FACULTY OF COMMERCE

DEPARTMENT OF ACCOUNTING

Effectiveness of standard costing system in cost control within

the motor industry. A case study of South East Toyota (Pvt) Ltd.

By

MILLION GUBUNJE
[R122198T]

A dissertation submitted in partial fulfilment of the Bachelor of Commerce Accounting

Honours Degree

Gweru, Zimbabwe
2015
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APPROVAL FORM
The undersigned certify that they have read and recommend for acceptance the dissertation
entitled, “Effectiveness of standard costing system in cost control within the motor
industry. A case study of South East Toyota (Pvt) Ltd” submitted in partial fulfilment of
the requirements of the Bachelor of Commerce Accounting Honours Degree at Midlands State
University.

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Student Date

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Supervisor Date

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Chairperson Date

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External Examiner Date

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RELEASE FORM

NAME OF STUDENT: MILLION GUBUNJE

DISSERTATION TITLE: Effectiveness of standard costing system

in cost control within the motor industry.
A case study of South East Toyota (Pvt)
Ltd.

DEGREE TITLE: Bachelor of Commerce Accounting

Honours Degree

YEAR OF RESEARCH: 2015

Permission is hereby granted to the
Midlands State University Library to
produce single copies of this dissertation
and to lend or sell such copies for private,
scholarly or scientific research purposes
only. The author reserves the rights that
neither the dissertation nor extensive
extracts from it may be printed or
otherwise reproduced without the
author’s written permission.

SIGNED............................................................................

DATE................................................................................

ADDRESS: No. 6 Ross Armstrong Street

Triangle, Zimbabwe
CONTACT: +263772416990
EMAIL: gubunjemillion1@gmail.com
DATE: October 2015

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DEDICATION
This dissertation is dedicated to my mom and dad for their perpetual support throughout the
research. To my young brother Malvin, this one is also for you, I hope to see you surpass this
level someday.

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ACKNOWLEDGEMENTS
To begin with, I would like to thank the Almighty God for giving me life, preparing a future
for me and leading me this far.

My utmost gratitude goes to my supervisor Miss Takachicha for her diligent assistance
throughout this research which has resulted in the successful completion of this dissertation.
Special thanks to all the lecturers in the accounting department at Midlands State University
for equipping me with the knowledge that has made this dissertation project a success.

Much gratitude to South East Toyota (Pvt) Ltd for providing the much needed information for
the research through the participation in interviews and questionnaires.

Special mention goes to my family for the financial and moral support, without you, I would
not have made it, and to Uncle Sam, your aid in all respects is worth more than words can
describe. To all my friends and fellow classmates, many thanks to you for your support, you
are an amazing people and may you all achieve your dreams.

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ABSTRACT
The study focused on examining the effectiveness of standard costing system in cost control
within the motor industry by using South East Toyota (Pvt) Ltd as the case study. The study
was motivated by the increase in operational costs of the company and its inability to maximise
profitability from 2012 to 2014, regardless of having standard costing system under
implementation specifically to control costs. Results showed that cost increases were largely
as a result of inappropriate implementation of standard costing system and that they had
triggered retrenchment of employees, stunted technological development, clientele loss, service
pricing challenges and incurrence of losses. The results of the study would assist management
in effective control of costs by means of standard costing system, which would enhance
profitability maximisation for the company. The researcher recommends the company to
establish a standards committee, encourage involvement of employees in standards setting and
improve communication from standard setting to results evaluation so that it can maximise and
maintain profitability.

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TABLE OF CONTENTS
APPROVAL FORM .............................................................................................................. I
RELEASE FORM ................................................................................................................. II
DEDICATION .................................................................................................................... III
ACKNOWLEDGEMENTS .................................................................................................... IV
ABSTRACT ........................................................................................................................ V
TABLE OF CONTENTS ....................................................................................................... VI
LIST OF TABLES ................................................................................................................ IX
TABLE OF FIGURES ............................................................................................................ X
LIST OF APPENDICES ........................................................................................................ XI
CHAPTER ONE .................................................................................................................. 1
INTRODUCTION............................................................................................................................................. 1
1.0 INTRODUCTION .......................................................................................................... 1
1.1 BACKGROUND OF STUDY ........................................................................................... 1
1.2 STATEMENT OF PROBLEM ......................................................................................... 2
1.3 MAIN RESEARCH OBJECTIVE ...................................................................................... 2
1.4 SUB-OBJECTIVES OF THE STUDY ................................................................................ 2
1.5 RESEARCH QUESTIONS ............................................................................................... 3
1.6 JUSTIFICATION OF THE STUDY ................................................................................... 3
1.7 DELIMITATION OF THE STUDY ................................................................................... 3
1.8 LIMITATION OF THE STUDY ........................................................................................ 4
1.9 DEFINITION OF KEY TERMS ........................................................................................ 4
1.10 ABBREVIATIONS ..................................................................................................... 4
1.11 SUMMARY .............................................................................................................. 4
CHAPTER TWO.................................................................................................................. 5
LITERATURE REVIEW ................................................................................................................................... 5
2.0 INTRODUCTION .......................................................................................................... 5
2.1 STANDARD COSTING SYSTEM AND COST CONTROL .................................................. 5
2.2 COST MANAGEMENT CHALLENGES ........................................................................... 7
2.3 STANDARD COSTING IMPLEMENTATION PROBLEMS .............................................. 10
2.4 EFFECTIVE COST CONTROL ....................................................................................... 13
2.4.1 Controllable and non-controllable costs ......................................................... 15
2.5 IMPACT OF STANDARD COSTING SYSTEM IN MOTOR INDUSTRY ........................... 16
2.6 SUMMARY ................................................................................................................ 19

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CHAPTER THREE ............................................................................................................. 20

RESEARCH METHODOLOGY ..................................................................................................................... 20
3.0 INTRODUCTION ........................................................................................................ 20
3.1 RESEARCH DESIGN ................................................................................................... 20
3.2 STUDY POPULATION ................................................................................................ 21
3.3 SAMPLE SIZE AND DESIGN ....................................................................................... 22
3.4 SAMPLING PROCEDURES ......................................................................................... 22
3.5 SOURCES OF DATA ................................................................................................... 23
3.5.1 Primary Data .................................................................................................... 23
3.5.2 Secondary Data ................................................................................................ 23
3.6 DATA COLLECTION INSTRUMENTS ........................................................................... 23
3.6.1 The Questionnaire ........................................................................................... 24
3.6.2 Questionnaire Administration ......................................................................... 25
3.6.3 Interviews......................................................................................................... 25
3.6.4 Interview Administration ................................................................................. 25
3.7 RELIABILITY AND VALIDITY ....................................................................................... 26
3.8 DATA PRESENTATION AND ANALYSIS ...................................................................... 26
3.9 ETHICAL CONSIDERATIONS ...................................................................................... 27
3.10 SUMMARY ............................................................................................................ 27
CHAPTER FOUR............................................................................................................... 28
DATA PRESENTATION AND ANALYSIS ................................................................................................... 28
4.0 INTRODUCTION ........................................................................................................ 28
4.1 QUESTIONNAIRE RESPONSE RATE ........................................................................... 28
4.1.1 Employment period ......................................................................................... 28
4.1.2 Qualification level ............................................................................................ 29
4.1.3 Department of operation................................................................................. 30
4.1.4 Standard costing system implementation ....................................................... 31
4.1.5 Effective cost control through standards setting ............................................ 31
4.1.6 Annual budgets’ effect in standard setting ..................................................... 32
4.1.7 Responsibility of management for standard costing implementation ............ 32
4.1.8 Factors affecting cost management ................................................................ 33
4.1.9 Standard costing implementation difficulties ................................................. 34
4.1.10 Consequences of cost increases ...................................................................... 35
4.1.11 Schemes that ensure effective cost control .................................................... 36
4.1.12 Effectiveness of the reporting system ............................................................. 36
4.1.13 Cost control through monthly stocktakes ....................................................... 37
4.2 INTERVIEWS ............................................................................................................. 38
4.2.0 Interview Response Rate ................................................................................. 38
4.2.1 Interview analysis ............................................................................................ 38
4.2.2 Legal status of the entity ................................................................................. 38

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4.2.3 Company performance from 2012 to 2014 ..................................................... 39

4.2.4 Reasons for company performance from 2012 to 2014 ................................. 39
4.2.5 Relationship between cost control and profit maximisation .......................... 39
4.2.6 Standard costing system as a cost control technique in an automobile firm . 39
4.2.7 Challenges faced in cost management ............................................................ 40
4.2.8 Standard costing implementation constraints ................................................ 40
4.2.9 Ways to effective cost management ............................................................... 40
4.2.10 Viability of standard costing system in the company ...................................... 41
4.3 SECONDARY DATA ANALYSIS ................................................................................... 41
4.4 SUMMARY ................................................................................................................ 41
CHAPTER FIVE................................................................................................................. 42
SUMMARY, CONCLUSION AND RECOMMENDATIONS .................................................................... 42
5.0 INTRODUCTION ........................................................................................................ 42
5.1 SUMMARY OF CHAPTERS ......................................................................................... 42
5.2 MAJOR RESEARCH FINDINGS ................................................................................... 43
5.2.1 The relationship between standard costing system and cost control............. 43
5.2.2 Difficulties faced in cost management ............................................................ 43
5.2.3 Problems related to standard costing implementation .................................. 43
5.2.4 Ways of effective cost control ......................................................................... 44
5.2.5 Justification of using standard costing system ................................................ 44
5.3 CONCLUSION ............................................................................................................ 44
5.4 RECOMMENDATIONS............................................................................................... 44
5.3.1 The Setting phase............................................................................................. 45
5.3.2 The Operational phase ..................................................................................... 45
5.3.3 The Feedback phase......................................................................................... 46
5.5 SUGGESTED AREAS OF FURTHER RESEARCH ........................................................... 46
REFERENCES ................................................................................................................... 47
APPENDICES ................................................................................................................... 51
APPENDIX 1 ...................................................................................................................................................... 51
APPENDIX 2 ...................................................................................................................................................... 52
APPENDIX 3 ...................................................................................................................................................... 55

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LIST OF TABLES
TABLE 3.1- STUDY POPULATION ...................................................................................................... 21
TABLE 3.2- SAMPLE SIZE................................................................................................................. 22
TABLE 3.3- THE LIKERT SCALE ......................................................................................................... 24
TABLE 4.1- QUESTIONNAIRE RESPONSE RATE ..................................................................................... 28
TABLE 4.2- QUALIFICATION LEVEL .................................................................................................... 30
TABLE 4.3- DEPARTMENT OF OPERATION........................................................................................... 30
TABLE 4.4- STANDARD COSTING SYSTEM IMPLEMENTATION .................................................................. 31
TABLE 4.5- EFFECTIVE COST CONTROL THROUGH STANDARDS SETTING ..................................................... 31
TABLE 4.6- CONSEQUENCES OF COST INCREASES ................................................................................. 35
TABLE 4.7- SCHEMES THAT ENSURE EFFECTIVE COST CONTROL ............................................................... 36
TABLE 4.8- COST CONTROL THROUGH MONTHLY STOCKTAKES ................................................................ 37

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TABLE OF FIGURES

FIGURE 4.1- EMPLOYMENT PERIOD .................................................................................................. 29

FIGURE 4.2- ANNUAL BUDGETS’ EFFECT IN STANDARD SETTING .............................................................. 32
FIGURE 4.3- RESPONSIBILITY OF MANAGEMENT FOR STANDARD COSTING IMPLEMENTATION ........................ 33
FIGURE 4.4- FINDINGS ON FACTORS AFFECTING COST MANAGEMENT ...................................................... 33
FIGURE 4.5- STANDARD COSTING IMPLEMENTATION DIFFICULTIES .......................................................... 34
FIGURE 4.6- EFFECTIVENESS OF THE REPORTING SYSTEM ....................................................................... 37
FIGURE 4.7- INTERVIEW RESPONSE RATE........................................................................................... 38

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LIST OF APPENDICES

APPENDIX 1- COVER LETTER TO THE ORGANIZATION .......................................................................... 51

APPENDIX 2- RESEARCH QUESTIONNAIRE ....................................................................................... 52
APPENDIX 3- INTERVIEW GUIDE .................................................................................................... 55

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CHAPTER ONE
INTRODUCTION
1.0 INTRODUCTION
The following chapter contains the background of study, the statement of the problem, main
research objective, sub-objectives, justification of the study, delimitation of the study,
limitation of the study, key definitions, abbreviations and a summary.

1.1 BACKGROUND OF STUDY

South East Toyota (Pvt) Ltd has been implementing standard costing since inception in
2005. This costing technique was mainly introduced in the company to assist management
in cost control so as to maximise profitability. Quarterly performance appraisals, weekly
operational cost reports and pricing of spare parts are activities done by the company based
on set standards. These have been effected by the company’s management under the
standard costing system to control costs (Business unit report, 2014). Frequent changes of
economic conditions within the motor industry caused the company to regularly incur
additional costs through frequent standards setting and variance analysis (Business unit
report, 2014). The management accounts of 2012, 2013 and 2014 showed that the costs of
the company increased regardless of a cost control technique being implemented by the
company. As a result, the company is failing to maximise profitability.

The performance appraisals which were aimed at motivating employees, have not been
successfully motivating employees. Due to the competitive nature of motor industry in
Zimbabwe, setting the right standard for labour hours got to be a challenge. Customer
complaints increased as a result of poor service delivery. To retain the competitive stamina,
management planned on minimizing turnaround time (Business Plan, 2014). However, due
to fixed available labour, the available technicians had to do rushed jobs which
compromised service quality and resulted in additional costs of re-working defect jobs at
zero charge. Management set ideal labour hour targets in the hope of addressing customer
complaints. However, the technicians judged these targets unattainable, hence they got
demotivated.

The company sets prices for spare parts by considering the cost that the motor spare parts
were acquired and adding a mark-up of 35% (Sales report, 2013). The budgeted prices

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would be based on Toyota Zimbabwe motor spare parts prices since the company is a
franchised dealer of Toyota Zimbabwe (Toyota Zimbabwe Dealers Network Report, 2014).
Toyota Zimbabwe supplies Toyota motor spare parts to over ten franchised dealers in
Zimbabwe, therefore, the motor repair parts required by the company would not be readily
available in Toyota Zimbabwe’s stocks. In substitution, the company often had to search
for those spare parts from the cheapest supplier so as to meet the standard price set whilst
maintaining the 35% mark-up. Due to a vast number of suppliers, finding the right supplier
took time which delayed job completion. Increased turnaround time pushed customers
away, and this has resulted in lost sales. Telephone expenses of 2013 and 2014 increased
due to additional telephone charges that incurred in communication with a list of suppliers
in order to select the most efficient supplier to purchase spare parts from (SET Management
accounts, 2013; 2014). These unplanned additional telephone charges increased the total
operational costs which contributed to company losses incurred in 2013 and 2014, thereby
affecting profitability maximisation.

1.2 STATEMENT OF PROBLEM

South East Toyota (Pvt) Ltd is failing to effectively control its costs through the effected
standard costing system, which has resulted in the company failing to maximise
profitability.

1.3 MAIN RESEARCH OBJECTIVE

This study seeks to investigate the effectiveness of standard costing technique in cost
control of an entity in the motor industry so as to maximise profitability, and to suggest
ways in which companies such as South East Toyota (Pvt) Ltd can implement to maintain
profitability.

1.4 SUB-OBJECTIVES OF THE STUDY

 To establish the relationship between standard costing and cost control.
 To identify challenges faced by the company in managing costs.
 To identify problems with standard costing implementation in the motor industry.
 To suggest ways in which management can effectively control costs.
 To recommend the costing techniques that management can implement to control costs
when there is uncertainty in economic conditions.

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1.5 RESEARCH QUESTIONS

 What is the relationship between standard costing and cost control?
 What are the difficulties faced by the company in managing its costs?
 What are the problems related to standard costing implementation in the motor
industry?
 How can management effectively monitor costs?
 What are the costing techniques that management can implement to control costs when
there are uncertain economic conditions?

1.6 JUSTIFICATION OF THE STUDY

To South East Toyota (Pvt) Ltd
This research will assist management in identifying ways of controlling costs and make
informed reliable cost related decisions.
To Midlands State University
This research paper will assist other students in further research and as a base of further
argument.
To the researcher
The researcher will get more knowledge necessary for his future in the accounting career
and the research findings will be useful to the researcher’s future business plan. This
research is in partial fulfilment of the Bachelor of Commerce Honours Degree in
Accounting at Midlands State University.

1.7 DELIMITATION OF THE STUDY

 Geographical Scope
The research will be limited to South East Toyota (Pvt) Ltd which is located in Chiredzi.
The researcher chose this company as it is the one that he was attached to for the year
of work related learning.
 Time Scope
The research will be based on a period of three years (2012 to 2014) as this is the most
recent period showing trends of the researcher’s research emphasis. Any information
that the researcher would need from South East Toyota (Pvt) Ltd would be readily
available for this period as well.

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 Subject Scope
The study will be mainly centred on the effectiveness of standard costing in cost
management within the motor industry so as to maximise business profitability.

1.8 LIMITATION OF THE STUDY

 Finances-The researcher does not have enough financial resources to carry out a full
study of all companies in the motor industry. The researcher will attempt to make use
of the available financial resources to carry out the research.
 Time- the period under review is three years and it might not be sufficient enough to
enable the researcher to come up with a very comprehensive research paper.
Nevertheless, the researcher will work for long hours on the research using both
quantitative and qualitative research methods to come up with a comprehensive paper.
 Confidentiality- the research is limited to the information that South East Toyota (Pvt)
Ltd can provide due to work pressure and confidentiality clauses. The researcher will
follow company protocol to obtain enough relevant information to carry out the study,
make appointments and acquire maximum assistance from management to inform
employees of the benefit of the research to the company as a whole.

1.9 DEFINITION OF KEY TERMS

Profitability- it is whereby a company is earning profits from its operational activities.

Cost- It is a monetary value of the resources that have been sacrificed or must be sacrificed
by the company in its operational activities to achieve profitability.

Control- This is the monitoring of occurrence of planned activities by management so that

the budgeted targets are achieved.

1.10 ABBREVIATIONS

SET- South East Toyota (Pvt) Ltd

1.11 SUMMARY
The chapter showed the background of study and the statement to the problem. The chapter
also highlighted the limitations of the study and the delimitations. Definitions of key terms
and abbreviations also formed part of the chapter to help users of the research in
understanding the research. The chapter that follows is on literature review of the topic,
showing theoretical and empirical literature review on the research.

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CHAPTER TWO
LITERATURE REVIEW

2.0 INTRODUCTION

The aim of literature review is to assist the researcher in understanding the existing work of
other researchers in the area of research, provide a theoretical substance of the study,
substantiate the existence of the research problem, support the proposed study as one that
contributes something new to the existing knowledge base and develop a validated framework
of the study (Ridley, 2012). This chapter will establish the relationship between standard
costing system and cost control. Challenges faced in the management of costs and problems
related to the implementation of standard costing system will be deliberated in this chapter.
How the system is used to control costs effectively and a justification for its implementation
within the motor industry will also be discussed in this chapter. A summary of the chapter is
included at the end of the chapter.

2.1 STANDARD COSTING SYSTEM AND COST CONTROL

According to Periasamy (2010), organisational success relies greatly upon effective and
efficient cost control. Cost control essentially consists of all the methods installed in an entity
with the objective of curbing increases in the costs related to operational activities so that the
costs do not exceed the anticipated levels (Klychova et al, 2014). OCNEANU et al (2012)
further noted the relationship of standard costing and cost control when they said that standard
cost method considers future business activity and standards are regarded as measuring
instruments of control and management activity. Siyanbola et al (2013) further argued that cost
control and costing systems are tantamount with similar features and argued that costing system
comprises of an organisation’s control, plans and structures which consists of the setting phase,
the operation phase and the feedback phase.

When setting up a system that controls costs, firstly there is the establishment of standards that
would be used to administer the performance levels of resources and these standards can be
expressed in numerical terms (Horngren et al, 2012). Administering of the resources to meet
the set cost standards signifies cost control. For example, in the motor industry standards can
be established in units of spare parts to purchase, expected labour hours from technicians,
expected turnaround time on vehicle service, vehicle sales figures.

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Operation phase deals with the various tactics used by the entity to ensure that the set standards
are achieved. The firm effects policies that encourages the implementation of the set goals
during operations. Action is noticed during this phase, with all departments within the firm
working in line with the standards set and management in all centres controlling the occurrence
of the activities during operations. The operation phase thus relies greatly on the completion
and success of the setting stage. De Waal (2013) is of the opinion that if the standards are
unclearly established, even when the tactics taken up are good, it would be difficult to realise
results because results depend on a clearly defined point of measurement.

With the feedback stage, information pertaining to results is reviewed and decisions for
improvement of the system are made. Whilst the implementation of tactics in undergoing, the
flaws with the system (be it the problems with setting standards or implementation) are
recognised and documented so that the corrective actions decided upon would be
comprehensive (Drury, 2013). The corrective action is communicated to all personnel related
to the system’s implementation (Laurie, 2013). The efficiency level in cost control improves
with the continuous measurement of actual results against expected results and analysing the
variations thereof (Jordan, 2011). When the feedback phase elapses, the process starts again
from the setting phase but this time the standards set would be the revised results reviewed in
the feedback stage. Management is key to the achievement of an effective feedback phase since
it has the duties of organising and coordinating communications within the entity.

Therefore, to effectively control the costs of an entity, there is need of a system that has
established criteria of controlling and reducing costs. The need for cost control resulted in the
implementation of standard costing system within the motor industry (Long Ho, 2011). This is
mainly because a standard costing system consists of similar stages of setting, operation and
feedback.

According to Drury (2013), standard costing is regarded as a method that forms expected cost
targets and matches the pre-set costs to the real costs that accumulate in operations. Standard
costing has been appreciated as the most effective means for cost control and it is still being
widely used in various industries throughout the world (Marie et al, 2011; Badem et al, 2013).
In cost control, management develop standards on costs and/or the predicted cost values, and
analyse these estimated costs versus the actual costs. Through the use of standard costing
system, automobile firms can detect the departments that are consuming more costs in

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operation than the budgeted values. Standards are set for labour hour targets, motor vehicles
throughput figures and acceptable wastages in servicing motor vehicles.

When there is competition in the economy, the custom of measuring production efficiency can
be regarded standard cost (OCNEANU et al, 2012). According to Horngren et al (2012), the
standard cost approach denotes that standard costs are regarded as the real operational costs
before operations are complete. Rajan et al (2015) argued that costing calculation as a whole
commonly comes down to standard costs which are widely used as a base for setting selling
prices. The deviations of actual costs from standard costs provide information useful to
management in making cost related decisions.

According to Bhimani et al (2015), cost control is an exercise done by management of

managing the expenses of a business through the comparison of actual financial results with
the budget upon which the resource allocation was based, and analysing the variance. Jordan
(2011) argued that variance analysis is only made on significant deviations and it is based on
responsible centres and communicated to appropriate personnel for corrective action.

Siyanbola et al (2013) argued that cost control is stemmed from budgeting and team work.
Budgeting has its weakness of consuming production time, and if done frequently, the time
consumed may result in a significant opportunity cost for the business. In the motor industry,
production time wasted results in poor service delivery due to increases in the turnaround time.
Poor service delivery pushes customers away and the sales volume of the automobile firm fall.
On the other hand, team work requires a motivated workforce. When the employees are
demotivated, team work is rarely achieved yet it is the backbone of effective cost control (Datar
et al, 2013). Therefore, for budgeting to be effective, team work is needed. The relationship
between these two is fundamental in effective cost control in the motor industry. Since the
implementation of standard costing system to control costs of an entity calls for effective
communication and coordination within all departments of an entity, it becomes the objective
of management to keep all departments working together in adherence to set standards so as to
achieve effective cost control and profit maximisation.

2.2 COST MANAGEMENT CHALLENGES

In the midst of ensuring adherence to standards by monitoring and coordinating activities

within the entity, management is exposed to resistance from employees among other
challenges. Becker et al (2013) postulates that the most successful companies have the highest

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level of integration of people involved in the processes aligned to enable business profitability
and as such resistance of employees discourages business success. Cost management is an
exercise done by management of managing the expenses of a business through the comparison
of actual financial results with the budget upon which the resource allocation was based, and
analysing the variance (Horngren et al, 2013). Furthermore, Jordan (2011) argued that variance
analysis is only made on significant deviations and it is based on responsible centres and
communicated to appropriate personnel for corrective action.

Challenges faced in cost management often arise when there is no costing technique under
implementation to monitor costs or when the effected costing system is not being used
appropriately or effectively (Horngren et al, 2012). In addition, Periasamy (2010) asserted that
in an entity with a goal of profit maximisation, there is more likelihood of finding a costing
technique under implementation to monitor and reduce costs. Therefore, since the case study
firm has a profit maximisation motive, it has standard costing system under implementation.

Ngozi (2013) noted that the inappropriate implementation of a costing technique results
dominantly in cost management problems. De Waal (2013) postulated that there is need for
educating all employees of an entity about an installed costing system for the system to produce
desired results. Educating employees can be through seminars or workshops. Management
itself should be well versed with the costing system that it has implemented (Datar et al, 2013).
Standard costing system is a costing system that needs to be known thoroughly before it can
be effectively implemented to positively reduce costs. According to Badem et al (2013),
challenges with the implementation of standard costing system are synonymous to challenges
faced in cost management within an entity that uses standard costing system in cost control.

Kaplan and Atkinson (2015) noted that there are ideal standards, basic standards and expected
standards. Expected standards are based on expected performance and these are often attainable
because they are based on information received from the workers who have on-hands
experience. However the other standards lack consultation in setting them up. Failure to set
appropriate standards due to lack of consultation leads to increased wastages by workers in
operations which ultimately increase operating costs. Variance analysis to correct adversities
caused by such would not result in positive results. Laurie (2013) supported this when she
noted that workers have a tendency of being reluctant to increase their effort when management
excludes them in planning for matters that concern them.

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According to Heizer and Render (2014), the operations management play a key role in
effecting policies that govern the flow of inventories to and from an organisation since a firm
can only handle a certain quantity of inventory at a time. This means that when there are
standards for the quantity of spare parts that the automobile firm should store, there should be
policies implanted so as to ensure that the standard inventory level is maintained. Ineffective
policies for operations might lead to ineffectiveness of cost management since more inventory
trigger more storage costs and less inventory causes stoppages in vehicle service which results
in lost sales. Galbraith (2015) is of the opinion that to keep up to date with dynamics of
industries, management should be flexible and innovative in policy setting.

Poorly motivated staff discourage teamwork which causes coordination problems in an entity
(Laurie, 2013). In an automobile firm, if the workforce is demotivated, coordination amongst
departments lacks which causes additional operating costs such as telephone charges. An
example is the accounts and sales departments, when there is no coordination between these
departments, debt collection from customers gets costly due to further calls that one of the two
departments makes in the case that the debtor has queries with his/her account balance. De
Waal (2013) postulated that management has the obligation of monitoring company
performance in a way that increases the motivation level of employees.

A motivated workforce works as a team, and teamwork is recognised by Anderson et al (2013)

as a fundamental in effective cost management. Further research has also opined that team
work requires a motivated workforce. Management thus has to regularly sacrifice costs relating
to employee fringe benefits, involving workers in budgeting, holding periodical parties for
targets achievement among other efforts to motivate its workforce (Hanfy, 2013). Modern day
managers, who are often supervising considerably more individuals now the earlier managers
did, are delegating more tasks and responsibility to subordinates, which is commonly called
employee empowerment (Malone et al, 2013). Furthermore, Malone et al (2013) argued that
more employees find themselves with increased accountabilities, and managers act as coaches
who assist employees to solve problems, as compared to being decision makers who issue
commands and monitor compliance, and this empowerment of employees leads to staff
motivation.

Allocation of work to employees is another challenge faced in cost management. Sometimes

allocating a heavy workload on employees individually exerts pressure on them, regardless of
expected attainable standards set at start, they become unattainable in the process (Weygandt

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et al, 2015). In the motor industry, poor work allocation by management leads to rushed jobs
which are often defect jobs. Defect jobs increase customer complaints and they have to be
redone at zero charge. This causes unplanned additional costs.

For cost management to be effective, there is need for timely feedback for corrective action to
be done (Horngren, 2012). Management should educate workers on the essence of effective
communication within the entity as it is key in cost management. When feedback is received
late, the corrective action plan decided by management would have less value in correcting the
adversities since the motor industry is regularly evolving. In support of this, Galbraith (2015)
said that what is regarded as innovation in industries today, needs revision tomorrow. In the
motor industry, production time wasted results in poor service delivery due to increases in the
turnaround time. Poor service delivery pushes customers away and the sales volume of the
automobile firm decline.

In some cases, feedback is received in time from employees but management takes time to
decide on the corrective action. In fast changing economic conditions, the effects of delays in
correcting deviations from planned results in ineffectiveness in cost management. Management
should do periodical checks of progress through analysing weekly, monthly or quarterly reports
on operational performance and set periodical dates of analysing reported variances (Datar et
al, 2013).

Cost management is also hindered by the weaknesses associated with the implemented cost
control system. Badem et al (2013) noted that even if standard costing system is still widely
used in industries as a cost control tool, it has some weaknesses related to its implementation.

2.3 STANDARD COSTING IMPLEMENTATION PROBLEMS

Effective implementation of standard costing system technique is subject to the business

environment. Democratic or participative style of management and periodic performance
evaluations are necessary for standard costing to effectively control costs (Periasamy, 2010).
Commitment should be noted from both the management and the employees in working as a
team towards the achievement of targets. Marie et al (2010) argued that performance checks
through performance appraisals play a vital role in the management of the cost control system
as these provide management with more accurate information of the employees’ performance.
The shortage of either of these requirements distress successful implementation of standard
costing system.

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Standard costing system is difficult to implement in line with job processing where each job
would be having a distinct cost due to job specifications (Drury, 2013). However, in the motor
industry, jobs on customer vehicles are recognised as batches of either minor service or major
service. The procedures carried out on each job, whether major or minor, would be known,
structured and fixed, and standards can be easily set for work and variations analysed. It is in
this regard that, for effectiveness in cost control and profit maximisation at large, an entity
should appropriately implement standard costing system. According to Datar et al (2013),
implementation challenges often arise in the various stages of the standard costing system set
up, that is, either during set up of standards, following through operations to confirm adherence
to plan or during feedback stage.

Time consumption in standard setting especially when there is consultation of employees is

one of the problems encountered in standard costing implementation (Long Ho, 2011).
Standard setting on its own is an exercise that requires technical skills (Klychova et al, 2014).
In an automobile firm, the technicians in the workshop are the ones with the knowledge of
labour hours needed to complete a job because of their working experience. Developing a
reliable standard that is achievable will consume time. This time used up in standard setting
may imply an opportunity cost for vehicles that the automobile firm could have sold or
serviced. According to Bhimani et al (2015), standard setting and revision of standards is
commonly done in periodical intervals of six months or yearly so as to reduce time wastages
and costs related thereto.

Some standard costing systems are very intricate, therefore they are not well understood by
responsible management and the employees (Cunningham et al, 2014). For that reason, the
implementation of standard costing system gets difficult. This persuades for staff training
before proper implementation, and results in increased operating costs. Ultimately, the
standards will not be achieved and the main objective of cost control will not be fulfilled. For
workers to attain the set standards, there is need for management to educate them of the
strategies which they should adopt in doing work (Horngren et al, 2012). These strategies might
be making job follow through in an automobile firm, whereby the mechanic who has attended
to a problem on a customer vehicle, proceeds to test drive the vehicle himself/herself rather
than having another person do it.

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Standard setting can be subjective which makes standard setting difficult for management
which is constituted of individuals with various standpoints (Weygandt et al, 2015). An
organization can adopt various standards and these include; basic, theoretical, and achievable
standards (Drury, 2013). Henceforth, what is defined as a standard in an entity rests on its
management philosophy and that shows the subjectivity behind (Periasamy, 2010). In the
motor industry, an area that is often subjective in standard setting is the expected labour hours
from technicians. When standards are achieved, management can further revise the standards
till they get to a point that ensures profit maximisation. Without prior consultation, standard
costing implementation would not effectively produce desired results (Weygandt et al, 2015).

Marie et al (2010) noted that with a fast changing business environment, standards tend to get
obsolete. OCNEANU (2012) defines standard costing as a system of cost accounting that is
designed to find out the cost of a product under the present conditions. When the conditions
are not current, the accuracy of standards is distracted. This also implies that when standards
are set based on the present conditions, and those conditions change before the end of the
assessment period, the originally set standards become obsolete.

When the standards are obsolete, they maybe be an ideal reflection of the wanted results but
they would not be achievable (Ngozi, 2013; Marie et al, 2010). Revising the standards to match
with the change in conditions, results in increases in costs of administration and other expenses
related to standard setting and revision. It becomes a challenge that when the business
environment is frequently changing, standard costing becomes an ineffective and costly tool to
implement in cost control (Badem et al, 2013). With the competitive nature of the motor
industry in Zimbabwe, business environment conditions change regularly and that results in
the set standards of an automobile firm obsolete, resetting of standards results in additional
costs. Often times these additional costs would not be planned for by management.

After poor implementation of standard costing system, workers’ motivation declines,

management lose control over costs and profit maximisation becomes unachievable
(Periasamy, 2010). The problems relating to the implementation of standard costing system
would require management in its capacity to address and solve them so as to enhance effective
cost control.

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2.4 EFFECTIVE COST CONTROL

Effective cost control is a product of effective implementation of standard costing system for
an entity that uses standard costing system to control costs. As outlined by Horngren et al
(2012), effective standard costing implies that there should be effectiveness target setting,
resource allocation and administration, reviewing of actual results in relation to expected
results and documenting deviations, variance analysis and corrective action plan that enables
the elimination of the variations. According to Periasamy (2010), understanding
implementation procedures and the preliminaries for setting up the standard costing system
encourages effectiveness in implementation of standard costing system.

Study of technical aspects of factory is one of the preliminaries for standard costing set up.
This is a study of the processes done in the various departments found within an entity in which
costs and income are incurred and generated respectively. Trends of process resultants are
analysed during the study of technical aspects so as to ascertain the normal efficiency level in
each factory process (Groot, 2013). In a company within the motor industry, technical aspects
of factory includes the workshop division and its sub-divisions which are the panel beating
department, mechanic department, the vehicle selling department, as well as the motor spare
parts department. The administration and accounts departments also supplement the above
departments in cash management and its accountability. Factory setups differ from industry to
industry, and with the motor industry, the above mentioned departments form the basic setup
of automobile company structure. Periasamy (2010) believes that this study assists
management in successful standard setting since effective standard costs should be based on
actual situation in the entity and awareness of flaws within certain factory processes are
recognised and improved. Since the factory processes are studied in relation to factory
departments, there is need for clearly defining various departments within the entity as these
form the cost centres.

Defining cost centres is key in effective standard costing system because costs are incurred at
cost centres. Lamen et al (2013) defined a cost centre as an item of equipment, person or place
where costs may be incurred, then recorded and used in cost control. In an automobile firm, a
cost centre might be a technician, the workshop itself, administration department, panel beating
shop, parts department, and hoist for lifting vehicles during servicing, among others.
Identification of cost centres is vital in determining responsible centres for adverse variances
so that corrective action and rewarding for favourable variances can be easily done.

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Weygandt et al (2015) supported the importance of establishing responsible centres in cost

control when he asserted that there is a material relationship between responsibility accounting
and cost control. Responsible centres are managed by various persons and effectiveness in
managing cost centres, persuades to the need for clarification of line of control for effective
reporting of operations and management of cost centres.

Clarification of line of authority is also essential in effective cost control. Kaplan and Atkinson
(2015) noted that line of authority relates to supervisory roles, proper delegation to capable
personnel so as to reduce errors in doing work. Errors in doing work might result in additional
costs of re-working jobs and reducing errors also saves time. Working towards set standards
can be closely monitored and when concerns arise, the responsible manager can act quickly
(Klychova et al, 2014). When the communication channels have been clearly established, the
management can proceed to set the standards that they want to achieve.

Correct standard setting is a huge challenge especially in economies where conditions are ever
changing. Although management want to achieve certain targets, it should be noted that the
targets should be those which the available resources in the entity can achieve. Standards exist
in several types which include theoretical or ideal, expected or attainable and basic standards
(Kaplan and Atkinson, 2015).

The aim of management in effective cost control would be to set expected or attainable
standards. However, various scholars of managerial accounting noted that standard setting is
limited to available workforce, working hours, market base or even the management style
which might deny expected standards to be attained. All the above limitations should be
addressed during the study of technical aspects of the factory by management. Datar et al
(2013) highlighted that the standards to be set should be achievable and motivate employees to
work towards achieving them. When standards are too high, employees are demotivated and
their enthusiasm towards work will be reduced. However, when the standard is too low, it
causes relaxation in workforce and they end up putting less effort.

Management’s ability to fix the right standard costs, greatly affects the success of standard
costing system (Drury, 2013). For an automobile company, this implies that huge effort should
be put in coming up with the right standard for labour cost, motor spare parts cost and overhead
costs. Inability to fix correct standards, also result in the entity incurring standard setting costs
more frequently than what management would want (OCNEAU, 2012).

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In addition, Hanfy (2013) opined that an entity should have an established separate standard
committee that reviews the current standards of an entity and calls for correction to obsolete
standards. Periasamy (2010) noted that the standard setting committee should include
functional heads as representatives of all functions, such as workshop manager, parts manager,
cost accountant, service manager for a company within the motor industry. Having
representatives of all departments reduces the time taken in effecting corrections.

After standards are set, the policies of the company need to be reviewed in light of the standard
costing principles (Klychova et al, 2014). Policies plays a big role in enforcing workers to deem
the standard costing system seriously (De Waal, 2013). The existing methods and policies
regarding allocation and appropriation should be reviewed in the light of the standard costing
principles (Kimmel, 2013). When the costing system is taken seriously by workers, the
possibility of its effectiveness in cost control increases. One of the policies that can be effected
to encourage effective cost control is a policy that allows workers to be educated about the
costing system.

The staff concerned with the implementation of standard costing should be given proper
training before the introduction of the system so as to work with effectiveness and ensure
successful cost control (Datar et al, 2013). Training of staff might assist in motivating them
and bringing them together to work as a team. Jordan (2011) postulated that when all staff
members are aware of the standard costing system under implementation, management would
be left with effective variance analysis to make the system complete. Variance analysis
involves identification of deviations from set standards and analysing the reasons for the
deviations (Bhimani et al, 2015). Variance analysis is carried out by management as part of
cost control procedure (Drury, 2013). On the same note, Weygandt (2015) noted that costs exist
in either controllable costs or non-controllable costs, and it is only the controllable costs that
management can control.

2.4.1 Controllable and non-controllable costs

The concept of controllable costs falls under responsibility accounting, where the costs of a
centre or department can be controlled by the responsible manager of that department.
According to Kimmel (2013), the accumulation of costs in a section of the entity (cost centre)
and reporting on the level of the costs by the responsible supervisor who has control over the
operations of the section makes up responsibility accounting.

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Weygandt et al (2015) defined a controllable cost as the amount in a responsibility centre that
is significantly influenced by the decisions and actions of the manager of the responsible centre.
Non controllable costs are therefore costs that are not significantly influenced by the actions of
the management. Controllable costs are related to a particular managerial area of responsibility,
the head of the responsibility centre has significant influence on its controllability and they are
relevant for the time period under review (Weygandt et al, 2015)

From the first characteristic, for the top management responsible for the whole company, it
means that any cost incurred by the firm is their responsibility, hence controllable. Siyanbola
et al (2013) noted that all costs are controllable when the company is viewed as a single entity.
This implies that costs are uncontrollable only at intermediate and lower levels of management.

2.5 IMPACT OF STANDARD COSTING SYSTEM IN MOTOR INDUSTRY

The motor industry is an industry that is ever changing with new technology being introduced
and other costing techniques such as Activity Based Costing coming up to challenge the
traditional standard costing system in cost control (Marie et al, 2010). On another note, Ngozi
(2013)’s research in Nigerian manufacturing companies concluded that although there are other
costing techniques being introduced, standard costing system still leads to improved
profitability within manufacturing firms. However, Long Ho (2011)’s research established that
certain scholars argued that standard costing system’s effectiveness in cost control has been
affected by new technology in Toyota Japan which has caused standard costs setting difficult,
for example, labour costs became difficult to ascertain because of the increased use of
machinery in substitution for workers’ labour. A study of the Turkish automotive industry
concluded that, regardless of the changes in the business world at large, standard costing system
remains a very effective tool in cost control (Badem et al, 2013). From the above mentioned
research papers, it can be concluded that the benefits attached to the implementation of standard
costing system in the motor industry have justified the continuous existence and
implementation of this costing system in the industry.

Standard costing facilitates cost reduction through a framework of maintaining costs within the
budgeted figures. Every costing system aims at cost control and cost reduction. The standards
are being constantly analysed and an effort is made to improve efficiency. The standard costing
system gives room for evaluation of the variations after an assessment period. Horngren et al
(2013) postulated that standard costing leads to effective cost reduction. This means that by

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effectively keeping costs in the budgeted levels, the automobile firm reduces unplanned
additional costs over time. Drury (2013) noted that budgets provide the foundation of standard
costs. An example is the control of fault jobs on customer vehicle. Maintaining the number of
defect jobs in the budgeted levels will reduce additional free service expenses.

The standard cost is used as a guide in coming up with the selling price since it forms the
expected production or service cost to which the profit component is added to derive the
standard selling price (Cunningham et al, 2014). Therefore, standard costing system simplifies
pricing of vehicle service charges and motor spares in an automobile firm. After a period of
noting down the price variations of various suppliers of motor spares or studying the market
prices of motor spares, an automobile firm can use standard costing system to peg a certain
price for acquiring a specific motor spare in the beginning of a reporting period. The standard
value is what is used to determine the selling price of that motor spare by adding a mark-up to
it (Bhimani et al, 2015). In the course of the period, all motor spares will be sourced with the
pegged acquisition price in mind. If all motor spares are successfully purchased within the
pinned purchase price values, the firm would have successfully implemented standard costing
method to price its motor spare parts (Long Ho, 2011). By doing so, the firm increases its profit
maximisation capability.

Standard costing system supports the valuation of inventory. When the number of inventory
units existing is identified, the inventory value is then reached at by multiplying the existing
units by the standard cost per unit (Bhimani et al 2015). When a stocktake is carried out, the
inventory is revalued (SET Year-end Stocktake Report, 2014). For the motor industry, when
the motor spares in the shelves do not tally with the quantities binned in the computer system,
at end of the stocktake, an inventory valuation is carried out. The new quantity of inventory
that is multiplied by the inventory price would be the physically present quantities in the
shelves. Valuation reports sent to management also assist the management in making informed
decisions of how to control theft and wastages of motor spares.

Motivation of employees is enhanced through the use of standard costing system. According
to De Waal (2013) maximum participation is required from all members of the organisation
when standard costing system is being appropriately implemented. The full participation
triggers a zeal of goal achievement in the personnel of the organisation which has a motivating
effect and the employees feel more responsible to the decisions made regarding cost control.

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Moreover, when the employees have successfully managed to meet the set standards, the
feeling of achievement motivates them.

Standard costing system comes with elimination of inefficiencies such as material wastages.
Various cost elements calls for in-depth study of the aspects that results in cost upsurges and
this thorough study ultimately result in the curbing of unnecessary wastages resources (Kaplan
and Atkinson, 2015). Studies are carried out on each and every possible cost centre so that
when it is finally decided to set anticipated results, they will be comprehensive of as many
factors as possible (Anderson et al, 2013). When wastages are eliminated in the servicing of
motor vehicles, costs of over-consumption of material are reduced. For the administration
department, recording of all stationery items upon issuing of new stationery is another way of
keeping costs to estimated levels.

This costing system also supports management by exception in that focus is put on correcting
the responsible centre. According to Long Ho (2013), management by exception basically
means that the management supervise all the operations and each and every member of the
organisation is expected to work towards the attainment of targets. Through variance analysis,
the attention of management is directed to the activities within the entity that are not performing
in line with standards (Heizer & Render, 2014). The time that management save in focusing to
points of correction can be ploughed in other activities that are not cost related but are in line
with profitability maximisation, such as identifying new markets to exhaust. Management’s
focus is attracted more when there are adverse deviations, such as when more costs were
incurred than what was expected (Klychova et al, 2014).

There is simplification of performance appraisal through the use of standard costing system
(Datar et al, 2013). It has been established by various scholars that standard costing develops
cost awareness within the entity. When there is cost awareness in the entire entity, it is easy for
management to carry out variance analysis. When performance is evaluated and targets met,
management can organise for a party to motivate the employees and encourage them to keep
putting their maximum effort in work (Laurie, 2013).

Standard costing remains a widespread tool for businesses because it does result in reduced
costs and in many Japanese companies such as Toyota Japan, the use of standard costing has
significantly reduced costs (Long Ho, 2011). However, the business environments in Japan and

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other foreign countries that were used in testing for the effectiveness of standard costing in cost
control differs from the one in Zimbabwe where the case study operates in.

2.6 SUMMARY

The chapter comprised of the introduction, an establishment of the relationship between

standard costing system and cost control, a discussion of cost management problems,
identification of the challenges faced in standard costing implementation, discussion of the
ways of effective cost control and a deliberation of the reasons for using standard costing
system in the motor industry. Chapter Three will illustrate the research methodology of the
study, showing the methods the researcher will use on the study.

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CHAPTER THREE
RESEARCH METHODOLOGY

3.0 INTRODUCTION
This chapter focuses on giving insights into the methods employed in the collection and
analysis of data during the research. Flick (2015) expounded a research methodology as a
defined avenue that a researcher takes in solving a problem addressed by the research. The
research design, population studied, sample size and design, sample procedures, sources of
data, data collection instruments, reliability and validity of data, data presentation and analysis,
ethical considerations are all included in this chapter. A summary to the chapter is also included
at the end of the chapter.

3.1 RESEARCH DESIGN

A research design stands a course which the researcher follows in the collection of data and its
analysis, up to a point where a reliable conclusion is reached from the data (Harwell, 2011).
The above implies that a research design is the ultimate plan for relating the theoretical research
problems to the relevant empirical concern. Harwell (2011) further deliberated that identifying
a study’s research design is vital as it reflects information about main features of the study.
Flick (2015) noted that a research design can either be descriptive or explanatory. The research
used the descriptive research design. According to Bryman and Bell (2015), a descriptive
research design is a structured research design that provides a valid and accurate representation
of the variables that relate to the research questions.

A mixed research method was used in conjunction with the descriptive research design.
Cronholm & Hjalmarsson (2011) defined a mixed research method as a combination of
qualitative and quantitative approaches to data collection that can be implemented sequentially
or in parallel. Bryman & Bell (2015) argued that mixed method approach to data collection
might cause challenges due to the possible incompatibilities of qualitative and quantitative
research methods. However, Cronholm & Hjalmarsson (2011) opined that the difference of
scope in the two methods is useful in a comprehensive research as the approaches can support
each other in data collection where both the qualitative and quantitative aspects of data are
collected. Another justification for mixed method approach by Harwell (2011) is that both
qualitative and quantitative approaches address the how and why research questions that are
commonly asked in research studies. Heyvaert & Onghena (2011) also argued that mixed

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synthesis is useful in deep and comprehensive understanding and corroboration of the research
matter as numerical data is collected under the quantitative approach and words are collected
under the qualitative approach.

The mixed research approach can be implemented on a case study or a survey (Harwell, 2011).
The researcher used the case study. A case study research focuses on a particular case problem
and therefore provides an even more accurate representation of variables to the research
questions (Girden & Kabacoff, 2011). On that note, Yin (2013) defined a case study research
as an approach to research that allows the exploration of a phenomenon within its context
through the use of data sources. Yin (2013) further opined that case study research design is
used when there is need of answering how and why questions, and when covering contextual
conditions relevant to the phenomenon under study. In addition, Daniels (2011) described a
case study research as a comprehensive study of a particular research problem instead of an
extensive statistical study. By focusing on a specific case, the researcher managed to use the
descriptive research design to comprehensively address the research matter.

3.2 STUDY POPULATION

A population is a collection of all the subjects that are to provide the researcher with research
data (Mitchell and Jolley, 2012). Ritchie et al (2013) postulated that a research population also
includes members who are related to the research topic and/or its relevant features. South East
Toyota (Pvt) Ltd has a total number of fourteen employees and these formed the study
population for the research.

Table 3.1- Study Population

Description Population
Management 4
Accounts clerk 1
Technicians 4
Attachés 1
Parts sales personnel 1
Receptionist 2
General Hand 1
Total 14

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3.3 SAMPLE SIZE AND DESIGN

A sample size is the number of members from a study population who provide data during the
research (Ritchie et al, 2013). The sample size differ from organisation to organisation
depending on the size of the organisation and the complexity of the problem under study
(Harwell, 2011). Sample sizes can be the whole population (census) or just a portion of the
whole population. The fact that sample sizes differ from entity to entity, exposes the need of
developing a sample design before carrying out the research so as to collect adequate data.
According to Bryman and Bell (2015), sample designs exist in various forms and in coming up
with the best sample design, the researcher takes into account the sample size. The sample size
that was chosen by the researcher for questionnaires was fourteen, which was the entire
population and two for interviews. Since the organisation’s population is relatively small,
issuing questionnaires to all members produced inclusive research data. Receptionists and
general hand workers were included in the sample because of their contribution to operating
costs of the business.

Table 3.2- Sample size

Description Population Sample size Sample %

Management 4 4 100%
Accounts clerk 1 1 100%
Technicians 4 4 100%
Attachés 1 1 100%
Parts sales person 1 1 100%
Receptionists 2 2 100%
General hands 1 1 100%
Total 14 14 100%

3.4 SAMPLING PROCEDURES

Sampling is defined as a process of collecting data from a portion of a group of members basing
on a certain criteria so that the selected portion would present a true representation of the whole
group (Denscombe, 2014). Sampling procedures consisted of the various criteria used in
coming up with samples during data collection. According to Bryman & Bell (2015), sampling
procedures include random, stratified, cluster and systematic sampling. The researcher carried
out a systematic sampling of the whole population. Flick (2015) defined a census as a
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systematic collection of data from all the subjects making up the entire population. An
advantage of carrying a census was that it increased the reliability of research feedback since
all members from the population were part of data collection.

3.5 SOURCES OF DATA

According to Hair et al (2015), data are the supporting evidence of the research that validates
a research study. Various sources of data are relied upon in carrying out a research. Many
scholars on business research methods have argued that the wider the sources of data, the more
comprehensive and helpful the research findings will be. Hair et al (2015) furthermore
postulated that the research environment provides the sources of data. Data sources resulted in
data being categorised under primary data and secondary data.

3.5.1 Primary Data

Primary data is a collection of all the data that the researcher collected personally at first hand.
It can be obtained through surveys, observations, experiments, interviews and questionnaires
(Remler & Van Ryzin, 2011). According to Blaxter et al (2010), primary data is a necessary
part of validation of a research study since the data collected is specific to the study matter.
Primary data proved the relevance of the case study for the research. Primary data collection
was tailored to meet the specific needs of the researcher as interviews questions were altered
in relation to individuals that were being interviewed.

3.5.2 Secondary Data

According to Bryman & Bell (2015), secondary data is the data that was collected by other
parties other than the researcher and collected from secondary sources. Secondary sources used
included organisational records such as management accounts & meeting minutes, business
unit report, annual business plan, weekly performance reports, annual financial budgets and
sales reports. Secondary data was easy to access from the company’s archived files as it was
after management approval. The researcher managed to get access to the management accounts
of the company for the past three annual reporting periods.

3.6 DATA COLLECTION INSTRUMENTS

In carrying out the research, the researcher used the questionnaires and interviews to collect
reliable data. Secondary data also supplemented the questionnaires and interviews carried out.

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3.6.1 The Questionnaire

According to Blaxter et al (2010), a questionnaire is the concept of using questions and other
forms of actuations as research instruments in the collection of information from respondents.
A questionnaire is structured by the researcher so that a desired result is achieved. Questions
are drafted to address the research questions so as to enable the researcher to reach a certain
conclusion. The Likert scale, open ended and closed questions types of questions that are found
on questionnaires (Flick, 2015). The researcher made use of the open ended questions and the
Likert scale type of questions in collecting information from respondents.

Open ended questions are those unrestricted questions which have unrestricted responses
during answering by the respondents (Girden & Kabacoff, 2011). This means that respondents
can answer the asked question in their own words and expression. Open ended questions are
very useful in addressing complex and controversial matters as they are used in searching for
additional information (Hair et al, 2015). Since respondents were free to express their answers
without any restrictions, the responses were helpful since they disclosed some areas of concern
missed by the researcher during structuring the questions. However open ended questions took
more time to obtain feedback from responses since each respondent had to fully express
himself/herself in answering the questions.

In addition, the researcher used the Likert scale type of questions to collect information from
respondents. The Likert scale is a rating frequency scale developed by Rensis Likert that is
similar to a closed question or multiple choice questions but only differs in that it provides
intervals for question answering (Girden & Kabacoff, 2011). It uses fixed response choice
formats to measure opinions, attitudes or views of respondents by asking them their level of
agreement and providing their response choices ranging from ‘strongly agree’ to ‘strongly
disagree’ (Likert, 1932). It is normally used when responses for more personal information
about respondents is required, such as age. A benefit of the Likert scale was that it was easy to
understand and for that reason, respondents did not have to put much effort when answering.
Data was tabulated using the Likert Scale and this eased data analysis for the researcher.

Table 3.3- The Likert Scale

Remark Strongly Agree Agree Neutral Disagree Strongly Disagree

Points 3 2 1 4 5

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3.6.2 Questionnaire Administration

In the process of data collection through questionnaires, the researcher issued the questionnaire
forms to the respondents after an explanation of the need for the respondents to complete the
questionnaire. The respondents were given a minimum of sixty minutes to complete the forms.
During this time, the researcher moved around assisting respondents who needed help
understanding some of the questions asked on the questionnaire. When the time elapsed, the
researcher moved around the departments collecting the questionnaires from all the
respondents. The researcher ensured that no other member of the organisation went through
the responses after collection by attending the interviews with all the collected questionnaires.

3.6.3 Interviews
Interviews were also used by the researcher in data collection. An interview is defined by
Remler and Van Ryzin (2011) as a mutual conversation between two parties, one being the
interviewer and the other being the interviewee, with the aim of the interviewer gaining
sufficient information about the interviewee. Many scholars regard an interview as the most
common type of primary data collection. Carrying out interviews allowed the researcher to
restructure questions to meet the various persons being interviewed. The accounting personnel
and management where interviewed since they are more closely related to cost control than the
rest of the staff. Some questions were even tailored to meet the attitudes of the interviewee so
that the researcher would get the most from the interviews. Interviews facilitated quick
feedback than questionnaires.

Face to face interviews and telephone interviews can be used in carrying out a research. Face
to face interviews are a dialogue between the interviewee and the interviewer done in the
physical presents of both parties (Ritchie et al, 2013). Face to face interviews enabled the
interviewer to assess the non-verbal cues from the interviewee which resulted in
comprehensive data collection. Telephone interviews are a dialogue of the interviewee and
interviewer via the telephone call.

3.6.4 Interview Administration

The researcher carried out one face to face interview with a representative from management
personnel and no telephone interview was conducted. The session lasted forty minutes. The
interviewee was provided with the interview guide to refer to during the interview session. The
interviewer asked each question and jotted down the response of the interviewee whilst taking

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into account the non-verbal cues that came with each response. The interview session provided
the researcher with other relevant data that he had not included in the questions.

3.7 RELIABILITY AND VALIDITY

Reliability is a measure of confidence that the users of the research would have on the findings
of the research (Denscombe, 2014). A reliable research enables another researcher to reach a
similar research conclusion using the same research method used by the researcher in
addressing the issues in the current research. In coming up with the research, the researcher
made use of authentic sources to gather research data. Interviews and questionnaires were
structured in a way that addressed the research questions of the study. In furtherance, validity
is the measure of the research’s ability to address all the issues that it purports to address (Hair
et al, 2015). The researcher ensured validity of the research by making use of the research
instruments that best fit the study and by gazetting questions for respondents that were pertinent
to the research.

3.8 DATA PRESENTATION AND ANALYSIS

Data presentation is the displaying of collected data in a manner that is easy to understand in
the form of graphs, charts and tables (Christensen et al, 2011). Data presentation gives a quick
visual impact of the dispersion and organisation of data such that even those who have less
knowledge of the data in discussion can easily understand the message being communicated
by the data. Since the mixed research method was used in data collection, there were
differences in the presentation of qualitative and quantitative data. For quantitative data results,
bar graphs, pie charts and frequency tables were used to ensure comprehensive presentation
and for qualitative data presentation, descriptive writing was used. Tables were used since they
were simple to understand in data analysis. For interviews, responses were summarised. These
presented all that was said by the interviewee.

Data analysis disintegration of all the collected data into segments, constructing abstracts,
identifying trends and linking the results to the statistical system (Remler & Van Ryzin, 2011).
In data analysis, the research findings are related clearly to the research questions and the
reliability of findings to the research theory and its related concepts. The researcher made use
of the graphs, charts and tables to interpret, arrange and develop data into sects that revealed
useful information which the research used to base research conclusions. The researcher
analysed the data that was collected from both secondary and primary sources.

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3.9 ETHICAL CONSIDERATIONS

Ethics commonly refer to the generally accepted standards of right and wrong in human
behaviour (Bazley et al, 2014). Ethical issues sometimes cause the respondents to withhold
vital information during data collection which would affect the reliability and validity of the
data.

To ensure confidentiality and obscurity of the collected data, the researcher assured the
respondents that the information they gave was to be kept confidential and their identities were
not to be disclosed for the information they gave. The researcher stored the collected data in a
safe place that contained security a lock to access. In the questionnaires given, no name or
respondent identification was requested prior to question answering. This ensured data
confidentiality and obscurity.

Another ethical matter considered by the researcher was informed consent. The researcher
issued a consent form which was filled in by the respondents before the collection of data.
Before information could be used in the research it was important that consent be obtained
from the respondent. This involved the completion of a consent form. The research gathered
knowledge on how to carry out a research before data collection. Through the researcher’s
knowledge of data collection, the researcher managed to convince them for the essence of the
research to an extent that their participation was voluntary. Therefore, the researcher managed
to retain the objectiveness of the study throughout the research by taking the possible related
ethical matters into consideration.

3.10 SUMMARY
This chapter comprised of the introduction, research design, study population, sample size and
design, sampling procedures, sources of data, data collection instruments, justification of data
reliability and validity, data presentation methods and analysis, and the ethical considerations
of the study. Chapter four will be the presentation, analysis and interpretation of the research
findings.

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CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS

4.0 INTRODUCTION
The main objective of data presentation was to establish and validate the issues surrounding
ineffective cost control through the effected standard costing system. Demographic matters,
cost related concerns and profit maximisation related issues were presented and analysed in
this chapter. At the end of the chapter, there is a summary to the chapter.

4.1 QUESTIONNAIRE RESPONSE RATE

The researcher issued fourteen questionnaires but responses were obtained from eleven
participants. The set-backs that caused the other three members not to respond included that
two of the workers had taken leave days and the other one was no longer with the firm due to
employment contract termination. The response rate has been tabulated below in Table 4.1
clearly showing the distribution of questionnaires issued against the response level.

Table 4.1- Questionnaire Response Rate

Job Description Population Issued Returned Response

Questionnaires Questionnaires Rate%
Management 4 4 3 75%
Accounts Clerk & Attachés 2 1 1 50%
Technicians 4 4 4 100%
Parts sales person 1 1 1 100%
Receptionists 2 2 1 50%
General hands 1 1 1 100%
Total 14 14 11 78.57%
The response rate of 79% represents the majority of the population under study, thereby making
the response rate reasonable for use as a basis in making analysis and recommendations to the
primary data collected.

4.1.1 Employment period

The researcher asked the respondents on the period to which they have been working for the
company so as to confirm if they were present during the three year period (2012 to 2014)
covered by the study. The period that they had with the company also suggests their level of
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knowledge of the company’s operational structure which affects the implementation of the
costing system. The responses pertaining to the period of employment have been presented in
Figure 4.1 below.

Over 8 years 0-1 year

18% 18%

6-8 years
27%

2-5 years
36%

0-1 year 2-5 years 6-8 years Over 8 years

Figure 4.1- Employment period

The above pie chart signifies that at the time of data collection, only 18% workers had a year
or less in the company, 36% had 2-5 years, 27% had 6-8 years and another 18% had over 8
years with the company. It can be noticed that the majority of the respondents had been with
the company for 2-5 years, as represented by the 36% response rate. This suggests that more
respondents had knowledge and/or experience with cost control efforts and tactics that were in
place in the period under study of 2012 to 2014. Therefore, it is assumed that their responses
were reliable and can be reasonably used as a basis of making recommendations by the
researcher.

4.1.2 Qualification level

Respondents were questioned on their highest level of education so that the researcher could
establish the reliability of the research findings collected from them. According to Christensen
et al (2011), the more educated the respondents, the more reliable the research findings will be.
Table 4.2 below presented the findings of the highest educational qualification of workers at
South East Toyota (Pvt) Ltd.

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Table 4.2- Qualification level

Qualification level Percentages

‘O’ Level 27%
‘A’ Level 0%
Certificate 37%
Diploma 27%
Under Graduate Degree 9%
Post Graduate Degree 0%
Total 100%
From the above table, of the 11 respondents, 27% of the population had ‘O’ Level, no one had
‘A’ Level as highest qualification, 36% had certificates, 27% had diplomas, 9% had an under
graduate degree and nun had a post graduate degree. Though most of the population have
experience, Horngren et al (2012) argued that the lack of highly qualified personnel sometimes
affects negatively to the effective implementation of costing systems.

4.1.3 Department of operation

The researcher asked the respondents to indicate their various operational departments so that
when analysing research data, the researcher easily weighed the responses on cost control
questions in relation to the department of operation. Table 4.3 below presents the distribution
of the respondents with their departments of operation.

Table 4.3- Department of operation

Department Percentages
Workshop 46%
Accounts 18%
Parts 18%
Administration 18%
Total 100%
The workshop department consisted of 46% which was 28% (46-18) more than the other three
departments. Since costs mainly arose from the operating activities of the company, having the
largest number of respondents from the workshop department which is core in the operations
of the company suggested that the greater part of the data collected was from personnel that
was more aware of the company’s cost control efforts and targets.

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4.1.4 Standard costing system implementation

This question was asked so as to assess whether the employees of the firm were aware of the
costing system under implementation to control costs or not. The responses collected have been
presented in table 4.4 below.

Table 4.4- Standard costing system implementation

Responses Percentages
Strongly agree 27%
Agree 64%
Neutral 9%
Disagree 0%
Strongly disagree 0%
Total 100%
From the above table, 64% of the respondents agreed, 27% strongly agreed and only 9% were
not sure if there was a costing system under implementation. The majority of the population
knew that standard costing system was being implemented to control costs and no one from
the respondents disagreed, meaning that the cost control system was known. Siyanbola et al
(2013) noted that when the cost control efforts of an organisation are known across board, then
it becomes easier to develop supporting approaches and policies that ensure effective cost
control.

4.1.5 Effective cost control through standards setting

The objective of asking this question was to ascertain if employees were aware of the first and
determining stage of an effective standard costing system which is the setting phase. Their
responses would reflect whether challenges in the setting phase where because of lack of
awareness or understanding. The responses collected have been presented below.

Table 4.5- Effective cost control through standards setting

Responses Percentages
Strongly agree 18%
Agree 82%
Neutral 0%
Strongly disagree & Disagree 0%
Total 100%

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With 18% strongly agreeing and 82% agreeing, it can be realised that the respondents were
aware that standard setting is an effective way of controlling costs. This then infer that
employees acknowledge that standard costing system has potential of effectively controlling
costs within the entity. According to Bhimani et al (2015), standards setting forms the core of
cost control and when achievable standards are set, effective cost control is realised.

4.1.6 Annual budgets’ effect in standard setting

The goal of the question was to gather findings on the respondents’ knowledge on the role of
budgeting in cost control using standard costing system.

Strongly Disgaree 0%

Disagree 9%
Responses

Neutral 27%

Agree 37%

Strongly Agree 27%

0% 5% 10% 15% 20% 25% 30% 35% 40%

Percentages
Strongly Agree Agree Neutral Disagree Strongly Disgaree

Figure 4.2- Annual budgets’ effect in standard setting

Figure 4.2 above showed that 27% respondents strongly agreed and 37% agreed that the
standards were derived from budgets prepared at the company. On the other hand, 27% were
not sure if annual budgets were prepared for standards setting purpose and the remaining 9%
disagreed that budgets prepared had an effect in standard setting. The 27% who disagreed and
the 9% who were not sure signified that the relationship of yearly budgets with standard costing
system was not effectively communicated in the company. Laurie (2013) noted that
communication is key in the attainment of organisational goals. According to Drury (2013),
standards are derived from budgets that are prepared and the budget figures are a composition
of departmental estimated inflows and outflows of resources.

4.1.7 Responsibility of management for standard costing implementation

To determine if employees knew their role and that of management in the implementation of
standard costing system, the researcher asked this question. Figure 4.3 below illustrates the
findings.

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80% 73%

60%

40%
18%
20% 9%
0% 0%
0%
Strongly Agree Agree Neutral Disagree Strongly
Disagree
Strongly Agree Agree Neutral Disagree Strongly Disagree

Figure 4.3- Responsibility of management for standard costing implementation

Figure 4.3 above show that 91% (18% strongly agreed + 73% agreed) of the respondents were
of the view that management is mainly responsible for the implementation of standard costing
system and only 9% disagreed. However, the implementation of the costing system is a
responsibility of all personnel of the organisation with management monitoring the
implementation process (Denscombe, 2014). This entails that, there is need for the management
to educate further its employees on the implementation of the costing system for it to be
effective in cost control.

4.1.8 Factors affecting cost management

The researcher asked the question so that respondents would indicate the problems that affected
the management of costs within the entity. The management of costs also relates to the
management of activities that relate to standard costing system implementation. Figure 4.4
below presents the responses received from respondents.

Poor Staff Motivation Poor work allocation Lack of communication

100% 73%
82%
80% 37%
18% 18% 18%
60% 9%
40% 9% 9% 9% Lack of communication
0%
9% 9% Poor work allocation
20% 0% 0%
Poor Staff Motivation
0%
Strongly Agree Neutral Disagree Strongly
Agree Disagree

Figure 4.4- Findings on factors affecting cost management

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From the figure 4.4 above, 82% agreed that staff motivation is the leading factor in cost
management at the company, 9% were neutral and another 9% disagreed. Following up was
poor allocation of work by supervisors which had 73% who agreed, 9% who strongly agreed
and 9% who were neutral. Lastly, the lack of communication had 36% who agreed, 9% who
strongly agreed, 18% were neutral, another 18% disagreed and the remaining 18% strongly
disagreed. The above responses point toward that management needs to look into the ways in
which it can motivate its employees so as to effectively manage costs in the company. Laurie
(2013) pointed out staff motivation as key in ensuring effective management of activities within
the entity.

4.1.9 Standard costing implementation difficulties

This question’s objective was to find out the standard costing implementation challenges being
encountered at the company. The responses collected are presented below in Figure 4.5.

80%
Standards setting subjectivity Employees' resistance
70%
73% Corrective ation delays Frequent standards setting
60%
Percentages (%)

50% 45%

40% 45% 36%

30%
55%
27% 18%
20%
18% 27% 18%
10% 18%
0% 0% 9% 0% 9% 0% 0% 0% 0%
0%
STRONGLY AGREE AGREE NEUTRAL DISAGREE STRONGLY DISAGREE
Responses

Figure 4.5- Standard costing implementation difficulties

From the figure above, it can noted that the majority of respondents agreed that the problems
listed in the question were being encountered in implementation of the costing system in the
company, with standards subjectivity having 73%, employees resistance with 45%, corrective
action delays with another 45% and frequent standards setting with 56%. As noted by
Weygandt (2015), if management address costing system implementation problems, there will
be an upturn in effective cost control. On the same note, Becker et al (2013) highlighted that
an important aspect of process-focused thinking in a company is the horizontal cooperation of
all participants in achieving a common goal. Taking standard costing system as a process to

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cut costs in an entity, it implies that employees’ resistance affects its implementation to
successfully cost control.

4.1.10 Consequences of cost increases

After determining the challenges in costing system implementation and cost management, the
researcher had to discover the resulting effects of cost increases which were caused by the
identified challenges. For that reason, this question was asked. The collected results have been
presented in table 4.6 below.

Table 4.6- Consequences of cost increases

Responses Poor Manpower Rigid tech Clientele Incurrence

Pricing Shortage advancements loss of losses
Strongly agree 9% 37% 0% 18% 27%
Agree 45% 18% 27% 27% 45%
Neutral 27% 27% 18% 18% 0%
Disagree 18% 18% 37% 37% 27%
Strongly disagree 0% 0% 0% 0% 0%
Total 100% 100% 100% 100% 100%

From the data tabled above, 45% agreed and 9% strongly agreed that there were pricing
challenges as a result of cost increases, another 37% strongly agreed and 18% agreed that
manpower shortages arose as a result of increasing costs, 73% agreed to that there were
rigidness in technological developments such as up to date application software to use due to
increases in costs, clientele loss and losses were also identified as resultants of increasing costs
with response percentages of 18% (strongly agreed) and 27% (agreed), and 27% (strongly
agreed) and 45% (agreed) respectively. These results will be areas of regular check in
confirming the changes in effectiveness of the costing system since they arose because of poor
implementation of the costing system (Horngren et al, 2012). With pricing, OCNEANU et al
(2012) postulated that in a market economy where prices are predicated by confronting supply
and demand, pricing and tariff fees are regular, which causes instability for the standard value
over time. According to Marie et al (2010), the problems related to standard costing
implementation, result in costs of the entity increasing since standard costing system is there
to reduce costs.

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4.1.11 Schemes that ensure effective cost control

The objective of asking this question was to ascertain if respondents were knowledgeable of
the various schemes that the company was employing to curb the rising costs. In the table
below, the respondents who strongly agreed and agreed were categorised under column YES,
those who were not sure under NEUTRAL and those who disagreed and strongly disagreed
under column NO.

Table 4.7- Schemes that ensure effective cost control

Responses Percentages
YES NEUTRAL NO
Monthly Management accounts 64% 27% 9%
Weekly management meetings 82% 9% 9%
Weekly cost reports 82% 18% 0%
Consultation in setting standards 45% 18% 36%
Quarterly performance appraisals 36% 45% 18%
Staff training 27% 18% 55%

Table 4.7 above shows that respondents were 64%, 82% and 82% aware that management
accounts, weekly management meetings and weekly cost reports respectively were schemes
effected to ensure effective cost control. However with consultation in standards setting,
quarterly performance appraisals and staff training, most respondents were either not sure or
disagreed that the schemes were put to ensure effective cost control as it was supported by 18%
neutral and 36% who disagreed for consultation, 45% neutral and 18% disagreed that quarterly
performance appraisal were being used to curb costs rises, and for staff training as a cost control
scheme, 18% were neutral and 55%. According to Kaplan & Atkinson (2015), the above stated
schemes are a further breakdown of a costing system to ensure that the intended goal of cost
effectiveness is achieved.

4.1.12 Effectiveness of the reporting system

This question enquired on the effectiveness of the reporting system so that the researcher would
assess the level of communication within the entity. Figure 4.6 below presents the collected
data from respondents on the question.

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60%
55%
50%

40% 36%
Percentage

30%

20% 9%
10% 0% 0%
0%
STRONGLY AGREE AGREE NEUTRAL DISAGREE STRONGLY
DISAGREE
Respondents

Figure 4.6- Effectiveness of the reporting system

It can be noted that 55% responded that management was not giving feedback on weekly cost
reports, 9% were neutral, 36% agreed and there were none who either strongly agreed or
strongly disagreed that management gave feedback on cost reports. Cost reporting plays a key
role in effective cost control since it provides management with information to base cost related
decisions on and take possible corrective action in time (Hanfy, 2013).

4.1.13 Cost control through monthly stocktakes

The aim of asking the question was to find out the view of employees on the use of monthly
stocktakes in complementing standard costing system cost control. Table 4.9 below presented
the responses collected.

Table 4.8- Cost control through monthly stocktakes

Responses Percentages
Strongly agree 18%
Agree 73%
Neutral 0%
Disagree 9%
Strongly disagree 0%
Total 100%
The table 4.8 above showed that 18% strongly agreed, 73% agreed, 0% were not sure, 9%
disagreed and 0% strongly disagreed that monthly stocktaking was a cost control measure.
Although Drury (2013) postulated that stocktaking reduces wastages which ultimately reduces
costs, carrying out stocktakes on a monthly basis gets to be costly in an entity that is struggling

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to maximise profitability as the monthly stocktakes adds operational costs that an entity can
only avoid by reducing the frequency of carrying out the stocktakes.

4.2 INTERVIEWS
The research carried interviews to further obtain research data to use in deriving conclusions
and recommendations to the research matter.

4.2.0 Interview Response Rate

The researcher conducted an interview with a member of the company’s management and
figure 4.7 presents the response rate.

50%

Successful
50% Unsuceesful

Figure 4.7- Interview Response Rate

From the figure above, interviews were 50% successful. Of the two management personnel
that the researcher wanted to interview, one was conducted. The reason was that one of the
prospective interviewees was busy with work so one representative attended the interview.

4.2.1 Interview analysis

4.2.2 Legal status of the entity
The legal status of the entity was asked since an analysis of management accounts and business
reports had showed that centralisation of decision making responsibility especially for
relatively small cost matters was affecting effective cost control at South East Toyota. The
interviewee said that South East Toyota is a private limited company that operates under Croco
Holdings, thereby making it a more of a subsidiary of the holding company. The interviewee
further stated that the company is governed by both Toyota Zimbabwe policies and Croco
Holdings policies since it owes its existence to both. This relationship affected operations
management of the entity and ultimately cost control.

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4.2.3 Company performance from 2012 to 2014

According to the interviewee, the company incurred annual losses for the past 3 years (2012 to
2014). He pointed out that due to the losses incurred, the company failed to maintain the market
share that it used to have and it had to cut on manpower since jobs done per day declined.

4.2.4 Reasons for company performance from 2012 to 2014

On this question, the interviewee noted centralisation of payments under the creditors’ payment
system policy of Croco Holdings as a major draw-back in enhancing service delivery time.
Turnaround time increased because of the payment system and eventually sales figures dropped
which contributed to losses. Centralisation also increased transportation costs of documents
sent to head office of Croco Holdings in Harare for authorisation for every payment that had
to be made. He also noted that when policies are too sticky, employees are demotivated and it
becomes difficult for the company to be profitable. From 4.1.8 under questionnaire responses,
82% agreed that poor staff motivation affected cost management which resulted in poor
company performance. In support of this assertion, De Waal (2013) argued that motivating
employees is an essential duty of management as it has an impact on the organisational success.

4.2.5 Relationship between cost control and profit maximisation

The interviewee said that there is a relationship between cost control and profit maximisation.
In addition he said that cost control should be at branch/subsidiary level not to be centralised
at the Holding company. The reason behind was that the management on the ground should
have significant influence in the branch’s cost related decisions made since they have better
knowledge of the happenings on the ground as compared to management at the top of the
Holding company. Responses on questionnaire 4.1.10 showed that 27% strongly agreed and
45% agreed that due to cost increases, the company incurred losses. Acknowledging the
relationship between cost control and profitability, Periasamy (2010) postulated that there is a
direct relationship between costs and returns of an entity.

4.2.6 Standard costing system as a cost control technique in an automobile firm

The interviewee confirmed that standard costing can be an effective tool to implement in cost
control within the entity, regardless of the uncertain industrial environment. However, he also
noted that due to the unstable economy, it is hard to stick to fixed standards. In addition, the
interview opined that standards should be flexible, thus set within ranges so that they can be
used to effective control costs. On question 4.1.5, questionnaire respondents supported the
interviewee’s opinion since 18% strongly agreed and 82% agreed that standards setting is an

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effective way of controlling costs. In his research, Ngozi (2013) noted that in many Nigerian
manufacturing firms, standardisation led to better coordination of activities which largely
improved cost controlling.

4.2.7 Challenges faced in cost management

According to the interviewee, the challenges that were faced in cost management emanated
from the centralisation system which left the management at South East Toyota (Pvt) Ltd
without enough responsibility over operational activities. He noted that the communication
channel during payments processing was ineffective due to centralisation. The interviewee
further cited an example of freight charges which increased costs of the company, and
management could not do much about it because it is company policy to send all payments
documents to head office for authorisation. On 4.1.8 under questionnaire responses, 9%
strongly agreed that there was lack of communication which affected cost management and
another 37% also agreed to the interviewee’s assertion. According to Kimmel (2013),
responsibility accounting contributes to effective cost management since managers of cost
centres will be fully responsible of the activities and communicating plans in those cost centres.

4.2.8 Standard costing implementation constraints

The interviewee highlighted that the timeframe of standards (standards’ obsolescence over
time), resistance of employees because of lack of the expected results and their demotivation,
lack of feedback on monthly stocktakes and weekly business reports, and fluctuations in the
motor industry were all reasons which were encountered in the implementation of standard
costing system. Resistance of employees was supported by 45% respondents of questionnaire
4.1.9, poor feedback communication was also strongly agreed to by 55% respondents under
4.1.9. Marie et al (2010) renowned that set standards get obsolete due to the fast changing
business atmosphere.

4.2.9 Ways to effective cost management

The interviewee noted that if management at the company were to be given enough room to
make decisions and authorise other payments, standard costing might be effectively
implemented to control costs. He noted that it would be quicker and easier for management at
the company to give feedback on reports that management at the head office of the holding
company. Under questionnaire 4.1.12, 55% respondents disagreed that management was giving
feedback on the submitted cost reports. Datar et al (2013) reinforced that management can

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effectively motivate performance and implementation of the costing system when they have
enough control over the business activities.

4.2.10 Viability of standard costing system in the company

The interviewee pointed out that there was no need of introducing a new costing technique
before the present standard costing system was effectively implemented. Respondents from
questionnaire 4.1.5 shared the interviewee’s view that standard costing system is still viable in
cost control since 18% strongly agreed and 82% agreed that effective cost control can be
achieved through standards setting. Long Ho (2011) also sustained the interviewee’s opinion
when he noted that standard costing system is still an effective tool to use in cost reduction.

4.3 SECONDARY DATA ANALYSIS

The researcher got access to annual budget for 2015, management accounts and business cost
reports of the company from January 2015 to June 2015 during data collection. From these, the
researcher noted that of all operational costs, the carriage costs for the company had increased
significantly as compared to 2014 values and where already beyond the budgeted amount for
the six months. The cost reports noted that carriages had mainly increased because of strictness
in centralisation policy which resulted in all payment documents, from those paid by petty cash,
to be sent to Croco Holdings headquarters in Harare for authorisation and forwarded back to
the company in Chiredzi after being approved. The charges for carriages were all billed on the
company. According to Hansen et al (2009), the main motives of developing a standard costing
system are that it assists executives to manage costs, improve control and planning, enable
decision making, and facilitate product costing. Therefore, when the management at South East
Toyota do not have influential power over operational costs, it becomes difficult for standard
costing implementation to produce the desired results.

4.4 SUMMARY
The chapter consisted of the presentation, analysis and interpretation of the data collected
through primary research instruments and secondary data analysis. Responses to questionnaires
and interviews that asked on background information of respondents, cost control and costing
system matters were presented, analysed and interpreted in the chapter. Chapter five will be on
the summary of the researcher to the entire study, overall conclusions and recommendations.

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CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.0 INTRODUCTION

This chapter contains the summary of chapters, major research findings, overall conclusions,
recommendations and areas for further research study. In this chapter, the research findings
will be related to the research objectives of the study.

5.1 SUMMARY OF CHAPTERS

The objective of this research was to investigate into the challenges affecting the
implementation of standard costing system at South East Toyota (Pvt) Ltd and to come up with
ways of effectively implementing standard costing system in cost control so that the company
can maximize profitability. The introduction to the research study was done in chapter one. It
consisted of the background of study which gave insights on the challenges being faced in the
company as a result of poor standard costing system implementation. The chapter also pointed
out the main research objective, sub-objectives and the related research questions to the study.
The importance of the study to the institution, researcher and company was illustrated under
justification of the study. Major definitions, abbreviations, delimitations and limitations of the
study were also included in this chapter.

Chapter two was on literature review which established literature from authors and other
scholars related to the research objectives of the study. The literature reviewed was on
establishing the relationship between standard costing system and cost control, discussion of
the cost management challenges, standard costing implementation problems in the motor
industry, ways of effectively controlling costs and a discussion of the use of standard costing
system in cost control within the motor industry.

Chapter three focused on research methodology. In order to present the variables relating to
the research questions, the researcher used descriptive research design. The research methods,
data presentation, its analysis and the research instruments used were included in chapter three.
A justification of data reliability and validity was highlighted in the chapter. Chapter three also
involved the ethical considerations considered in data collection.

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Chapter four consisted of data presentation, analysis and interpretation of the findings. The
researcher presented data using tables, charts and graphs, and data collected through interviews
was presented in descriptive writing. Analysis of data was done in reference to publications by
other scholars and authors to the same study wherever possible.

5.2 MAJOR RESEARCH FINDINGS

5.2.1 The relationship between standard costing system and cost control
The researcher established that there is a significant relationship between a costing system and
cost control. Research findings in South East Toyota (Pvt) Ltd proved that the standard costing
system in place was to ensure effective cost control and increase the ability of the firm to
maximise profitability. It was also established that when there is a problem in the
implementation of the costing system, the objective of profit maximisation through cost
reduction would not be achieved. With the case study company, poor implementation of
standard costing system contributed to the cost increases from 2012 to 2014, which resulted in
the incurrence of losses for those periods. Ultimately, the researcher found out that for the
company to achieve cost control, it has to appropriately implement standard costing system.

5.2.2 Difficulties faced in cost management

The study revealed that effective implementation of standard costing system is a product of
effective cost management. This means that management have the ultimate responsibility of
ensuring feasible standard setting, allocating work, coordinating activities and ensuring an
efficient report system when standard costing system is under place. Retrenchment, clientele
loss, stunted technological development, poor pricing and incurrence of losses were discovered
as the main consequences of cost increases due to cost management challenges.

5.2.3 Problems related to standard costing implementation

Standard setting subjectivity, corrective action delays and changing industry conditions which
caused frequent standard revision were the top three problems that were encountered in
standard costing implementation within the company. The study also revealed that when the
employees are less skilled, they may be challenges in standard costing implementation as there
are various skills that are required on the setting, operating and feedback phases. Poor
communication within the entity was also noted as another challenge faced in the
implementation of the costing system.

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5.2.4 Ways of effective cost control

The research discovered that there are approaches to cost management that work hand in hand
with standard costing system. Setting up of a standard setting committee that keeps up to date
with trends assist in coming up with achievable standards and this cuts on frequent standards
revision costs. Monthly management accounts, weekly cost reports and weekly management
meetings were also other approaches that were noted during the study. Quarterly performance
appraisal and staff training were highlighted as other approaches to effective cost management.

5.2.5 Justification of using standard costing system

The study also pointed to the reasons why standard costing system is the right costing system
for cost control within the company. It was realised during the research that effective
implementation of standard costing system resulted successful cost control in other companies
in foreign economies such as Toyota India, and as such, it can also produce positive results in
local companies. The research also showed that since the costing system was not being
effectively implemented, efforts should be made to improve its implementation than to invest
resources in introducing a new costing system.

5.3 CONCLUSION

This research focused on investigating into the matters arising from inappropriate
implementation of standard costing system and finding ways of improving its implementation
in cost control, for South East Toyota (Pvt) Ltd to attain profit maximisation. The study
evidenced that the main cause of costs escalation was the incorrect implementation of the
standard costing system in use. Eventually, the costs increases triggered the company to fail to
maximise profitability as evidenced by the incurrence of losses. The research study conducted
was successful since the researcher managed to reveal and assess the challenges being faced
by South East Toyota (Pvt) Ltd in controlling costs regardless of having a standard costing
system put in place to control costs.

5.4 RECOMMENDATIONS

The recommendations comprise of the authentic suggestions of the researcher to the matters
discovered from the research findings. The researcher categorised the recommendations in the
three phases of the cost control using costing systems (setting, operational and feedback phase)
that were noted by Siyanbola et al (2013) so that each recommendation can be easily linked to
the each phase in the implementation of standard costing system by the company.

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5.3.1 The Setting phase

 Management should encourage participation of employees in the setting of standards
since they have hands on knowledge as to the practicable targets (Weygandt et al,
2015). Consultation in standards setting also assists in motivation of workers as they
start to feel more responsible of the company’s future. Stefanovic et al (2011) also
postulates that highly efficient coordination of all functions in an entity results in
profitability.
 According to Hanfy (2013), a company management should establish a standards
committee to avoid frequent standards setting. This committee carries out industry trend
analysis so as to come up with standards that can stretch through an operational period.
 The use of annual budgets in forming a base for standards setting should be effectively
communicated and understood by all personnel (Drury, 2013). When budgets are being
made when all personnel appreciate their relevance in cost control, all departments can
provide reliable cost estimates that would encourage the setting of achievable standards.

5.3.2 The Operational phase

 Management should push for an alteration in the centralisation policy of the holding
company, Croco Holdings, so that the management at South East Toyota can be more
responsible for the approaches used in making sure that targets are met. Malone et al
(2013) said that when an entity faces high communication costs, the best way to make
decisions is through independent decentralized decision makers who are at the ground.
 There should be proper communication of the essence of staff training so that when
staff goes for training, their contribution to the firm’s performance can be noticed.
When staff is well trained, there will be less fault jobs and the company can save on
costs of zero charged jobs. Horngren et al (2012) believes that management should
train employees so that their efficiency in doing work is enhanced.
 Management should allocate work appropriately to its workers so that they are able to
complete work in time and without errors or wastages. Bhimani et al (2015) outlined
that resource allocation is a fundamental duty of management since it has an impact on
organisational success.
 Since the company is failing to maximise profitability, the stocktaking exercise can be
carried out per quarter rather than every month so that the company can reduce on

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stocktaking costs per operational period. Limiting frequency of routine wastage checks
can save on additional expenditure of an entity (Periasamy, 2010).

5.3.3 The Feedback phase

 Management should communicate in time their view on the business reports such as
management accounts, weekly cost reports, throughput reports and stock valuations
after stocktakes submitted to them so that corrective action is done in time. Kaplan and
Atkinson (2015) noted that communication channels have a bearing on performance
level of a company.
 Quarterly performance appraisals should be conducted with efficiency (Datar et al,
2013). Management should educate its employees on the importance of performance
evaluations in line with cost management and communicate its view on the results of
the appraisals back to the employees.

5.5 SUGGESTED AREAS OF FURTHER RESEARCH

The researcher realised that there are other control policies such as the centralisation policy
that is directly influencing costs in the company, hence, further research may be conducted on
the impact of company policies on cost control. Further research may also be carried out on the
effects of business combinations to cost management as the legal relationship of the entity with
the holding company affected the management of operations at the entity.

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APPENDICES
Appendix 1

Cover letter to the organization

Midlands State University
Department of Accounting
P Bag 9055
Gweru
16 September 2015

The Business Unit Manager

South East Toyota
323 Baobab Road
P O Box 523
Chiredzi

Dear Sir/Madam
Re: Request for approval to conduct a research at your organization
I am Million Gubunje, a final year student at Midlands State University studying Bachelor of
Commerce Accounting Honors Degree. I am undertaking a research project entitled
“Effectiveness of standard costing system in cost control within the motor industry. A
case study of South East Toyota (Pvt.) Ltd.” I kindly ask for your permission to conduct the
research at your organization. I intend to perform the study through issuing questionnaires and
conducting interviews. Please be assured that all information collected will be used for
academic purposes only and will be confidentially kept.

Your cooperation is greatly appreciated.

Yours faithfully

Million Gubunje (R122198T)

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Appendix 2

Research Questionnaire
INSTRUCTIONS
 Please answer all questions and do not write your name on the questionnaire
 Indicate your answer by ticking on the blank spaces provided or writing in the spaces
provided where applicable
SECTION A- BACKGROUND INFORMATION
1. How many years have you been with South East Toyota (Pvt.) Ltd?

0-1 2-5 6-8 over 8

2. What is your highest educational qualification?

‘O’ Level ‘A’ Level Diploma Under Graduate Post Graduate

Other

(Specify)………………………………………………………………………..

3. What is your department of operation?

Accounts Workshop Parts

Other
(Specify)………………………………………………………………………..
SECTION B- QUESTIONS ON COST CONTROL AND COSTING SYSTEM
4. South East Toyota (Pvt.) Ltd has a standard costing system put in place for cost control;

Strongly Agree Agree Neutral Disagree Strongly Disagree

5. Standards setting is an effective way of cost control;

Strongly Agree Agree Neutral Disagree Strongly Disagree

6. Standards are derived from yearly budgets;

Strongly Agree Agree Neutral Disagree Strongly Disagree

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7. Management is responsible for the implementation of the costing system;

Strongly Agree Agree Neutral Disagree Strongly Disagree

8. The following factors affect cost management;

Factors Strongly Agree Neutral Disagree Strongly

Agree Disagree

Poor staff motivation

Poor work allocation

Lack of communication

Any other (Specify)………………………………………………………………………..........

9. Problems with standard costing implementation include the following;

Strongly Agree Neutral Disagree Strongly

Agree Disagree

Subjectivity of standards setting

Resistance by some employees

Delays in taking corrective action

Frequent standards revision

Any other (Specify)……………………………………………………………………….........

10. Costs increases result in the following circumstances;

Circumstance Strongly Agree Neutral Disagree Strongly

Agree Disagree

Poor price competitiveness

Shortage of manpower

Rigidity in technological advancements

Clientele loss due to poor service

delivery

Incurrence of losses

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11. The following schemes are used to ensure effective cost control;

Schemes Strongly Agree Neutral Disagree Strongly

Agree Disagree

Monthly management accounts

Weekly management meetings

Weekly cost reports

Consultation in standards setting

Quarterly performance appraisals

Staff training

Any other (Specify)………………………………………………………………………........

12. Management gives feedback on weekly cost reports;

Strongly Agree Agree Neutral Disagree Strongly Disagree

13. Monthly stocktaking is a cost control measure;

Strongly Agree Agree Neutral Disagree Strongly Disagree

Comments…………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
……………………………………………………………………………………………
………………………………………………………………………

Thank you!!!

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Appendix 3

Interview Guide

Questions

1. What is the legal status of the entity?

2. How has been the company’s performance over the past 3years in relation to profit
maximization?
3. What do you think has caused the entity to realize profits or incur losses?
4. Do you think there is a relationship between cost control and profit maximization?
5. Is standard costing system an effective cost control technique in an automobile firm?
6. What are the challenges faced by management in cost control?
7. What problems have been encountered in the implementation of standard costing system?
8. How can management effectively monitor costs?
9. Should a new costing technique be introduced or improve on the implementation of the
current costing technique?

Thank you!!!

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