TITLE PAGE

COST ACCOUNTING AND ITS APPLICATION TO

MANAGEMENT PLANNING, CONTROL AND
DECISION MAKING
(A Case Study of Nigeria Bottling Company (NBC) Kaduna)

BY

JANET OYINE IHOPO

KPT/CBMS/2008/350

A PROJECT SUBMITTED TO THE

DEPARTMENT OF ACCOUNTANCY IN PARTIAL FULFILLMENT OF
THE REQUIREMENT FOR THE AWARD OF NATIONAL DIPLOMA
(ND) IN ACCOUNTANCY

DEPARTMENT OF ACCOUNTANCY
COLLEGE OF BUSINESS AND MANAGEMENT STUDIES (CBMS)
KADUNA POLYTECHNIC,
KADUNA.

DECEMBER 2010
i
 DECLARATION

I here by declare that this project has been duly conducted solely by me
under the supervision of Mr. Adamu Ali of the department of
accountancy. College of business and management study {CBMS}
kaduna polytechnic.

Student‘s Name Date

Signature

ii
 APPROVAL PAGE

This is to certify that this project is an original work undertaken by

Janet Oyine Ihopo KPT/CBMS/2008/350 and has been prepared in
accordance with the rule and regulation governing the preparation
and presentation of project in Kaduna polytechnic, Kaduna.

_________________________ __________________
MR. ADAMU ALI Date
(Project Supervisor)

_________________________ ________________
MR. ADAMU ALI Date
(Project Coordinator)

_________________________ _______________
MR. ABUH ADAH Date
(Head of department)

_________________________ _______________
EXTERNAL EXAMINER Date

iii
 DEDICATION

This project is dedicated to Almighty God whom by his grace and

mercy has seen me through in attaining National Diploma in
Accountancy. And also to my wonderful family who inculcate in me
the values of education.

iv
 ACKNOWLEDGEMENT

I give thanks to Almighty God who has been my very help in all things,
father I am grateful.

My deep appreciation goes to every members of my family for their love

and support both morally and financially, thank you all and God bless.

My profound gratitude to Mr. Adamu Ali who supervised this project work
giving me all the attention and advice I need to believe in myself and
also to move ahead, Thank you sir. And to all my lecturers Mallam
Yahaya, Mrs. Maduka, Mallam Usman Umar. Mallam Miyaki, Mr. Kelvin
and to all, I want to say thank you all.

To my friends OLaitan, Sandra, Patience, Ramatu and Aunty Joy for

their assistance in gathering data and moral support.

I refuse to forget my fiancé Mr. Onyebuchi Eugene Efogu for all his love
and support both morally and financially. I appreciate you dear and God
bless.

v
 ABSTRACT

This research work is aimed at highlighting the role played by Cost

accounting information to the planning, control and decision making
process of the management of an organization using Nigeria bottling
company (NBC) as a case study. If identify the different costing
techniques and methods available, the type of information produced by
an accountant and how each information fits into the information need of
management as stated in the alternative and as discovered by the
researcher through questionnaire and personal interviews. That is, the
prospect of a manufacturing company Endeavour is to found out, that for
any organization to be successful, there must be accounting department
to prove timely, adequate, relevant and correct information regarding the
cost of products, processes and general running of the firm and fix
selling price for products and services. An independent accountant and
cost accountant need to be present for possible production of relevant
information.

vi
 TABLE OF CONTENTS

Title page - - - - - - - - i
Declaration - - - - - - - - - ii
Approval - - - - - - - - - iii
Dedication - - - - - - - - - iv
Acknowledgement - - - - - - - v
Table of contents - - - - - - - - vi
Abstract - - - - - - - - - vii
Table of contents - - - - - - - - viii

CHAPTER ONE
Introduction
1.0 Introduction - - - - - - - - 1
1.1 Background of the study - - - - - - 1
1.2 Statement of study - - - - -- - 2
1.2 Objectives of the study - - - - - - 3
1.3 Research Hypothesis - - - - - - 4
1.4 Significance of the Study - - - - - 4
1.5 Scope of the study - - - - - - - 5
1.6 Historical Background of NBTE - - - - 5

CHAPTER TWO
Literature Review
2.1 Introduction - - - - - - - - 7
2.2 Meaning of cost accounting - - - - - 8
2.3 Planning and the application of cost accounting - - 9
2.4 Control and cost accounting - - - - - 15
2.5 Standard cost as a tool for control - - - - 19
2.6 Decision making - - - - - - - 24
2.7 The decision making process - - - - - 25

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CHAPTER THREE
Research Methodology
3.0 Introduction - - - - - - - - 29
3.1 Population and Sample Size - - - - - 29
3.2 Sampling Techniques - - - - - - 30
3.3 Sources and Method of Data Collection - - - 30
3.4 Method of Data Analysis - - - - - - 31
3.5 Justification for the Choice - - - - - 31

CHAPTER FOUR
Data Analysis and Interpretation
4.0 Introduction - - - - - - - - 32
4.1 Data Presentation - - - - - - - 32
4.2 Analysis of Questionnaire - - - - - 33
4.3 Testing Hypothesis - - - - - - 41
4.4 Summary of findings - - - - - - 41

CHAPTER FIVE
Summary, Conclusion and Recommendations
5.1 Summary - - - - - - - - 43
5.2 Conclusion - - - - - - - - 44
5.3 Limitation of the Study - - - - - - 45
5.4 Recommendations - - - - - - 46
Bibliography - - -- - - - - 48

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 CHAPTER ONE

1.0 INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The main theme of this project is to bring to highlight the

importance of costing to the existence of any organization, using

the Nigeria Bottling company as a case study.

Every activity and operation of an organization involves cost. In

view of this, I intend to discuss the objectives, principles,

techniques and methods of costing relating to the analysis and

gathering of cost information for planning, control and decision

making.

It must be emphasized, that the existence of a sound well

organized basic costing system is fundamental to whatever use is

made of the information whether for routine cost ascertainment

purposes or for a one – off decision.

Decisions depend on financial factors therefore it is of utmost

importance that proper costing methods and techniques suitable

for an organization operations to be ascertained, adopted and

operated effectively and religiously throughout the organizations`

process and operations.

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 In essence, organization are established for a defined purpose

which objective can only be seen or shown to the world by the

output (product) it produces. For there to be an output the most

necessary is the input. Inputs do not come for free; payments have

to be made on them. Taking the Nigerian Bottling Company (NBC)

as a case study, it needs inputs in the form of raw materials, labour

etc. to produce goods (soft drink) and payment must be made for

these inputs, this boils down to cost.

1.2 STATEMENT OF THE PROBLEM

In the past, many companies have witnessed considerable lapses

and increasing changes in management disciplines. Costing an

important element in the overall operation of an organization

through the provision of relevant information about cost is one of

the problems organizations are facing. Because there are no

satisfactory requirements to maintain detailed cost records, some

small firms keep only traditional financial accounts and prepare

cost information in an ad-hoc-fashion. In all but small firms this

approach is likely to be unsatisfactory.

There is a vast range of systems in operation ranging from simple

analysis to computer based accounting systems incorporating

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 standards, variance analysis and the automatic production of

control and operating statements. These 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 particular method

of costing has constituted problems for many firms.

Most companies are still using the simple analysis system to set

cost while some companies do not even have a costing system.

This no doubt has led to poor planning, control and decision

making.

1.3 OBJECTIVES AND PURPOSE OF THE STUDY

This project is designed to provide a clear and concise

understanding of the importance of costing to the manager in

carrying out his/her responsibility for planning controlling and

making decision which will lead to achieving certain goals. This

research work aim to highlight that costing is

i. Indispensable in determining the cost per unit of a product.

ii. A factor in pricing decision, production planning and cost

control.

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 iii. An important tool in running a section, department or factory,

that is, organizational planning, decision on alternative

methods, wages cost control and material cost control.

iv. Important in profit planning, make or buy decision etc.

1.4 RESEARCH HYPOTHESIS

H0: Cost Accounting is not an indispensable tool in management

planning, control and decision making.

H1: Cost Accounting is an indispensable table in management

planning control and decision making.

1.5 SIGNIFICANCE OF THE STUDY

It is the desire of any management to maximize profit to boast of

high profit all expenses incurred must have to be deducted from

turnover; whether profit will be low or high largely depends on how

much deductions (expenses) will be. Excessive cost reduces

turnover excessively this in turn reduces profit. This project which

is centered on the importance of establishing adequate and proper

cost for production will

(1) Be of immense contribution towards helping managers

to determine proper cost for organizational operations

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 (2) Help managers and others in industry, commerce,

local authorities and similar organization to gain a

working knowledge of the principles and processes of

cost.

(3) Enable managers to analyse, select and implement the

principle, techniques and method that best suit their

firm.

1.6 SCOPE OF THE STUDY

This study covers a general review of the different methods and

techniques of costing and how cost accounting affects the

planning, control and decision making process of an organization

using the Nigerian Bottling Company (NBC) as a case study.

1.7 HISTORICAL BACKGROUND OF THE FIRM

The Nigeria bottling company [NBC] was incorporated in

November 1951, as a subsidiary of the A.G Leventis group with

the franchise to bottle and sell coca-cola product in Nigeria. From

a humble beginning business, the company has grow to become a

prodominant bottler of non-alcoholic beverages in Nigeria,

responsible for the manufacture and sales of over 33 different

coca-cola brands. Other popular brands of beverages produced by

the company are Eva water, Five Alive fruit juice and the newly

introduced Burn energy drink.

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Coca-cola, the product that gives the world its best known taste,

was first set up in Lagos, Nigerian in the year 1953. This became

the beginning of an exciting story of growth and development

particularly in the recent past.

The company presently has 13 bottling facilities and over so

distribution warehouses located across the country. Since

production started, NBC PLC has remained the largest bottler of

non- alcoholic beverages in the country in terms of sales volume,

with about 1.8 billion bottles sold per year making it the second

largest market in Africa.

Other products by the Nigerian Bottling Company (NBC) include

Fanta orange, Fanta Tonic, Fanta Apple, Soda water, Fanta

pineapple Sprite, Bitter Lemon and Coke etc. All of these are one

of the most selling drinks in the country and worldwide. In addition,

it is today Nigeria number one bottler of soft drinks selling more

than 7,000,000 bottles per day. Currently, there are about 20

plants in various parts of the federation and more are yet to come.

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 CHAPTER TWO

LITERATURE REVIEW

2.0 INTRODUCTION

This chapter is about the review of literature relevant to the

research topic. It whole works done. Although several work has

been done regarding this topic, the researcher admits that such

work, either too bulky or incomprehensive and different to

understand. It is with regard to this that the researcher has decided

to add to the existing literature in a concise and clear manner for

easy understanding.

Like the concepts in other field of knowledge, example social

science education etc. there is no singular universally accepted

definition to these concepts; concepts are defined in this field of

knowledge based or subject to people’s framework, point of view,

profession and different school of thought. With regards to these

the concepts and theories given in this research work are defined

from the point of view of some professional bodies in the

Accounting field such bodies like the Chartered Institute of

Management Accountant (CIMA). Chartered Association of

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 Certified Accountant etc. Management needs a variety of

information regarding the financial aspects of performances.

2.2 MEANING OF COST ACCOUNTING

The explosion in technology we are experiencing, coupled with

increasing worldwide competition, is forcing managers to produce

high quality goods and services. These demands are placing ever-

greater requirement on the information provided to management.

Management needs a variety of information regarding the financial

aspects of performance. The cost accounting system of any

organization is the foundation of the internal financial information

system. Cost accounting (Commonly termed ‘Costing’) may be

defined as ‘the establishment of budgets standard costs and actual

costs of operations, processes activities or products; and the

analysis of variances. Profitability or the social of funds.

The cost accounting system provides such information as

i. Cost per unit of production or service or for a process to aid

management in pricing decision, production planning and

cost control.

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 ii. Cost of running a section department or factory to aid

management in organizational planning.

iii. Wage cost for a unit of production or per period for the

purpose of production planning, decision on alternative

methods, wages cost control etc.

iv. Scrap/Ratification cost for material cost control.

v. Cost behaviour with varying levels of activity for profit

planning make or buy decision etc.

2.3 PLANNING AND THE APPLICATION OF COST ACCOUNTING

The analysis and recording of past costs and activities is but one

element of cost accounting. Management is also concerned to

know what costs will be in the future so that appropriate plans and

decisions can be made in time. Also having some standard against

which to compare actual cost greatly assists the control function of

management.

Planning may be defined as “the establishment of objectives and

the formulation, evaluation and selection of the policies, strategies,

tactics and action required to achieve these objectives. Planning

comprises long term strategic planning and short term operational

planning. The latter usually refers to a period of one year.

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Most businessmen at management level have a dual job:

Terminology operations and planning ahead. Because of the

compelling nature of day-to-day decision, it is typical that these

operation use up the bulk of the executives time. As a result

planning frequently gets short shrift. Any thinking executive should

realize however, that day-to-day decisions made without reference

to long-range plans are even more time-consuming and may in

addition, be incompatible with the best interests of the business in

the long run.

Successful planning must be both qualitative and quantitative. For

example if a company determines that it wants to be the biggest

seller of a product in a county, region or country it must translate

this goal into actual sales, when the production and marketing

costs required to meet these sales goals are computed, this

information might bring about major changes in qualitative

thinking.

Cost accounting is the major handmaiden of planning. Without it,

planning cannot be effective, since quantitative goals must be

established throughout the company before decisions as to

courses of action can be undertaken. In preparing an overall plan

therefore, the major objectives of the organization should first be

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 set forth. The company’s policymakers must then answer in

accounting (qualitative) terms such questions as follows.

i. What is the reasonable return on investment?

ii. How can the company best go about getting this return?

iii. What resources will be necessary for the fulfillment of plans

decided upon?

iv. How much of these resources can come from within the

company?

v. How can additional resources be best obtained from outside

the company?

vi. How can the resources be best utilized to obtain company’s`

objectives?

The overall planning process covers both the long-term and short-

term.

2.3.1 LONG TERM PLANNING (STRATEGIC PLANNING)

This can be defined as: “The formulation, evaluation and selection

of strategies for the purpose of preparing a long-term plan of action

to attain objectives. Also known as corporate planning and long

range planning”.

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 The process of long-term or corporate planning is a detailed,

lengthy process which is considered indispensable in many

organisations as part of the management process. The time span

covered by a long term plan depends on the organisation the

industry in which it operates and the particular environment

involved. Typically the period involved are 3,5,7 or 10 years

although long periods may be encountered.

2.3.2 SHORT TERM PLANNING (STRATEGIC PLANNING)

The long term corporate plan services as the longer term

framework for the organisation as a whole but for operational

purpose it is necessary to convert the corporate plan into a series

of short term (usual one year) plans relating to sections, functions

and department. Short term tactical planning can be defined as the

utilization of resources to achieve specific objectives in the most

effective and efficient way.

TERMINOLOGY

Short term plans are stages in the progressive fulfillment of the

corporate plan. The steer the organisation towards the long term

objectives defined in the corporate plan. The management is to

ensure that short term plans do not deviate from the long-term

plans

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2.3.3 BUDGET

A budget is a quantitative expression of a plan of action prepared

in advance of the period to which it relates. Budgets may be

prepared for the business as a whole, for departments, for

functions such as sales and production, or for financial and

resource items such as cash, capital expenditure, manpower,

purchases etc. The process of budgeting is translating the overall

objectives of the organisation into detailed feasible plans of action.

Formally, a budget can be defined as:

‘A quantitative statement, for a period of time which may include

planned revenue, expenses, assets, liabilities and cash flows. A

budget provides a focus for the organisation; aid the co-ordination

of activities and facilities control. Planning is achieved by means of

a fixed master budget, whereas control is generally exercised

through the comparison of actual costs with a flexible budget”.

2.3.4 BENEFITS OF BUDGETING

(i) Planning and Coordination – planning is the key to success in

business and budgeting forces planning to take place. Budgeting

works with the framework of long term overall objectives to

produce detailed operational plans for different sectors and facets

of the organisation. This provides for the coordination of the

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 activities and departments of the organisation so that each facets

of the operation contributes towards the overall plan. The budget

process forces managers to think of the relationship of their

function or departments with others and how they contribute to the

achievement of organisation objectives.

(ii) Clarification of Authority and Responsibility: The process of

budgeting makes it necessary to clarify the responsibilities of each

manger that has a budget. This means that budget makes

management by exception possible thus subordinates are given

clearly defined roles and authority to execute. This makes it easy

for identification of persons responsible for what action.

(iii) Communication: The budgetary process includes all levels of

management. Therefore budget constitutes an important avenue of

communication between top and middle management regarding

the firm’s objectives and the practical problems of implementing

these objectives and transmits the agreed plans to all the staff

involved when the budget is finalized. Aside from vertical

communication (from top – middle – lower manager) it also

communicates between functions to ensure that coordination is

achieved.

(iv) Motivation: The involvement of lower and middle management

with the preparation of budgets and the establishment of clear

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 targets against which performance can be judged is motivating to

those involved.

(v) Control: This is the process of comparing actual results with

planned results and reporting on deviation (variances) form original

plan so that necessary corrective actions can be taken

Budgets contain the objectives of a firm against which operations

process and outputs can be measured. While control seeks to

monitor all levels of work by the feed back of information to the

management to ensure that efficient use of resources is achieved

in meeting determined objectives, it is the budget that sets the

standards against which control can be measured.

2.4 CONTROL AND COST ACCOUNTING

Control like planning is exerted in two ways short and long term.

Handling short term problems is simply putting out fires, that is

handling things on a day-to-day basis. Example a production man

might have to decide whether or not to work overtime to get an

order out. This is a short-term decision. If short-term decisions are

made with long-term plans in mind, they are more likely to result in

concerted action towards a definite goal. The ideal result then is

the combination of planning for the long-term pulls subject to

constant changes as external conditions change and control of

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 day-to-day, month-to-month operations in accordance with the

long-range plan.

Two basic techniques helpful in the use of cost accounting as a

control tool are

(1) Responsibility accounting and

(2) Management by exception.

2.4.1 RESPONSIBILITY ACCOUNTING

A one time chairman of the Finance, Committee of Time Inc. once

said ‘A company moves from small to big status when it can afford

a top-notch man to handle each of the major functions – sales,

production, research and finance.

Regardless of the size of a company, forward planning can make

sense only if the lowest level of supervision is brought into the act.

Part of the job of the cost accountant, is to establish the cost of

operations and the social use of funds. Statements should be

drawn up so that the man responsible for bringing in or spending

money is accountable for his own operation, this is known as

responsibility accounting. Thou this is fundamental, it is often

neglected. The premise of responsibility accounting is that,

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i Clarification of Authority and Responsibility: - The process

of Budgeting makes it necessary to clarify the responsibilities of

each manger has a budget. This means that budget makes

management by exception possible thus subordinates are given

clearly defined roles and authority to execute. This makes easy

identification of persons responsible for that action.

ii. Communication: - The budgetary process includes all levels of

management. Therefore budget constitutes an important

avenue of communication between top and middle

management regarding the firm’s objectives and the practical

problems of implementing these objectives and transmits the

agreed plans to all the staff involved when the budget is

finalized. Aside from vertical communication (from top – middle

– lower manager) it also communicates between functions to

ensure that coordination is achieved.

iii. Motivation: - The involvement of lower and middle

management with the preparation of budgets and the

establishment of clear targets against which performance can

be judged is motivating to there involved.

iv. Control: - This is the process of comparing actual results with

planned results and reporting deviation (variance) from original

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 plan so that necessary corrective actions can be taken. This is

supposed to come under benefits of budgeting.

Budgets contain the set objectives of a firm against which

operations processes and outputs can be measured. While control

seeks to monitor all levels of work by the feedback of information

to the management to ensure that efficient use of resources is

achieved in meeting determined objectives it is the budget that

sets the standards responsibility and authority must go together for

efficient operation. Thus every item on the profit and loss

statement should be the clear cut responsibility of one person.

Only by balancing responsibility and authority can maximum

efficiency be obtained.

2.4.2 MANAGEMENT BY EXCEPTION

This is the cornerstone of control. Management needs to spend

much of its time in planning for the future no matter how busy it

may be then as events develop no time need be spent on those

going according to plan. Attention can be devoted to those items

which are varying from the plan.

Aside from responsibility accounting and management by

exception, standard costing is another control key. Standard

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 costing is a technique which establishes predetermined estimates

of the costs of products and services and then compares these

predetermined costs with actual costs as they are incurred.

2.5 STANDARD COST AS A TOOL FOR CONTROL

A standard cost can be defined “as the planned unit cost of the

products, components or services produced in a period. The

standard cost may be determined on a number of bases. The main

uses of standard costs are in performance measurement, control,

and stock valuation and in the establishment of selling prices”.

Standards can be developed in different ways. Standards may be

set at attainable levels which assume efficient levels of operation,

but which include allowances for normal loss, waste and machine

down-time, or at ideal levels, which make no allowance for the

above losses and are only attainable under the most favorable

conditions. A standard, however set provides a measurement of

some resource usage example units, hours, minutes, kilograms

and so on as appropriate. Even then there are different

(numerous) ways of setting standards, there are three important

and mostly use types of standards.

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2.5.1 BASIC STANDARDS:

These are long-term standards which are sets to remain

unchanged over the years. Basic standards show the trend. Over

time, for such items as material prices, labour rates and efficiency

and the effect of changing methods. Basic standards established

for use over a long period from which a current standard can be

developed, they cannot be used to highlight current efficiency or

inefficiency to this effect they would not normally form part of the

reporting system except as a background, statistical exercise.

2.5.2 IDEAL STANDARD

There are standards set based on the best possible operating

conditions, that is, no breakdown in operations, no material

wastage, no stoppages or idle time, no fatigue and any other event

that may halt operations or processes, they are based on perfect

efficiency.

From the above description of an ideal standard, it is clear to see

that they are unattainable in practice and accordingly are rarely

used because it is certain that labour (human) gets ill tired etc. and

machine too break down to mention but a few obstacles that affect

smooth production. Ideal standards can however be considered

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 worthwhile for investigative and development purposes, but not for

normal day-to-day control of activities.

2.5.3 ATTAINABLE STANDARDS

This is a standard that is set based on efficient (but not perfect)

operating conditions. An attainable standard includes provision for

allowances for normal material losses, realistic allowances for

fatigue machine break downs etc. This standard is the most used

but it must be stressed that attainable standards be set based on

high performance level, so that its achievement is possible but has

to be worked for.

Since these standards would be based on a high performance but

at the same time realistic performance, they provide motivation for

management. They can be used for product costing, for cost

control, for stock valuation and as basis for budgeting. They can

also be used for control purposes by periodic revision of standards

to reflect the conditions expected to prevail during the ensuring

period when the standards would apply.

It should be noted that the type of standards used whether basic

ideal, attainable or other type will directly affect the level of

variances that may arise and the meaning that can be attached to

the variances.

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For realistic standards which can be used for control purposes to

be set, a good foundation of properly organized, standardized

methods and procedures and a comprehensive information system

must exist. A standard cost impels that a target or standard exists

for every single element which contributes to the product the types,

usage and prices of materials and parts, the grades, rate of pay

and times for the labour involved, the production methods and

layouts, the tools etc. setting standards entails the following

procedures.

a. Setting standards for materials – This standard should set

out for a product, raw materials, sub-assemblies, piece parts,

finishing materials etc. including n allowance for normal and

inevitable losses in production, that is, machining loss,

evaporation, and expected levels of breakages and rejection.

The prices used should not be past costs, but the forecast

expected costs for the relevant budget period. Expected

costs should take into account trends in material prices,

anticipated changes in purchasing policies, quantity and

cash discounts, carriage and packing charges and any other

factor which will influence material cost.

b. Setting standards for labour – Detailed operation and

process specifications must be established for standard

- 22 -
 labour time to be set. The labour standards to be set must

specify the exact grades of labour to be used as well as the

times involved. Standard labour time should be expressed in

standard hours or standard minutes. (a standard hour or

minute is a measure of work content and not a measure of

time).

c. Setting standards for overheads – Overheads are those cost

that cannot be directly attributed to a product or service unit.

They are therefore absorbed on a defined basis which is

deemed appropriate that absorption rates.

d. Setting standards for sales price and margin – The setting of

the selling price is frequently a top level decision and is

based on a variety of factors such as the anticipated market

demand, competing products, manufacturing cost, inflation

estimates etc. also the anticipated selling price of any

commodity is fundamental to any form of standard costing,

budgeting and profit planning.

The standard sales margin is the difference between the

standard cost and the standard selling price.

Standard costing as a mechanism for control entails that

standards be revised.

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 To show trends and to be able to compare performance and

costs between different periods, standards should rarely be

changed. But for day-to-day control motivation purposes

standards should be revised so that they can reflect the most up

to date position that is required and this should be done at

periodic intervals.

2.6.0 DECISION MAKING

Decision making is concerned with the future and involves a

choice between alternatives. Before good decisions can be made

many factors, both qualitative and quantitative, need to be

considered and for many decisions financial information is a critical

factor. Relevant information on cost and revenue must be

supplied. Information is termed relevant if.

i. It is a future cost and revenue – In making decision it is the

expected future cost and revenues that are of importance. This

is because past costs and revenues are only sunk costs and

are not relevant in decision making.

ii. There is difference in cost and revenue – information relates to

costs and revenues which alter as a result of a decision. Where

factors are common to all the alternatives being considered,

they can be ignored; only the differences are relevant.

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 Decision can be either short run tactical decisions are those

which seek to make the best use of existing facilities.

It is of utmost importance that decision makers identify the key

factor also known as limiting factor or principal budget factor so

that the best alternative can be selected.

The key factor is the factor which is a binding constraint upon

the organisation, that is, the factor which prevents indefinite

expansion or unlimited profit. It may be sales finance labour,

materials etc. Where a single binding constraint can be

identified, then the general objective of maximizing contribution

can be achieved by selecting the alternative which maximizes

the contribution per unit of the key factor.

For a proper and effective decision to be made the decision

making process has to be followed.

2.7.0 THE DECISION MAKING PROCESS

2.7.1 OBJECTIVES OR GOALS OF THE ORGANISATION

Controversy exists as to what the objectives of firm are or should

be. Economic theory normally assumes that firms seek to

maximize shareholders wealth. Many writers have taken the view

- 25 -
 that firms do not seek to maximize profit. Baumol (1959) argued

that large firms operating in markets where the forces of

competition are weak do not have to maximize profits to survive.

As long as sufficient profits are being made to keep shareholders

happy and to provide adequate internal finance, managers can

pursue other objectives that reflect their own interest. Some still

augured that some managers seek to establish a power base and

build an empire. Nevertheless for the purpose of this project, the

view adopted is that broadly firms seek to maximize the value of

future net cash flows or to be more precise the present value of

future net cash flow.

2.7.2 SEARCH FOR A RANGE OF POSSIBLE COURSES OF ACTION

OR STRATEGIES

At these stage causes of action or strategies that might enable the

objectives to be achieved is to be sought for, to maximize future

cash flows if is essential that management identifies potential

opportunities and threats in its current environment and take

specific steps immediately so that the organisation will not be

taken by surprise by any developments which may occur in the

future.

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 Alternative course of action could be

i. Developing new products for sale in existing markets.

ii. Developing new products for sale in new markets

iii. Developing new markets for existing products.

This search involves acquiring information concerning future

opportunities and environment.

2.7.3 GATHER DATA ABOUT ALTERNATIVE

When potential areas of activity are identified, management should

assess the potential growth rate of the activities, the ability of the

company to establish adequate market shares, and the cash flows

for each alternative activity for various states of nature.

2.7.4 SELECT APPROPRIATE ALTERNATIVE COURSE OF ACTION

After due analysis of each alternative the most appropriate is to be

selected.

2.7.5 IMPLEMENTATION OF THE DECISION

Once selected, the alternative should be implemented as part of

the budgeting process.

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2.7.6 COMPARISON

At this stage actual outcome are compared to the planned

outcomes and adequate response be giving to divergences from

plan, this refers to control.

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 CHAPTER THREE

RESEARCH METHODOLOGY

3.0 INTRODUCTION

Research methodology can be referred to as the process of

scientific inquiry used to search or acquire data for the solution of a

problem.

The success of any research work depends largely on the

application of logic to conduct a satisfactory work. The researcher

has therefore adopted various method and analysis. This chapter

discusses these approaches that are adopted by the researcher.

3.1 POPULATION AND SAMPLE SIZE

In a research work the word population refers to the people,

institution or organisation, items etc. that possess the qualities and

threat on which the research is based and from which the sample

is drawn.

Costing is used very widely indeed; in hospitals transport

undertakings local authorities, offices, banks as well as in every

manufacturing concern. The population is infinite and too large to

be managed within a reasonable time for the study, thus a sample

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 of the population is chosen for the study which sample is the

Nigeria Bottling Company (NBC) Kaduna branch.

3.2 SAMPLING TECHNIQUES

This refers to the method of collecting data from a sample. For this

research work the simple random technique will be used. The

Nigerian Bottling company is a big organisation with various

departments. The simple random system being a probability

method is chosen so that every staff will have an equal opportunity

of giving information.

3.3 SOURCES OF DATA COLLECTION

The sources of data collection to be used to accomplish this

research work include primary and secondary data sources.

a. Primary Source:- These are data or material collected for the

first time. They are data colleted in the present research in its

original nature. The methods of collecting those data include

questionnaires, interview and observation for the purpose of

this research work, the methods to be used are

questionnaire and personal interview, of the staff of the case

study.

b. Secondary Source:- This refers to published works, that is,

data already existing in the form of textbooks, journals,

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 Newspapers, periodicals, bulletin and many such publication

that contain relevant data on the research topic from which

data has been collected for the purpose of this research.

2.5 METHODS OF DATA ANALYSIS

For the purpose of this research work, the method used in

analyzing data is the simple percentage method.

Percentages given will be based on the data collected through

questionnaire which has been gotten through the primary source.

3.5 JUSTIFICATION CHOICE

Simple percentage method has been chosen for this work because

it is found to be appropriate for this kind of research.

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 CHAPTER FOUR

DATA PRESENTATION ANALYSIS AND INTERPRETATION

4.0 INTRODUCTION

This chapter is basically about the presentation analysis and

interpretation of the data collected in the course of this research

and the test of hypothesis.

The analysis of data for this research work will be on a tabulated

form based on the number of questions on the questionnaire.

4.2 DATA PRESENTATION

There are twenty questionnaire distributed to the Finance and

Account Department of the Nigerian Bottling Company (NBC)

Kaduna branch, which serves the basis on which this data is

presented and analysed. Below is the summary of the pattern of

the questionnaire distributed in the course of this study.

Table 1

SECTIONS NO OF STAFF RESPONSE PERCENTAGES

RECEIVE (%)
Finance 10 10 50
Account 10 10 50
Total 20 20 100%
Source: Survey research October 2010

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4.3 DATA ANALYSIS AND INTERPRETATION

4.3.1 ANALYSIS OF DATA FROM QUESTIONNAIRES

Question 1: Table 2

SECTIONS RESPONSE PERCENTAGES

RECEIVE (%)

Male 18 90

Female 2 10

Total 20 100%

Source: Survey research October 2010

The above table shows the sex of staff in the Finance and

Accounts department that ensured the question on the

questionnaire. 18 respondents representing 90% of the total

number of respondents are male and 2 respondents representing

10% of the total number of respondents are female

Question 2: table III

What is your marital status?

SECTIONS RESPONSE PERCENTAGES

RECEIVE (%)
Married 6 43
Single 14 57
Total 20 100%
Source: Survey research October 2010

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The above table shows the number of staff that answered the
questionnaire who are married and those that are single
Question 3: Table IV
What is the level of management?

SECTIONS RESPONSE PERCENTAGES

RECEIVE (%)

Top 8 40

Middle 10 50

Low 2 10

Total 20 100%

Source: Survey research October 2010

From the data presented above it is obvious that staff at the three

levels of management were involved answering the questionnaire.

Question 4: Table V

How long have you worked with the organisation

SECTIONS RESPONSE PERCENTAGES

RECEIVE (%)
Below 3years 4 20
Between 3-5 6 30
year
Above 5years 10 50
Total 20 100%
Source: Survey research October 2010

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This table gives an analysis of the number of years the

respondents have marked in the organisation. It also shows the

experience they have.

Question 5: table VI

What costing technique is used?

SECTIONS RESPONSE PERCENTAGES

RECEIVE (%)

Marginal - -

Absorption 20 100

Total 20 100%

Source: Survey research October 2010

From the above table, it can be seen that, the company uses the

adsorption costing technique.

Question 6 Table VII

What method of costing is employed?

SECTIONS RESPONSE PERCENTAGES

RECEIVE (%)
Process costing 10 50
Contact costing 8 40
Batch costing - -
Job costing - -
Services costing - -
Total 20 100%
Source: Survey research October 2010

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While 50% of the respondent answered that process contract is

used in the organisation and 40% said that contract costing used

10% representing 2 respondents did respond.

Question 7:

HOW DOES THE SYSTEM OF COSTING OPERATE

Response by 80% of the respondents.

The process costing system is generated from or by a special

program-software (PRS).

Response by 20% of the respondents.

The organisation uses both process costing and batching system.

The process costing system is generated from or by a special

program-software (PRS) while the contract costing system is

based on biddings quotations from suppliers to the company.

Question 8 Table VII

How are costs allocated to the different department?

SECTIONS RESPONSE PERCENTAGES (%)

RECEIVE
Output of product 0 -
Input to product 19 99
Total 19 99
Source: Survey research October 2010

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From the above table, costs are allocated to the various

departments based on their input to production, that is, the

spending of the different department.

SECTIONS RESPONSE RECEIVE PERCENTAGES

(%)

Cost of 16 80

production

Economy 1 5

Average costs 3 25

Total 20 100%

Source: Survey research October 2010

Question 9 Table IX

How are Prices set up for products?

The table above depicts the process by which products are of the

opinion that total cost for the production of products determines the

price for which goods will be sold plus the margin percentage.

15% percent says the Average of the overall cost is used plus the

margin while 5% of the respondent says the state of the economy

determines the selling price.

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SECTIONS RESPONSE PERCENTAGES

RECEIVE (%)

Fully 20 100

Partially - -

Not computerized - -

Total 20 100%

Source: Survey research October 2010

Question 10: Table X

To what extent is cost Accounting system Computerized?

The costing system employed by the Nigerian Bottling Company

Kaduna branch is completely (fully) computerized as it is shown on

the table above.

Question 11: Table XI

How has this assisted management in obtaining requires

information

RESPONSE FREQUENTLY PERCENTAGES

(%)
It fully assist management in 20
decision making for the
organisation by generating
timely, accurate and objective
information for decision
making
Total 20 100

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SECTIONS RESPONSE PERCENTAGES

RECEIVE (%)

High 15 75

Fair 4 20

Low 1 5

Source: Survey research October 2010

Question eleven about, the assistance management has derived

from the computerized of costing system produced 100% response

from respondents showing that the use of computer in the

application of costing system has fully provide management with

needed and timely information for decision making.

Question 12: Table

How has cost Accounting Affected the Profitability Ratio?

SECTIONS RESPONSE PERCENTAGES

RECEIVE (%)
High 15 75
Fair 4 20
Low 1 5
Total 20 100
Source: Survey research October 2010

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From the above data above 75% of the respondent give their

answer as to a high degree of effect 20% think it is fair and 5%

thinks it is low.

Question B Table

How do you assess your company’s finance relative to cost

ALTERNATIVE RESPONSE PERCENTAGES

RECEIVE (%)

Fair 9 45

Very good 10 50

Good 1 5

Poor - -

Total 20 100%

Source: Survey research October 2010

From the above table it can be seen that cost accounting which

give information on cost of production that gives the basis for the

determination of profit. That is sales – cost = Profit. 45% of the

respondent say that profit are fair 50% say it is very good and 5%

feel it is good. This shows that adequate cost planning helps in

reduction of cost and high profitability.

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4.4 TESTING OF HYPOTHESIS

From the information gotten in the course of this research it can be

seen that cost accounting is a vital and dispensable tool in the

planning, control and decision making of any management in that

1. It defines the type, quality and quantity of production

2. It determines the price to be set on each line of production so

that adequate profit can be achieved.

3. From the response, it can be seen (question II) that the

management of Kaduna branch of the Nigerian Bottling

company fully on of costing system to provide or generate,

accurately, timely and necessary information on cost which

forms or generate accurately, timely and necessary

information on cost which forms backbones for its planning,

control and decision making so as to decision set goals or

objectives.

4.5 SUMMARY OF FINDINGS.

In an organisation the body responsible for the smooth running of

operations and programmes is the management. For the

management to fully carryout its responsibility it needs all manner

of necessary information and while cost accounting is not the only

source of information for the management it is the most crucial

- 41 -
one. This been so, cost accounting with its diverse methods and

techniques of developing information about cost be it labour,

material overheads, plant etc. is an indispensable tool if the

management of any organisation, firm business etc is to succeed,

grow, develop and attain its targets.

Cost accounting also measures deviation from budget cost during

actual production so that such variances can be corrected. This is

efficiency and economy use of resource which is not in excess or

even in adequate supply.

- 42 -
 CHAPTER FIVE

5.0 SUMMARY, CONCLUSION AND RECOMMENDATION

5.1 SUMMARY

In the past, a lot of organisations (hospitals, manufacturing,

schools, travelers etc) have witnessed considerable lapses in

management, loss of profitability, liquidation and the likes. Whether

an organisation succeeds be it a profit making or non-profit making

organisation it needs a sound management to plan its activities,

assign lines of responsibility to the various office holders and

departments. Design an internal control system which will ensure

that planned objectives will be achieved, by ensuring that plans go

as they are set and where deviations exist detect their causes and

recommend corrective action. Decide among various business or

investment opportunities which is must profitable by making proper

analysis between its cost and future returns. Identify alternative

options so that production does not break-down or profit margin

dropped because of a choice sways from the original plan since

the future cannot be accurately predicted.

Cost accounting gives idea of what cost will be by making data

available to the management about materials cost, labour type and

- 43 -
 cost product line and their contribution to the overall profits. What

overheads will be, the time need for the production of a unit per

product and the total time required. The cost of idle time and the

overall cost of operations. This helps management to plan in as a

way that the least possible costs are incurred while producing the

most or highest quality goods and services. It thus encourages

efficiency, economy and effectiveness of management.

5.2 CONCLUSION

Cost accounting is an important management tool that aid

management in planning, control and decision making. A sound

costing system is therefore vital to any organisation. In the

recognition of the fact stated above and from the information

derived from the staff of the Nigerian Bottling Company (NBC)

Kaduna branch the following conclusion are given

i. Costing accounting gives complete knowledge of cost which

helps management to make pricing decisions.

ii. It studies cost behaviour with or at different production level for

profit planning decision, make or buy decision etc.

iii. It gives management the picture of the type of labour force that

is required for what type of product, the amount of labour and at

what cost.

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 iv. That for any organisation to achieve its objectives it needs a

sound cost accounting system to prepares adequate, timely,

accurate and relevant information about its operations and

activities.

v. Various methods of costing exist for an organisation to enjoy

the full benefits of costing it should adopt the method that best

suit its operations and apply it consistently.

vi. Variance analysis is very crucial if management desire to attain

goals. Plans are made today for events which will occur in the

future. Today is known with perfection but the future can only be

assumed and assumptions are not always right. Cost

accounting prepares budget by which actual occurrences can

be measured and where deviation exist adequate corrective

measures can be taken.

vii. Cost accounting is the bedrock of any sound management in

any organisation, government or private, service rendering or

manufacturing.

5.3 LIMITATIONS OF THE STUDY

There are a number of obstacles, which limit the work of this

project among these are inadequate resources, which is limited

compared to its demand.

- 45 -
 Costing in this research is limited to its use in planning, controlling

and decision making although costing applies to more than these

three.

The data used to find relevant information contained in this

research findings is limited to just a company and with this not the

entire company but a branch.

Costing also applies to all organisations but the data given in the

research is mostly related to a manufacturing kind.

5.4 RECOMMENDATION

Based on the findings in chapter four with regards to this topic

“Cost Accounting and its Application to Planning Control and

Decision Making. The following is recommended.

1. Every organisation should possess on efficient and

effective costing department.

2. An appropriate costing method and technique should be

identified by the Cost Accountant and this should be

implemented and properly controlled.

3. With the advancement in technology crude method of

operations are fastly fading out. Computerized cost

- 46 -
 accounting is very efficient (as can be seen from the

response from the Nigerian Bottling Company Kaduna

branch) in generating and providing management with

relative and timely information.

4. The system in operation should be fully understood by all

members who are charged with the responsibility of

operating them.

5. People charged with cost information must be

knowledgeable in cost and its analysis so that information

produced by them can be accurate or nearly perfect.

Competent people should be employed.

6. Plans should be closely supervise so that deviations can

be identified on time. This will help the management to

quickly take corrective measures before plans are

adversely affected.

7. Cost accounting should not be limited to just the

accounting fields and related business courses. It should

be studied by all people in all fields so that overall cost of

both the economy and individuals and businesses can be

kept

- 47 -
 BIBLIOGRAPHY

COLIN DRURY (1992) Management and Cost Accounting

Chapam & Hill Third Edition London UK.

ET-AL BAFFY (1976) Overhead Costs: Analysis and Control

Heinmann London.

F.M WILKES (1982) Capital Budgeting Techniques John

Wiley & Sons Publishers.

FISCHER FRANK (1985) Cost Accounting Theory and Application

South-Western Publishing Co.

ET-AL EDMONDS (2000) Fundamentals of Managerial Accounting

McGraw – Hill Lowin

PETER F. DRUCKER (1964) Managing for Results Heinemann;

London.

RALPH F. JEWIS (1974) Planning and Control for Profit Harvard

Business Reviews UK and
Commonwealth Edition Heinemann;
Ibadan

TERRY LUCEY (2002) Costing Book Power IELST Thomson

Learning Sixth Edition.

TERRY LUCEY (2001) Management Accounting Book Power

IELST Thomson Learning.

- 48 -
 SAMPLE QUESTIONNAIRE

Dear Respondent,

The researcher is a student of the Department of Accountancy and

Kaduna Polytechnic. The researcher is conducting a research on the

topic “Cost Accounting and its Application to Planning, Control

and Decision Making”. The researcher has selected your company as

a case study and is therefore seeking for your assistance with regards to

the data. Any information supplied for the purpose of this study will be

treated confidentially.

SECTION A

PERSONAL DATA

(1) Sex (a) Male [ ] (b) Female [ ]

(2) Marital status (a) Married [ ] (b) Single [ ]

(3) What is your level in management?

(a) Top [ ] (b) Middle [ ] (c) Low [ ]

(4) How long have you worked with the organisation?

(a) Below 3 years [ ] (b) Between 3-5 years [ ]

(c) Above 5 years [ ]

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5. What costing techniques is used?

(a) Marginal [ ] (b) Absorption

6. What method of costing is employed?

(a) Process [ ] (b) Contract [ ] (c) Batch

(d) Job [ ] Service [ ]

7. How does the system operate --------------------------------------------

-----------------------?

8. How are costs allocated to the different department?

(a) Output of product [ ] (b) Input to product [ ]

9. How are prices set up for products?

(a) On cost of production [ ] (b) On average of

production [ ] (c) On the existing economy situation [ ]

10. To what extent is cost accounting system computerized?

(a) Fully [ ] (b) Partially [ ] (c) Not

computerized

11. How has this assisted management in obtaining required

information?

(a) Fully [ ] (b) Partially [ ] (c) Not assisted

12. How has costing affected the profitability ratio?

(a) High [ ] (b) Fairly [ ] (c) Low

- 50 -
13 How do you asses your company’s Finance relative to cost?

(a) Fairly [ ] (b)Very good [ ] (c) Good

(d) Poor

- 51 -