggestion offered as the key to reversing this unimpressive performance. As Soderbom and Teal (2012) suggested, a key policy issue the Nigerian government should face is to understand and address the factors that will enable the efficiencies of companies and consequently their competitiveness to increase. Ayodele and Falokun (2023) also suggested the adoption of the combination of suitable management techniques with suitable technology and other resources in addressing the low productivity of the sector.
Cost accounting has been suggested as one of such important management techniques that can help ensure efficiency in the use of companies’ resources (IFAC, 1998). Traditionally, the main objective of the cost accounting and management accounting systems has been to provide information for costing products and for promoting efficiency in the use of labour and materials (Johnson & Kaplan, 2018). Such traditional method adopt practices and techniques such as standard costing and flexible for cost control, cost allocation and product cost measurements; incremental analysis for decision-making; measurement of profit, contribution and return on investments for performance monitoring; and the full integration of internal cost accumulation systems with the external financial reporting systems (Shillinglaw, 2019).
Company performance is the net result of the combined efforts of all individuals and groups in an organization (Khandwalla, 2021). Companies referred to in this study are the manufacturing companies. The definition of company performance is problematic because it varies, depending on the viewpoint from which it is being assessed. For example, from society’s viewpoint, performance may be assessed in terms of efficiency of production of products or services needed by the society. From the owners’ viewpoint, profitability and growth rate in earnings may be the criteria, while employees may assess performance from how well employees are being treated. Customers may look at product quality, prompt delivery and competitive pricing. Since management must take into account the various expectations of these groups in setting its goals, management’s criteria for assessing company performance may be assumed to adequately reflect the concerns of others groups such as the society, employees, suppliers and customers (Khandwalla, 2021). However, the researcher is examining the effect of use of cost accounting and management accounting as a tool for performance evaluation in manufacturing company.
1.2 Statement of the Problem
Different costing methods are meant to suit different organization. The adaptation of the wrong method, for a company will constitute a problem instead of a solution. Also, poor or inadequate knowledge of a method of costing has constituted problems for many firms. The problem among others which this research work tends to proffer solution to is the problem of identifying the standard method of cost accounting that will be suitable and adaptable to the manufacturing industries.
1.3 Objectives of the Study
The general objective of this study is to find the effectiveness of cost accounting on company performance. However, the following are the specific objectives:
1. To ascertain if cost accounting can be a tool for performance evaluation in manufacturing company
2. To identify the extent in which cost accounting can be a tool for performance evaluation in manufacturing company
3. To examine the effect of cost accounting on manufacturing company performance.
1.4 Research Questions
1. To what extent does cost accounting affect performance evaluation in manufacturing company?
2. To what extent does job costing affect performance evaluation in manufacturing company?
3. To what dimension does cost accounting affect various manufacturing company performance?
1.5 Hypothesis
HO: Standard Costing does not have significant effect on manufacturing company
HA: Cost accounting does not have significant effect on manufacturing company
HO: Job costing does not have significant effect on manufacturing company
1.6 Significance of the Study
The following are the outcomes from the study:
1. It will be a guide for manufacturing companies basically on how cost accounting can be used as a tool for performance evaluation. It will also educate stakeholders in the manufacturing sector on how cost accounting can be sued to boost productivity and profitability.
2. This research will also serve as a resource base to other scholars and researchers interested in carrying out further research in this field subsequently, if applied, it will go to an extent to provide new explanation to the topic.
1.7 Scope of the Study
The scope of this study on evaluating the effectiveness of cost accounting on company performance will cover all the manufacturing companies in Lagos State and measure cost accounting, job costing, standard costing by carefully examining their respective performance evaluation tools.
1.8 Limitation of the Study
Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.
1.8 Operational Definition of Terms
Cost accounting: is the process of accumulating and accounting for the flows of costs in a business. It is defined as a technique or method for determining the cost of a project, process, or thing through direct measurement, arbitrary assignment, or systematic and rational allocation. The appropriate method of determining cost often depends on the circumstances that generate the need for information (Swamidass, 2020). This can be information such as material cost, production cost, product cost, investment calculations, and budget.
Performance measurement: is the process of quantifying actions, where measurement is the process of quantification and performance is the result of action (Slack, 1997). These measurements show how well the production is performing in categories such as quality, delivery precision, service level, time per operation, set up time and so on.
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