COLLEGE OF FINANCE, MANAGEMENT AND DEVELOPMENT

DEPARTMENT OF PUBLIC FINANCIAL MANAGEMENT (PFM)

MODULE: COST AND MANAGEMENT ACCOUNTING I.

COURSE CODE: PFM

ASSIGNMENT TITLE:

ARTICLE REVIEW ON A STUDY OF COST AND MANAGEMENT ACCOUNTING

PRACTICES IN SRI LANKA’S MANUFACTURING INDUSTRY

AUTHOR(S):

DR. HARENDRA KARIYAWASAM

SOURCE:

INTERNATIONAL JOURNAL OF RECENT ADVANCES IN MULTIDISCIPLINARY

RESEARCH

PUBLISHED ONLINE 30th MARCH, 2018

(http://www.ijramr.com) VOL. 05, ISSUE 03, PP.3632-3634

REVIEWED BY: WOL MANOT KUCH

ID NO: ECSU1900910

COURSE LEVEL: DEGREE’S PROGRAMME

SUBMITTED TO:

DUE DATE JUNE 10, 2021

ADDIS ABABA, ETHIOPIA

Introduction

Cost and management accounting are basic part of cost management body. The main aim of cost
accounting is to fulfil costing objectives relating to management and financial accounting. In
complying with financial accounting objectives, costs are measured and assigned in cost
management according to generally accepted accounting principles. Cost accountants in today’s
highly competitive and dynamic business environment need to understand the various functions
or links. This has resulted in cost accountants moving away from traditional manufacturing cost
approaches to more inclusive approaches which resulted in cost accountants factoring cost of
value chain activities into product costing. In this context an individual who is well versed in the
numerous definitions relating to costs and comprehends the shifting definitions of costs ranging
from short run to long run can be extremely invaluable in identifying information which is
critical for decision making. The importance of management and costs accounting has grown
exponentially in the recent past due to a number of factors such as increased competition both
locally and internationally which has been exacerbated by globalization, growing input costs on
account of changing macroeconomic conditions, declining profit margins, etc. In order to
mitigate these recent challenges, companies in the developing world have started implementing
management and costs accounting practices which are widely used by companies in the
developed world. In addition, empirical research in this regard has highlighted the importance of
cost and management accounting practices in today’s highly competitive and dynamic business
environment. This in turn has resulted in costs and management accounting practices gaining
prominence in both private and public sector businesses in the developing world.

Purpose of the study

The main purpose of this article was to analyze cost and management accounting practices of
public quoted manufacturing companies in Sri Lanka. Research method used in this study was an
applied research method, whilst the research strategy employed was a survey research strategy.
Sample for the study consisted of 70 public quoted manufacturing companies in Sri Lanka.
Findings from the study was to investigate the main costing method used by public quoted
manufacturing companies in Sri Lanka and which cost was used for pricing related decisions,
customer profitability related decisions, and performance measurement. This study was to also
examine why manufacturing companies give high consideration to traditional management
accounting practices such as planning and control, budgeting, target costing, and cost-volume-
profit analysis.

Objectives of the study

The specific objectives this study was trying to achieve were as follows:-

 To analyze the current product costing methods used and how costing information were
used by public quoted manufacturing companies in Sri Lanka,
 To identify the factors which have contributed to the increased use of cost accounting
practice and assess the weightage applied to management accounting practices in public
quoted manufacturing companies in Sri Lanka.1
Data used

The main data collection instrument used in the study was an interview questionnaire conducted
with the Chief Financial Officers of 70 public quoted manufacturing companies in Sri Lanka.
The questionnaire consisted of open-ended questions, closed ended questions and multiple
choice questions. The population and sample of the study were shown in the first table. Data
obtained from the study sample was analyzed using simple statistical methods such as mean,
median, standard Deviation, and t-test.

Method of data analysis

Sample respondents were requested to specify the methods and techniques used by them in
product costing and the analysis was projected in table two-six. Table 2 shows the costing
method used by a majority of companies as activity-based costing (32 companies), followed by
process costing (22 companies), and job costing (16 companies). Table 3 describes the manner in
which costing information was used by public quoted manufacturing companies in Sri Lanka.
Table 4 & 5 shows that, the reduced profit was the reason to why companies increase use and
interest in cost accounting followed by increasing costs, intense competition, increased customer
bargaining power, and increased supplier bargaining power. And finally table 6 describe
assessment of the weightage given to various management accounting practice by public quoted
manufacturing companies in Sri Lanka.

Findings, conclusions, and policy recommendations.

Findings from this study revealed that the main costing method used by public quoted
manufacturing companies in Sri Lanka was activity based costing, followed by process costing
and job costing. Findings from the study also revealed that cost information was mainly used by
public quoted manufacturing companies for pricing related decisions, followed by customer
profitability related decisions, and performance measurement; that the increasing interest and use
of cost accounting in these companies is on account of the decline in firm profitability,
increasing cost, intense competition, and high customer and supplier bargaining power; and that
these manufacturing companies give high importance to traditional management accounting
practices

According to this study, It was concluded that the main costing method used by public quoted
manufacturing companies in Sri Lanka was activity based costing by a majority of apparel
manufacturing and footwear manufacturing companies, process costing by beverage, food and
tobacco manufacturing Cost information was mainly used by public quoted manufacturing
companies for pricing related decision making, followed by customer profitability related
decision making, and performance measurement; Public quoted manufacturing companies
increasing interest and use of cost accounting can be attributed to the decline in firm profitability,
increasing cost, intense competition, and high customer and supplier bargaining power.

The Author suggested a recommendation to extend the scope of this work would include studies
on the topics, research methods, authors, and citations in other journals included in databases.
Evaluation of the article

Apart from the general and specific objectives, another key objective of this study was to analyst
the reasons for the increased use of cost accounting in public quoted manufacturing companies in
Sri Lanka. And the results show that reduced profit was the main reason followed by increasing
costs, intense competition, increased customer bargaining power, and increased supplier
bargaining power.

The theories discussed in this paper where found comparable with the theories from research
conducted by Van Triest and Elshahat (2007), and Rao et al. (2015) which also found that
pricing related decisions, customer profitability related decisions, and performance measurement
were the main areas in which costing information was used by manufacturing companies in
India.

The Author didn’t argued about the theories as he concluded the article in accordance with
finding of the study perfectly. This paper contributed to existing literature pertaining to this
phenomenon, particularly relating to the use of cost and management accounting practices in Sri
Lanka, where there is dearth of research on this phenomenon.

Comment

This is an interesting study and the authors have collected a unique dataset using an interview
questionnaire methodology conducted with the Chief Financial Officers of 70 public quoted
manufacturing companies in Sri Lanka. The paper is generally well written and structured.

This work contributes to our understanding of the role of accounting in business decisions, as
demonstrated by the analysis of this articles; thus, there is a need for greater sophistication in the
analysis of investment options and decision-making processes. By analyzing the content of this
paper, this study found that manufacturing companies with significant deployment in large
companies in Sri Lanka appears to have given high importance to traditional management
accounting.

Opinion about the strengths and weakness of the article.

In my opinion, the strength of this study is that The Board of Investment of Sri Lanka has
strategically identified a wide range of manufacturing industries to drive the economic
development process of the country. Finally, increased domestic and international competition,
growing costs of inputs and declining profit margins make cost and management accounting
imperative for Sri Lanka"s manufacturing firms. Furthermore, the weakness of this paper were
not disclosed enhance I assumed no weakness.
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