Assessment of Cost Accounting Practice of Manufacturing

Companies (a Case of Africa Food Complex PLC)

A Research Submitted to the Department Of Accounting and Finance in

Partial Fulfillment of the Requirements for Ba Degree in Accounting
Prepared By
1. Helen Legese
2. Jafer Musa
3. Liulseged Niguse
4. Marta Aschalew
5. Netsanet Tamirat

Rift Valley University

Faculty of Business and Social Science
Department Of Accounting and Finance

Advisor: Mezmur. S (MSc)

May, 2015

Adama, Ethiopia
 DECLARATIONS
I, the undersigned, do hereby declare that this research is my original work and that it has not been
submitted partially or in full by any other person for an award of a degree in any other
university/institution and that all sources of materials used for the thesis have been duly
acknowledged.

Submitted by:

Full Name Signature Date

1. Helen Legese _____________ ________

2. Jafer Musa ______________ ________

3. Liulseged Niguse ______________ _______

4. Marta Aschalew ______________ ________

5. Netsanet Tamirat ______________ _________

Confirmed by Advisor:

Name ----------------------------------- Signature---------------------Date--------------------

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 APPROVAL SHEET

This is to certify that the thesis entitled “assessment of cost accounting practice of
manufacturing companies (a Case of Africa Food Complex PLC)” Was carried out by Helen
Legese, Jafer Musa, Liulseged Niguse, Marta Aschalew and Netsanet Tamirat under the
supervision of Mezmur S.(MSC) submitted in partial fulfillment of the requirements for the
degree in accounting and finance complies with the regulations of the University and meets the
accepted standards with respect to originality and quality.

Advisors Examiner
Name____________________
Signature __________________
Date _____________________

Examiner
Name __________________
Signature _______________
Date __________________

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 ACKNOWLEDGEMENTS
We want to deeply acknowledge those who helped me to successfully complete this research paper.
First of all we would like to express our endless thanks to Almighty God. We next deepest gratitude
is to our research advisor Mezmur S(MSC). For his constructive comments, suggestions and
guidance during this project. We thank him for his concern, kindness and friendly approach. We
would like to express my heartfelt thanks managements and experts of Africa Food Complex PLC
for their assistance in providing our necessary data and information for the study. We would like to
acknowledge the sampled respondents without their full participation this study would have not
been possible. Our deepest thanks also go to all our family members for their consistent moral
support and encouragement during the study time. Last but not least, We shall remain grateful to all
our dear friends who stood by our and give all possible support to complete this work successfully.

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 Table of Contents
Content
Page
DECLARATIONS.................................................................................................................................i
APPROVAL SHEET............................................................................................................................ii
ACKNOWLEDGEMENTS................................................................................................................iii
Table of Contents.................................................................................................................................iv
ABSTRACT..........................................................................................................................................vi
C H A P T E R O N E : I N T R O D U C T I O N ......................................................................................1
1.1. Background of the study................................................................................................................1
1.2. Problem Statement with reference.................................................................................................4
1.3. Research questions........................................................................................................................6
1.4. Objective of the study....................................................................................................................6
1.4.1. General objective........................................................................................................................6
1.4.2. Specific objectives......................................................................................................................6
1.5. The Scope of Study.......................................................................................................................6
1.6 Significance of the Study................................................................................................................6
1.8 Organization of the study...............................................................................................................7
C H A P T E R T W O : L I T E R AT U R E R E V I E W ........................................................................8
2.1. Theoretical perspectives................................................................................................................8
2.1.1. Definition of cost accounting.....................................................................................................8
2.1.2. Cost Accounting and Related Concepts.....................................................................................8
2.1.3. Objective of cost accounting......................................................................................................9
2.1.4. Advantage of cost accounting...................................................................................................10
2.1.5. Classification of Manufacturing Costs.....................................................................................11
2.1.6. Direct and Indirect costs of a cost object..................................................................................12
2.1.7. Costing system..........................................................................................................................13
2.1.8. Inventory systems.....................................................................................................................13
2.1.9. Cost in their relation to manufacturing department..................................................................14
2.2. Empirical review.........................................................................................................................14
Conceptual Framework......................................................................................................................17
C H A P T E R T H R E E : R E S E A R C H M E T H O D O L O G Y ...................................................19
3.1. Research Design..........................................................................................................................19

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3.2. Data type and Source..................................................................................................................19
3.3. Data collections methods.............................................................................................................19
3.3.2. Questionnaires (Open-ended and Close-ended).......................................................................20
3.4. Target population.........................................................................................................................20
3.5. Sampling size and sampling techniques......................................................................................20
3.5.1 Sampling size.............................................................................................................................20
3.5.2 Sampling techniques..................................................................................................................20
3.6. Data analysis methods.................................................................................................................21
CHAPTER FOUR..............................................................................................................................22
4.1. DATA PRESENTATION ANALYSIS AND DISCUSSIONS.................................................22
4.1.1 Results and Discussion of the Respond Rate............................................................................22
4.1.2. Demographic Background of the Respondents........................................................................22
4.1.4. Cost Accounting Practice of Manufacturing Companies Africa Food Complex PLC.....25
4.1.4.4. Mean and Standard Deviation of Cost management...............................................25
Table 4.6 Mean and Standard Deviation of Cost management practices...................................25
Table 4.7 Mean and Standard Deviation of Impact of budget on performance.........................27
D i s c u s s i o n o f R e s u l t s ................................................................................................................28
CHAPTER FIVE: CONCLUSION AND RECOMMENDATION....................................................31
Conclusion..........................................................................................................................................31
Recommendation................................................................................................................................32
References..........................................................................................................................................34

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 ABSTRACT
The purpose of this research is to assess cost accounting practices in control and reducing in
manufacturing cost at Africa food Complex PLC. It looks through the company’s management
support, employees’ involvement, arrangement of cost and responsibility centers, tools and
techniques of cost control and reduction, cost classification and allocation, methods of costing and
its implementation, purchasing procedures and finally the use of cost information of the company’s
data were collected through questionnaire and interview. The data were gathered through a
combination of both unstructured interviews with the department head and questionnaire addressed
to the employees of the organization. The data received were analyzed by using narration and
descriptive statistics. The finding of the research revealed that the company does not give chance
for employees to participate in budget preparation and standard setting, it does not use target
costing as cost control and reduction tools and techniques and reporting without relating of actual
and planned information. Lack of assign costs to particular cost objects and each cost object has
not separate measurement of cost, return back to store and inform the costing department when it
has excess raw materials, use only traditional costing method and giving cost information for
external users are other problems that found out in the study. So in light of the above problems, the
following recommendations were forwarded. The company should try to include employees in
budget preparation and standard setting, try to use target costing, and relate actual with planned
information in reporting. It should also assign costs to particular cost objects and each cost object
has separate measurement, return back to store and inform the costing department when it has
excess raw materials, try to use modern costing method and in time of need give cost information
for external users.
Key words: Cost accounting, cost accounting tool and techniques, Cost control and reduction,
manufacturing cost.

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 CHAPTER ONE: INTRODUCTION

1.1. Background of the study

Cost accounting provides detail cost information for various level of management for efficient
performance of their functions. The information supplied by cost accounting acts as a tool of
management for making optimum use of scarce resources and ultimately adds the profitability of
business. Cost accounting is a formal system of accounting for costs in the books of account by means
which costs of products and services are ascertained and controlled (Alahdal et al, 2016). Cost
accounting is the process of measuring, analyzing, and reporting financial and nonfinancial information
related to the costs of acquiring or using resources in an organization. For example, calculating the cost
of a product is a cost accounting function that meets both the financial accountant’s inventory-valuation
needs and the management accountant’s decision making needs (such as deciding how to price
products and choosing which products to promote). However, today most accounting professionals
take the perspective that cost information is part of the management accounting information collected
to make management decisions. Thus, the distinction between management accounting and cost
accounting is not so clear-cut (Horngreen et al, 2016).

Cost accounting is the process of accumulating and accounting for the flows of costs in a business. It is
defined as a technique or method for determining the cost of a project, process, or thing through direct
measurement, arbitrary assignment, or systematic and rational allocation. The appropriate method of
determining cost often depends on the circumstances that generate the need for information
(Thukaram, 2012). This can be information such as material cost, production cost, product cost,
investment calculations, and budget.

Cost accounting, as a specialized field of accounting, is primarily concerned with the identification,
measurement, recording, reporting and analysis of costs associated with production and marketing
goods/services and other decisions areas. Cost accounting is broad and extends beyond calculating
product costs for inventory valuation, which GAAP dictates. In fact, the focus of cost accounting is
shifting from inventory valuation for financial reporting to supplying cost information for decision
making (APO-ILO, 1997). Cost accounting is an accounting system that provides financial and non-
financial cost related information. Product costing is the cost of direct labor, direct materials, and
manufacturing overhead that are used to create a product. And the purposes are for preparing financial
1
statement, setting price and for control purpose (Horngreen et al., 2016). Thus cost accounting
provides information for both management and financial accounting.

The information supplied by cost accounting acts as a tool of management for making optimum use of
scarce resources and ultimately adds to the profitability of business (Arora, 2004). The importance of
cost accounting practices has increased more than ever. The reasons for this are the domestic and
global competition getting severer by globalization, decreasing profit margins, increasing input prices
due the tightening energy sources, economic crises etc. Therefore, companies operating in developing
countries have also begun to implement cost accounting practices which were first adopted by
companies functioning in developed countries. Cost accounting especially for manufacturing
companies is the key factor for achieving the desired profit since cost of raw materials is the major
expense.

Cost accounting is the process of accounting for costs from the point at which expenditure is incurred
or committed to the establishments of its ultimate relationship with cost centers and cost units. In its
widest usage, it embraces the preparation of statistical data, the application of cost control methods
and ascertainment of profitability of activities carried out or planned. It denotes the formal accounting
mechanism by means of which costs are ascertained by recording them in books of account. Cost
accounting practices are most appropriate for manufacturing companies. Manufacturing means the
process of converting materials in to finished goods by using raw materials, labor, overhead cost and
many types costs used in converting the raw materials in to products to be sold to customers (Charles,
Srikant, & Madahav, 2015). More specifically, cost accounting literally refers to the classification of
different cost, for example materials, depreciation, and interest. Each cost type is further divided into
fixed costs and variable indirect cost along with their transfer to cost centers, and direct costs are
allocated to cost units.

Noted that variable cost is defined as the costs that vary in proportion to the output of cost center
activity, rather than the total quantity of final units produced as it is in usual (Dury, 2018). In today’s
proper costing system is a very important tool for the success of any organization as well as personal
financial manager. An essential system of costing is an essential factor industrial under modern
conditions of business and such may be regarded as an important part in the efforts of any
management to serve business stability in this study; attention is given to the costing practice of
manufacturing company. Manufacturing means the process of converting materials in to finished goods
2
by using raw materials, labor, overhead cost and many types costs used in converting the raw materials
in to products to be sold to customers. Thus cost accounting provides information for both
management and financial accounting. It measures and reports financial and non-financial
information, that relates to the past of acquiring or consuming resources by the organization (Akeem,
2017).

As Lenen et al., (2011) stated cost accounting continues to experience dramatic changes.
Developments in information technology (IT) have nearly eliminated manual bookkeeping. Emphasis
on cost control is increasing in banks, hospitals, manufacturing industries (from computers to
automobiles), airlines, school districts, and many other organizations that have traditionally not
focused on it. Cost accounting has become a necessity in virtually ever organization, including fast-
food outlets, professional organizations, and government agencies
Cost accounting information system designed to provide valuable information is useful for the
management of the company to assist them in the exercise of its various functions of planning control
and decision-making where management needs cost information- accurate, fast and reliable. The
system of cost information is an important source in many administrative decisions, such as pricing
decisions, determination of the optimal mix of products, and measurement of the cost of operations
within the company, eventually evaluation of the results (Alahdal et al, 2016). Cost accountants must
work with the users (or customers) of cos accounting information to provide the best possible
information for managerial purposes (Lenen et al, 2011). In the preparation of the financial
information the role of cost accountant i invaluable in guiding and recommending the alternative
courses of action.
Even though method of costing differs from industry to industry and it depends on the nature and type
of the business, it is advisable to design effective costing systems to manage and control costs of the
organization efficiently. Any organization starting from sole proprietorship to the corporation acquire
or know how and use of cost concept and practice. Because cost accounting provides key data to
mangers for planning, controlling, and evaluating decision making, fixing product price as well as to
know service price. Cost managers must use method of allocation because, we cannot observe causal
link between this resources spending and use. To this end, this study would assess the cost accounting
practice of Africa food complex PLC.

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1.2. Problem Statement with reference

The manufacturing cost challenge is one of the most serious tasks facing Ethiopian manufacturing
companies. Biruk (2009) stated the main problem of Ethiopian manufacturing industries is awareness
on cost management practice. Cost management is a method used to realize decisions made for
planning, controlling and developing competitive strategies, and it is remarkable to say that creating a
balance between this factor and other magnitudes of competition like quality and time required (Reiss,
1992). He further stated that it is a control of costs through the formal procedure of budget
preparation, evaluation and make corrective actions to attain the maximum goal at a specified level of
quality unless unknowns and uncertainty may cause costs to increase beyond acceptable levels. In
profit maximization, cost control and reduction play significant role. Any type of organization that is
successful in cost control and reduction, without reducing its quality can sell its products at lower
amount than its competitors. Having price competitive advantage, the company can enhance its market
share and become a market leader (Locky, 2002, as cited in Akeem, 2017). He further stated that in a
good or bad periods, cost control and cost reduction scheme remain constant. Currently the increase in
the cost of operation becomes difficult for organizations. So cost reduction and cost control scheme
become inevitable. Hence, in order not to exceed their budget and not to run at loss, as well as not to
reduce the quality of their products, organization needs to use effective cost reduction and control
tools and techniques to reduce their cost to the lowest minimum.

In maximization of profit, cost control and reduction of cost have a significant factor. Any type of
organization that is successful in control and reduction of cost, without reducing its quality can sell its
products at lower price than its competitors. Having price competitive advantage, the company can
enhance its market share and become a market leader (Locky, 2002, as cited in Akeem, 2017) One
factor of decreasing the competitiveness of Ethiopian manufacturing industries is their manufacturing
cost management system (Biruk ,2009).

It measures and reports financial and non-financial information that relates to the cost of acquiring or
consuming resources by the organization because cost accounting provides key data to mangers for
planning, controlling, and evaluating decision making, fixing product price as well as to know service
price (Samrawit, 2010). Without applying cost accounting tools, managers of organizations may find it
difficult to improve the day to day operations and take decisions that will enhance the financial
performance of the business. Despite the increasing amount of research in cost accounting in the past
4
decade, little is known of its form and effectiveness within firms in developing countries (McChlery,
2004).

In current market there are identical and substitute food products are available, that comes from
abroad or domestic companies. To win on this market and have a good market share the companies
must will sale more products with affordable and competitive price that relate with other companies.
When Africa food complex PLC control and manage its product costs especially indirect and overhead
costs get a list production cost then it can compete and sales the product in the market at a competitive
price and affordable price without reducing quality. To achieve in the market and control these costs
the company must apply a sound cost management system. Different researchers conducted a study on
cost management practice in manufacturing firm Caroline,(2012) Elyazid,(2016); Adeleke,(2014);
Kariyawasam,(2018);Oyerogba,(2014);O lalekani&Tajudeen,(2015); Yohannes,(2018); Asefash,
(2018); Endale,(2015). The cost management practice in manufacturing firms will not extensively
study especially in food manufacturing firms.

Cost management practice on beverage industry will examine by (Asefash, 2018) focused on cost
control and reduction on the beverage industry particularly in BGI. But this study attempts to assess
cost management practices of Food factory.

Increasing and un-stability of input costs are the critical problem of Ethiopian manufacturing firms. In
most manufacturing industries input and overhead costs are not clearly identified, traced and mange, it
affects the company profit directly. One factor of decreasing the competitiveness of Ethiopian
manufacturing industries is their manufacturing cost management system (Biruk ,2009). He also note
that cost management system in Ethiopian manufacturing industries shall not design to help
company’s’ operations and strategy rather it provides pretend targets for managerial attention.

Some study are covered cost systems and techniques and others are also related to cost management
practices, but there are no in-depth specific study are conducted covering substantial aspects on the
cost management practices related to Africa food complex PLC. So the main objectives of this paper is
examining and evaluating cost management practice to control and reduce manufacturing costs of
Africa food complex PLC.

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1.3. Research questions
1. What type of cost accounting method will use by the factory?
2. Does the factory allocate cost to cost object?
3. Which the cost accounting information is contributes for management decision?
4. How companies evaluate cost accounting information for managerial decision?

1.4. Objective of the study

1.4.1. General objective

The general objectives of this study is to assess the cost accounting practice of Africa food complex plc.

1.4.2. Specific objectives

 To assess the costing account methods of the company under study.

 To describe the recording practice and how the cost records are maintained its cost data.
 To ascertain the cost allocation practice of the company under study.
 To evaluate the application of cost accounting information for managerial decision.

1.5. The Scope of Study

The studies are concerned only with the assessment of cost accounting and management practice of
Africa food complex PLC in 2015 E.C fiscal year. Moreover, due to financial and time constraints the
researchers are only covered the cost accounting and management department of the company under
study. Thus, this study is focused only the assessment of cost accounting and management practice of
Africa food complex PLC.

1.6 Significance of the Study

This study are forward possible suggestions, which are believed to improve the present cost accounting
and management practices of manufacturing companies by assessing cost accounting practices of
Africa food complex PLC. In addition, this study will help any policy makers in relation to cost
accounting and management practice and system for other related business firms. It is also used as the
sources of reference for further research and researchers for those who are interest to conduct similar
study on such issue, sector and area
6
1.8 Organization of the study

The study was organized in five chapters. Chapter one deals with introduction part include;
Background of the Study, Statements of the problem, objective of the study, Significance of the study,
scope of the study. Chapter two deals with literature review, Chapter three deals with methodology of
the study, Chapter four deals with Data Analysis and presentation and the last Chapter or 5 th Chapter
deals with conclusion and Recommendation part of the study

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 C H A P T E R T W O : L I T E R AT U R E R E V I E W
2.1. Theoretical perspectives

2.1.1. Definition of cost accounting

Cost accounting as an information processing system includes a series of ordered and logically
connected activities. The key purpose of these activities consists in translating data on the use of
resources involved in the company’s operations into information which reflects the costs of specified
reference objects (Nowak & Wierzbiński, 2010). Cost accounting is the process of accumulating the
costs of manufacturing, and other functional processes and identifying these costs with units
produced or some other object. It is a unique sub filed of managerial and financial accounting. Cost
accounting is applied primarily to manufacturing. Organization that combine and process raw material
in to finished products. Management accounting is the process of identification measurement,
accumulation, analysis, preparation, interpretation, and communication of financial information used
by managements of plane, evaluate, and control within an organization to assure appropriate use of
and accountability for its resources (Herrington, 2018).

Cost accounting provides information for management accounting and financial accounting
management accounting measures and reports about financial and non-financial information that
helps managers make decisions to fulfill the goal of the organization and financial accounting focus
on reporting to external parties. Cost accounting provides mangers with relevant cost data to assist
them in operating the business effectively. The management process includes developing an operating
plan, implementing the plan, and evaluating the result of operation (Horngreen, 2003).

2.1.2. Cost Accounting and Related Concepts

Cost accounting measures, analyzes, and reports financial and non-financial information relating to
the costs of acquiring or using resources in an organization. For example, calculating the cost of a
product is a cost accounting function that answers financial accountings inventory-valuation needs and
management accountings decision making needs (such as choosing products to offer). Management
accounting measures, analyze and reports financial and non-financial information that helps
managers make decisions to fulfill the goals of an organization.
Managers use management accounting information to choose, communicate and implement strategy.
They also use management accounting information to coordinate product design, production and
marketing decisions. Management accounting focuses on internal reporting. Financial accounting
focuses on reporting to external parties such as investors, government agencies, banks, and suppliers.
It measures and records business transactions and provides financial statements that are based on
generally accepted accounting principles (Horngren, 2006).

Cost accounting on the other hand, is a formal system of accounting for costs in the books of account
by means of which costs of products and services are ascertained and control. An authoritative
definition of cost accounting has been given by CIMA London as follows: “Cost accounting is the
process of accounting for costs from the point at which expenditure is incurred or committed to the
establishment of its ultimate relationship with cost centers and cost unit. In its widest usage, it
embraces the preparation of statistical data, the application of cost control methods and ascertainment
of profitability of activities carried out or plan (Fess, 2003).

2.1.3. Objective of cost accounting

The main objectives of cost accounting are as follows.

 Ascertainment of cost: - This is the primary objectives of cost accounting. For cost
ascertainment different techniques and systems of costing are used under differe
circumstances.
 Control of cost: - cost control aims at improving efficiency by
controlling and reducing cost. The objective is becoming increasingly
important because of growing competition.
 Guide to business policy: - Cost accounting aims at serving the needs of management in
conducting the business with at most efficiency. Cost data provide guidelines for various
managerial decisions like make or buy, selling below cost, utilization of idle plant capacity,
introduction of a new product, etc.
 Determination of selling price: - Cost accounting provides cost information on the basis
of which selling prices of products or services may be fixed. In periods of depression, cost
accounting guides indicating the extent to which the selling price may be reduce to meet the
situation.
Thus, in order to realize the objectives, the data provided by cost accounting may have to be re-
classified, re-organized and supplemented by other relevant business data from outside the formal
cost accounting system (Moore, 2003).

2.1.4. Advantage of cost accounting

The principal advantages of cost accounting are;

 Reveals profitable and unprofitable activities: A system of cost accounting reveals

profitable and un profitable activities so that steps may be taken to reduce or eliminate
wastages and inefficiencies accounting in any form such as idle time, under-utilization
of plant capacity, spoilage of materials, etc.

 Helps in cost control: cost accounting helps in controlling cost with special techniques
like standard costing budgetary control.

 Helps in decision making: It supplies suitable cost data and other related information
for decision making, such as introduction of new product line, replacement of old
machinery with an automatic plant, make or buy, etc.

 Guides in fixing selling prices: Cost is one of the most important factors to be
considered while fixing prices. A system of cost accounting guides the management in
the fixation of selling prices particularly during depression period when prices may have
to be fixed below cost.

 Helps in inventory control: Perpetual inventory system, which is an integral part of

cost accounting, helps in the preparation of interim profit and loss account.

 Aids in formulating policies: Costing provides such information as enables the

management to formulate production and pricing policies and preparing estimates of
contracts and tenders.

 Helps in cost reduction: It helps in the introduction of a cost reduction program and
finding out new and improved ways to reduce costs.

 Reveals idle capacity: A concern may not be working to full capacity due to reasons
 such as shortage of demand, machine break down or other bottlenecks in production. A
cost accounting system can easily work out the cost of idle capacity so that management
may take immediate steps to improve the position.

 Checks the accuracy of financial accounts: Cost accounting provides reliable check on
the accuracy of financial accounts with the help of reconciliation between the two at the
end of the accounting period.

 Provide cost data to outside agencies: A cost system produces ready figures for use by
government, wage tribunals, trade unions, etc., for use in problems like price fixing,
wage level fixation, settlement of industrial dispute (Warren, 2003)

2.1.5. Classification of Manufacturing Costs

Three terms commonly used when describing manufacturing costs are direct material costs, direct
manufacturing labor costs, and indirect manufacturing costs.

A. Direct Material Costs: -are the acquisition costs of all materials that eventually become part of the
cost object (work in process and then finished goods) and that can be traced to the cost object in
an economically feasible way. Acquisition costs of direct materials include freight-in (inward
delivery) charge, sales taxes and custom duties (Horngren, 2006). The cost of materials entering
directly in to the manufactured product is classified as direct material cost, sometimes referred to
as raw material cost. As a practical matter, in order for a cost to be classified as a direct materials
cost, the cost must not only be an integral part of the end product, but it must be a significant
dollar portion of the total cost of the product.
Examples of direct materials costs include the cost of paper and ink for a printer, lumber for a
furniture manufacturer, silicon wafers for a producer of micro computer chips, and steel for an
automobile manufacturer. The finished product of one manufacturer may become the direct
materials for another manufacturer. For example, the finished products of a lumber mill become
the direct materials for a construction contractor (Fess, 2003).

B. Direct Manufacturing Labor Costs: is the labor cost directly traceable to the creation of the
products. Some workers, frequently designated as production workers, spend most of their time in
turning out products. The labor cost attached to this time is called the direct labor cost. Labor cost
that cannot be traced to the products is included as a part of factory overhead under the general
 heading of indirect labor. For example the idle time of the production workers, which is not relate
to any group of products under production, may be wasted, or may be used in cleaning the factory
and repairing the equipment, or may be put to use in some other way. The wages or salaries of the
factory supervisors ,engineers ,maintenance crew , and other who do not work on the product
itself but who assist in the manufacturing operation are likewise classified as indirect labor
(Moore, 1984)
C. Indirect Manufacturing Costs: - are all manufacturing costs that are relate to the cost object
(work in process and then finish goods) but that cannot be trace to that cost object in an
economically feasible way. Examples include supplies, indirect materials such as lubricants,
indirect manufacturing labor such as plant maintenance and cleaning labor, plant rent, plant
insurance, property taxes on the plant, plant depreciation, and the compensation of plant managers.
This cost category is also referred to as manufacturing overhead costs or factory overhead costs
(Horngren, 2006). Factory overhead cost consists of all manufacturing costs with the exception of
direct materials and direct labor. Include under the heading of factory overhead are the costs of
indirect materials, indirect supplies used, repairs and maintenance, heat and light, taxes, insurance,
deprecation, and other costs to operate the manufacturing division (Moore, 1984).

2.1.6. Direct and Indirect costs of a cost object

I. Direct costs of a cost object:-are relate to the particular cost object and can be trace to it in an
economically feasible (cost-effective) way. For example, the cost of cans or bottles is a direct cost of
Pepsi- colas. The cost of cans or bottles can be easily trace to or identified with the drink. The term
cost tracing is use to describe the assignment of direct costs to a particular cost object.

II. Indirect costs of a cost object:-are relate to the particular cost object but cannot be trace to it in
an economically feasible (cost-effective) way. For example, the salaries of supervisors who oversee
production of many different soft drink products bottle at a Pepsi plant are an indirect cost of Pepsi-
colas. Supervision costs are indirect costs because supervisors also oversee the production of other
products such as 7-up. Unlike the cost of cans or bottles, it is impossible to trace supervision costs to
the Pepsi cola. The term cost allocation is use to describe the assignment of indirect costs to a
particular cost object (Horngren, 2006).

2.1.7. Costing system

The two basic types of costing systems are used to assign cost to product or service.

2.1.7.1. Job order costing system

In this system the cost object is a unit or multiple unit of a distinct product or service called a job. Job
order costing system is a type of cost system that provides for a separate record of the cost of each
particular quantity of product that passes through the factory. Job order costing system is commonly
used by companies with product that are unique and divisible. In this system costs are assigned to a
distinct unit, batch or lot of product, or service. Job is task for which resources expended in bringing
a distinct product or services to market. Examples of business that use job order costing includes ;
construction system, Furniture manufactures, Printing firms, repair shops, service giving organization
and Garages, etc. (Cherington,1998).

2.1.7.2. Process costing system

In this costing system is used for manufacturing process which produces a single product or single
mix of products continuously for an extended period of time. In this system the cost of a product or
service is obtained by using broad averages to assign cost to mass of similar unites produced for
general sale and not for any specific customers. Average cost over large number of nearly identical
product companies that use process costing system are as follow Cement factories, petroleum
refineries, flour companies, beer factories, textile factories, beverage companies characteristics of
process costing system(Herrington, 201 8).

2.1.8. Inventory systems

There are two principal systems of inventory accounting-periodic and perpetual. When the periodic
inventory system is used only the revenue from sales is record each time a sale is made. No entry is
made at the time of the sale to record the cost of the merchandise that has been sold. Consequently, a
physical inventory must be taken in order to determine the cost of the inventory at the end of an
accounting period. Ordinarily, it is practical to take a complete physical inventory only at the end of
the fiscal year.

In contrast to the periodic system, the perpetual inventory system uses accounting records that
continuously disclose the amount of the inventory. A separate account for each type of merchandise is
maintained in a subsidiary ledger. Increases in inventory items are record as debits to the proper
accounts and decrease are record as credits. The balances of the accounts are called the book
inventories of the items on hand. Regard less of the care with which the perpetual inventory records
are maintained , their accuracy must be taste by taking a physical inventory of each type of
commodity at least once a year. The records are then compare with the actual quantities on hand and
any differences are corrected (Horngreen, 2006).

2.1.9. Cost in their relation to manufacturing department

Factory is generally organized along departmental lines for production purpose .This factory
department allocation is the basis for the important classification and subsequent accumulation of cost
by departments. Products and service department Product department: - is one in which manual and
machine operation is performed directly upon any part of product manufactured, more specifically,
producing department are those whose cost may be charged to the product because they have
contributed directly to its production. weather two or more different type of machine perform
operation on product with in the same department a break down into cost center increase the accuracy
of product cost. Service department: - one that is not directly engaged in production but tenders a
particular type of service for the benefit of others department. in some instance these service benefit
of others service department as well as producing department represents a part of the total factory
overhead and must be observed the cost of the product by means of the factory overhead cost
(Cherrington , 1998).

2.2. Empirical review

Previously different researchers were worked on the title of “Assessment of Cost Management
Practice”; most of these papers were focused on manufacturing industry. The researchers assessed
different organizations cost accounting practice and made conclusion according to their observation

Kubrom Negash (2019) worked his research on the same title in des general trading PLC in 2019,
the objective of the study is to assess and examine the cost accounting practices utilized by Des
General Trading PLC in Ethiopia. This study adopted a descriptive survey design. The researcher were
used both self-administered questionnaire and structured interviews with selected accountants of the
finance departments and other department staffs. The major findings of the study are; the most widely
used product costing method is process costing and the technique used is absorption costing; the
most widely used overhead allocation is units produced; the most important area where the cost
information is used for financial accounting, inventory valuation and to some extent for price
decisions which is low on other decision making and cost control.

An analysis conducted by Samaha and Abdallah (2011), entitled A comparative analysis of ABC and
traditional costing system: The case of Egyptian metal industries company compares ABC results with
traditional accounting (volume based) ones in an Egyptian metal industry company; In fact
traditional accounting can lead to price distortion. In particular, the study highlights that volume
based methods underestimate low volume products and overestimate high volume products while
ABC, tracing overhead consumption, lead to more precise results.
Kariyawasam (2018) studied the cost management and account management 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
revealed that the main costing method used by public quoted manufacturing companies in Sri Lanka
is activity based costing, followed by process costing and job costing. Findings from the study also
revealed that cost information is 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 such as planning and control, budgeting, target costing, and cost
volume-profit analysis.

Sevim and Korkmaz(2014) in their study of cost management practice in the hospitality Industry in
the case of the Turkish hospitality industry by taking into consideration that hospitality organizations
amongst the key elements of the hospitality industry. Nowadays hospitality organizations should
manage financial resources at optimum level to survive and for reaching their goals. From this point
of view, it is clear that managers need cost management tools to make the right decisions. The
research findings show that less than half of the respondent hotels utilizing contemporary cost
management systems. Amongst these hotels utilizing level of the systems are considerably low.
Furthermore, activitybased budgeting, life cycle costing, back flush costing and transfer pricing are
not utilized by any respondent hotel companies.
Olalekani and Tajudeen (2015) studied cost control and its impact on the survival of Nigeria firms as
a case study on Nigeria bottling company PLC. Descriptive research design method was used. The
researchers used primary and secondary data source in order to examine the case. The primary data
were gathered by using structure questionnaire from randomly selected staff and other targeted staff
of Nigeria Bottling Company Plc. The secondary data source included journal articles, books,
newspaper articles, company financial reports and internet. To test the hypothesis t-test statistic and
comparative percentage were employed. The study found that major cost incurred in the company
like direct materials, direct labor costs and manufacturing overhead and other costs of high level have
positive significance impact on profitability like transportation and administrative costs. In addition
to this the study discovered that the problem of manufacturing company is the high cost of overhead
incurred in the company. The paper recommended that a good budgeting procedure should be in
place to control costs; techniques and tools for conducting value analysis in corporate with value
engineering should be used permanently; Just in time techniques should be employed to meet
production and on sales requisites in the company. Adeleke, (2014) shared the same opinion when he
studied the relationship between cost management techniques and performance of Nigerian banks for
the period 2002 to 2012. To conduct the research data were collected from 21 deposit money banks.
The collected data were analyzed by the use of ANOVA and descriptive statistics. He found that the
relationship between cost control techniques and performance of Nigerian banks was not statistically
significant.

Akeem (2017) the study aimed to examine the effect of cost control and cost reduction techniques in
organizational performance. To examine the issue data were collected from primary source,
questionnaires. The data were analyzed by regression analysis to test the hypothesis with the use of
SPSS. The researcher was found that cost control has a positive impact on organizational
performance. The researcher recommends that cost control and cost reduction scheme must be
properly administered in an organization by setting realistic standard.

Caroline (2014) examined the effects of cost management on the financial performance of
manufacturing companies. The study tried to found the effects of supply chain managements labor
management and stock management on the financial performance of manufacturing companies. To
conduct the study six manufacturing companies listed on Nairobi Security exchange were selected.
The study used quantitative approach as well as casual research design multi variance linear
regression model. Data was sourced from both primary and secondary sources namely questionnaire
and audited financial statements. The study found that co management is positively related to
financial performance of manufacturing companies. The research recommended that the management
should focus on managing cost of distribution, co of labor and cost of stock.

II.3. Conceptual Framework

The objective of this study is examining cost management practice for reducing and controlling
manufacturing costs. In doing this as shown in Figure 2-1 under cost reduction and control
framework top management support, workers involvement, managerial cost control and cost
reduction tools and techniques and responsibility accounting system are considered.

Cost management practice cannot be set up without any active support of top management of a
company. Management involves directing the activities of others, making sure that other people do
what will do. The basic managerial control process involves three steps. They are establishing
standards, measuring performance against these standards and correcting deviations from standards
and plans. A good management control system stimulates action by signaling the significant
variations from the original plan and highlighting them to the people who can set things right.

Employee involvement refers to using maximum efforts of all the employees of the company to solve
problems. The aim of employee involvement is to get ideas, creativity and energy from the workers
of a company to solve problem and for continual improvement. Trained manpower is a managerial
tool that enhances productivity. Managing the productivity of workers means reducing labor costs
and to maximize the returns of the company.
Manufacturing company’s managers use different tools and techniques in order to control and reduce
product costs. Cost control is reducing the actual cost to the targeted amount whereas cost reduction
aims at reducing the targeted costs themselves. Cost control and reduction are the practice of
identifying and reducing business expenses to increase profit. There are various cost control and
reduction tools and techniques in practice. Some of them are budgetary control, standard costing,
target costing, quality cost control, value analysis, value engineering etc.
To sum up, top management support, workers’ involvement, managerial cost control and cost
reduction tools and techniques, responsibility accounting system are interrelated cost management
practice of cost reducing and cost control activities.

Top management
support

Workers’ involvement

Cost accounting
practice of
Managerial cost manufacturing
control companies

Cost reduction tools

and techniques

Cost reducing and

cost control activities

Figure 2.1. Conceptual Frame work

 CHAPTER THREE: RESEARCH METHODOLOGY
3.1. Research Design

According to Mugenda, (2003), a descriptive study attempts to describe or define a subject, often by
creating a profile of a group of problems, people, or events, through the collection of data and
tabulation of the frequencies on research variables or their interaction. As a result, this study is used
descriptive research design which helps to assess the cost accounting and management practices of
Africa food complex PLC since it is helps to describe the relationship between cost accounting and
management practices and systems. Thus, this study is adopted a descriptive survey research as it
enables the identification and classification of the elements or characteristics of the subject under
study.

3.2. Data type and Source

In this study, data is collected from both primary and secondary sources. Primary data are collected
from the head quarter and from the select questionnaires design by and structure interview guides.
Further, secondary data are collected from documentations such as scholarly papers, publications and
the relevant documents.

3.3. Data collections methods

Data collection methods are techniques and procedures are used to gather information for research
purposes. These methods can range from simple self-report surveys to more complex experiments and
can involve either quantitative or qualitative approaches to data gathering. For this research we are used
interview, questioner and secondary data sources.

3.3.1. Structured interview

Structured interview are used to collect information from internal auditors, cost accountants and
company manger to get detail information about the issues under study. These interviewers are
selected, because as they are direct participant of company’s cost accounting and management
system and practice since they may have professional know-how about the topic under study.
3.3.2. Questionnaires (Open-ended and Close-ended)

Open-ended and close-ended questionnaires are filled by selected respondents. The questionnaires
are used because the researcher considered it to be more convenient as respondents could answer at
their convenience. The questionnaire would developed by the researchers based on the research
question and literature. The questionnaires are begin with an introductory statement, which specify the
purpose of the researcher.

3.4. Target population

Total population of Africa food complex PLC is 506. All population not target of our researches.
Target population refers to the entire group of individuals or objects to which researchers are interest
in generalizing the conclusions. So the target population of this research are consisted all clerical
employees who are working in Africa food complex PLC manager, internal auditors, cost accountants
and other employees that is related with cost accounting and management practices.

3.5. Sampling size and sampling techniques

3.5.1 Sampling size

Sample is statisticians used the word sample to describe a portion chosen from the population as a
representative for the population. It is subset of the population and is used to the researchers to obtain
information about an entire population by examining only a part of it (Banrejee, 2010). Sample size
is the finite part of a statistical population whose characteristics are research in order to gain
information about the organization (Naoum, 2009). The researcher selecting the sample size
by using Judgment sampling techniques 41 respondents as a sample.

n= ______N____ = __50___ = 41
1 + N (e) 2 1 + 50(0.07)2
Where;
n = the sample size,
N = the population size,
e = the level of precision or sampling error = (0.07)

3.5.2 Sampling techniques

Sampling techniques is the process of gathering information only from the portion of the population
when it is impossible to count or measure every item in the population. The researcher using
judgment sampling. Judgment sampling is a non-probability sampling technique. The reason for
selecting judgment sampling is that this method gives the researcher a freedom while selecting the
respondents.

3.6. Data analysis methods

Quantitative procedures combine with some qualitative procedure are used to analyze the data collect
for this study. The qualitative data obtained through the interview are analyzed qualitatively and
present in the form of a summary. On the other hand, the quantitative obtained through the
questionnaires are analyzed in terms of frequencies and percentile values, mean and standard
deviations and the results are presented in tables. The secondary data on the successions planning
practices and challenges in Africa Food Complex PLC are also analyzed and the findings are
presented in the form of narration in the summary part.

Then, the findings are interpreted and discuss in relation to the research questions, literature review
and the theoretical framework regarding effective succession planning practices. Statistical Package
for Social Sciences (SPSS) is used in data analysis.
 CHAPTER FOUR

4. DATA PRESENTATION ANALYSIS AND DISCUSSIONS

4.1. Results and Discussion of the Respond Rate

The details of the information gathered through key informant’s interviews and questionnaire is
discussed in this chapter. The focus of this section is mainly on the cost accounting practice of
manufacturing companies Africa Food Complex PLC. In this section, questionnaires responded by
customers and employees of Africa Food Complex PLC were presented and analyzed in details.
Table4.1: Distributed, returned and unreturned questionnaire to respondents

Respondents Employees of marketing department

Number Percentage
Distributed 41 100
Returned 38 92.68
Unreturned 3 7.32
Source: (Researcher’s Survey, 2023)

Questionnaires were distributed to 38 employees of Africa Food Complex PLC. Among these,
38(92.68%) employees are returns and the remaining 3(7.32%) employees failed to complete and
return the questionnaires. All returned questionnaires were considered for the analysis.
4.2. Demographic Background of the Respondents
The demographic profile of the respondents was presented in this section. The personal profile of the
respondents were analyzed as per their gender, age, levels of educational achievements, and years of
service in the organization and service year in the working environment of the branches.
4.2.1. Gender

Table4.2 gender demographic data analysis

Respondents Gender Employees of Finance

Frequency In Percent (%)
Gender Male 30 78.95
Female 8 21.05
Total 38 100
Source: (Researcher’s Survey, 2023)

As indicated in the above table, the gender allocation of the sample of respondents from the
employees of finance which the research was conducted. Among these, 30(78.95%) were male, while
the remaining 8(21.05%) comprised of female respondents. This implies that, there is a gender
disparity showed in the factory.
4.2.2. Age of respondents
Table 4.3. Age demography data analysis
Respondents Age Employees of finance department
Frequency In Percent (%)
Age in years Under 20
21-35 20 52.63
36-50 10 26.32
51-65 8 21.05
Over 65
Total 38 100
Source: (Researcher’s Survey, 2023)
Table 4.3 above indicate that the age of the respondents the majority 20(52.63%) of the interviewed
employees were age between 21 to 35 years and only 10(26.32%) of these respondents age between
36 to 50 years. This result indicate that there was a potential advantage of collaborative practice
among those motivated to accept and implement modern market strategies and the experience
directives of senior employees.
4.2.3. Educational level of respondents
Table 4.4 Educational demography data analysis
Respondents Gender Employees of finance department
Frequency In Percent (%)
Educational level Grade 10 Completed
Grade 12 completed
Diploma 10 26.32
Degree 27 71.05
Master’s 1 2.63
PhD
 Total 38 100
Source: (Researcher’s Survey, 2023)
When saw the level of education, 26.32 of the respondent are diploma holder, 71.05% of the
respondents were degree holders and 2.63% were second degree holders. Here, we can concluded
that all the respondents are educated and more than diploma holders. This implies that it is a good
advantage for cost accounting application and gives the organization a competitive advantage.
4.2.4. Work Experience of Respondent
Table 4.1 Respondent Work Experience

Respondents work experience Frequency Percent

1-5 10 26.32

6-10 23 60.53

11-20 5 13.15

20-30

Total 38 100

Source: (Researcher’s Survey, 2023)

With respect to service years of respondents in the cost accounting practice of manufacturing
companies Africa Food Complex PLC, 26.32% of the respondents had 1-5 years of experience.
60.53% of the respondents had 6-10 years of experience and 13.15% had 11-20 years of experience.
From this it is possible to understand that, most of the respondents had 1-5 years of experience and
20-30 years of experience constituted the respondents zero number of respondents. This also shows
that respondents have full information about the bank itself.

4.3. Descriptive Statistics of Scaled Type Questionnaires

In this part, descriptive statistics, in the form of mean and standard deviation, were presented to
illustrate the level of agreement of the respondents of the cost accounting practice of manufacturing
companies Africa Food Complex PLC.

The responses for the variables indicated below were measured on five point Likert scale with: 1=
strongly disagree, 2= disagree 3, = neutral, 4 = agree and 5= strongly agree.
4.3.1. Cost Accounting Practice of Manufacturing Companies Africa Food Complex PLC
4.3.1.1. Mean and Standard Deviation of Cost management
Table 4.2 Mean and Standard Deviation of Cost management practices

Items of cost management practice N Mean SD

Cost management practices applied in this company are effective to 18 3.38 1.31
enhance the profitability of the organization.
Management exercises cost reduction and control tools and techniques in 18 3.20 1.21
managerial decision-making.
The company efficiently uses cost reduction and control techniques to 18 3.12 1.28
measure performance.
Cost management practices have a significant influence on the profit 18 3.05 1.20
margin of the organization.
The cost management practice of cost reduction and control tools and 18 3.20 1.13
techniques applied in this organization reduces the cost of products
without affecting the quality of the products.
Communicative of Planning 18 3.19 1.21
Source: (Researcher’s Survey, 2023)

The above table illustrates that Cost management practices applied in this company are effective to
enhance the profitability of the organization. This has shown by a mean and standard deviation of
(3.38 and 1.13). From this the researcher concluded that respondents agreed that the employees were
being informed about what they would be made on cost accounting. Management exercises cost
reduction and control tools and techniques in managerial decision-making. This was shown by a
mean and standard deviation of (3.2 and 1.21). That the management is made reduction of cost and
control cost accounting in organization. The company efficiently uses cost reduction and control
techniques to measure performance. This has been shown by the mean and standard deviation of
(3.12 and 1.28). This indicates that respondents moderately agreed with regard to the Africa food
complex are efficiently use cost reduction and control technique. The cumulative mean and standard
deviation of planning were (3.19 and 1.2) and this demonstrated a somewhat similar value to the
average mean value with a standard deviation of 1.2.
 4.3.1.2.Mean and Standard Deviation of Budgetary Monitoring
Table 4.3 Mean and Standard Deviation of Budgetary Cost Control

Items of Budgetary Monitoring Mean SD

The company has a good budgeting process that can effectively 3.29 1.13
control costs
The company budgeting process helped to enhance profitability 3.40 1.14

In this company, budgetary control system serves as a tool to estimate 3.45 1.03
costs.
Budgetary control helps to motivate employees and to enhance 3.40 1.20
productivity.
Cumulative of Communication 3.38 1.12
Source: (Researcher’s Survey, 2023)

Table 4.7 Shows that The Company has a good budgeting process that can effectively control cost.
This can be understood from the mean and standard deviation scores of (3.29 and 1.13). From this,
the researcher can conclude that the Africa food complex company has good budgeting process and
controlling in organization. The company budgeting process helped to enhance profitability. The
mean and standard deviation scores of (3.4 and 1.14) indicated this and revealed that the budget is
made company more profitability.

In this company, budgetary control system serves as a tool to estimate costs. This can be seen from
the mean and standard deviation of (3.45 and 1.03). From this, it can be understood that most of the
employees determine system of control estimate costs of company. The cumulative mean and
standard deviation of budgeting control and monitoring (3.38 and 1.12). In general, as shown in the
table above, the cumulative mean value in the budgeting monitoring of budget prepare and impact is
indicate was 3.38 with a standard deviation of 1.12. This budgeting monitoring phase of the budget
preparing program has greater mean value than the planning phase of the budget.
 4.1.2.4. Mean and Standard Deviation of Effectiveness of Budgeting &
Budgetary Control System in Banking Industry
Budgeting and Budgetary control is very important and it determines the way in which the
organization can attain its financial and other goals. Thus, one of the specific objectives of
conducting this study is to investigate the role of budgeting and budgetary control system in Africa
Food Complex PLC. Therefore, respondents were asked if budget and budgetary controls affect the
cost accounting practice. Based on the survey result, the respondents indicated that budget and
budgetary control affects the cost accounting practice of Africa food Complex PLC. Concerning the
impact of budget and budgetary control on organizational practice, the study sought to find out the
extent that the cost accounting practice of Africa Food Complex PLC is affected by the budgeting
and control process. The feedback of the respondents is summarized and presented in the tabular
form as follows.

Table 4.4 Mean and Standard Deviation of Impact of budget on performance

Items of Impact of budget on performance Mean SD
Budgetary control process fails to focus on organizational 3.29 1.13
performance
Budgetary control has led to undefined financial goals which could 3.40 1.14
lead to negative financial performance
Lack of well-functioning accountability framework of budgetary 3.45 1.03
control is affect organizational non-financial performance

Budgetary control process has lack of teamwork between the 3.40 1.20
management and finance function
Organizational change is restrict budgetary control and influence 3.76 0.95
non-financial performance
Do you believe that your bank offer the best quality 3.73 1.01
of product or services or programs compared to others
Do you believe that your bank offer the best quality 3.68 1.12
of product or services or programs compared to others
Do you believe that the budgetary control have a role 3.80 0.87
on this non-financial performance of your bank in the
last seven year
Cumulative of Communication 3.56 1.06
Source: (Researcher’s Survey, 2023)

Table 4.7 shows that from the findings, as indicated by the value of Cumulative Percentage in the
table above, out of the total of 18 respondents, respondents representing main 3.56 and standard 1.06
agreed that budget and budgetary control greatly affects the cost accounting practice. This implies
that, based on the response of the respondents, the study confirmed that budget and budgetary control
process could greatly affect the cost accounting practice of Africa food Complex PLC. Moreover,
respondents were asked that whether effective budgeting and budgetary control system can improve
an organizational cost accounting practice and based on the finding, all of the respondents showed
their agreement that effective budgeting and budgetary control system can improve an organizational
cost accounting practice. An open ended question was presented to the respondents so that they shall
explain some of the means in which budget and budgetary control could improve the cost accounting
practice of Africa food Complex PLC. Based on this they have mentioned some points. As per their
response, budget and its controlling system can improve cost accounting practice by minimizing
costs, maximizing profits, increase return on assets, and enhance shareholders value or return to
equity. Whereas based on the respondents view, budget and budgetary control could improve the cost
accounting practice by increasing employee’s motivation, enhancing operational efficiency; improve
customer service which in turn results in increasing customer satisfaction. Moreover, they stated that
it could help them to be competitive in the industry and to improve their market share in cost
parameters. The study has tried to find out the major effects of budget and its controlling system on
the practice of the Africa food Complex plc. The following table indicates the respondent’s level of
agreement with statements on the possible impacts of effective budget and budgetary control on
Africa Food Complex PLC.

4.4. Discussion of Results

The study reveals that Africa Food Complex cost accounting practice and control for specific time
and purpose. Regarding the cost accounting control and practice of the Africa food Complex PLC,
the result of this study shows that the Africa Food complex PLC cost accounting control and practice
through activity level. Regarding cost accounting control and practice techniques the result of this
study indicates that system of control, control of cost incurs are the first control techniques applied in
the Africa food complex PLC.

This study has confirmed the presence of cost accounting practice and control is the predominant cost
accounting control technique applied by the Africa food Complex. The study result also shows that a
cost accounting practice review is conducted every day. From this aspect we can say that the cost
accounting which is being practiced in the Africa food Complex is strong. This study has tried to
systematically review the effectiveness of cost accounting control system of Africa food Complex.
Based on this, about 38 different questions were asked to inquire the respondents’ level of agreement
on statements that relate to essentials of cost accounting control system with regard to their practice.
The result of the study indicates that respondent agree on the cost accounting control is directly flow
from objectives of the Africa food Complex, there is a proper recording system and a sound
accounting procedures are practiced for proper recording of actual operations; sufficient time is
allowed for the cost accounting programmer to develop and reach near perfection; cost accounting
practice usually begins and ends according to the schedule/calendar; there is an efficient
organizational structure like fixed responsibility centers, a clear cost accounting calendar, finance
committee, statement manual and statement controller; there is a constant cost review in Africa food
Complex; there is a constant practice monitoring and analysis of costs and revenues and forwarding
of feedback for cost holders; and the cost accounting control is used as an efficient tool to control and
measure practice. However, respondents are not agreed on statements which specify that there is a
sound forecasting system to make precise and accurate cost estimate; there is an information system
that provides data for managers so that they can make realistic cost predictions; there is full
participation of all stakeholders in the process of incur cost; the Africa food Complex sets cost that
are reasonable and achievable; the Africa food Complex allocates enough financial resources that are
required to execute the planned activities. There is sound cost administration that is cost are being
administered efficiently by responsible executives; there is a clear policy of reward and punishment
for good/bad performance as per the cost; there is enough number of skilled and experienced experts
to accomplish cost preparation and administer cost control; and generally they disagreed on the
statement that refer to there is an effective cost and costing control system in Africa food Complex.
In general, the result reveals that the Africa food Complex fulfill essentials of a cost accounting
practice and control systems that were incorporated in this study. There are different studies state
different essentials of cost accounting practice and control. Vander (2000) identified some of the
major elements such as availability of enough financial resources, availability of skilled personnel,
and full participations of all stakeholders in the process of cost accounting. Mubina Shaikh (2016)
also pointed out the issues revealed by this study as the essentials of a cost accounting practice and
control system. Thus, the finding of this study is aligned to these different literatures which identify
various points as essential issues build cost accounting practice and control systems. Cost accounting
practice and control is very important and it determines the way in which the organization can attain
its goals. The third specific objective of conducting this study is to investigate the role of cost
accounting practice and control system within Africa food Complex. From the findings, cost
accounting practice and control could affect the financial statement of company.
CHAPTER FIVE: CONCLUSION AND RECOMMENDATION
5.1. Conclusion
According to Ali (2010), cost accounting is the process of recording, analyzing, classifying,
summarizing and allocating cost associated with a process and then developing various course of
action to control the costs. Its goal is to advice the management on how to optimize business practice
and process based on cost efficiency and capability. It also provides the detailed cost information that
management needs to control current operations and plan for the future. The broad objective of this
research was to assess the system of cost accounting practices in control and reducing in
manufacturing cost. Investigating the company’s management support, employees involvement,
arrangement of cost and responsibility centers, tools and techniques of cost control and reduction,
cost classification and allocation, methods of costing and its implementation, purchasing procedures
and use of cost information at Africa food Complex PLC were the specific objective derived from the
broad objective.

From this study, the following major findings have been drawing:

 In the company, there is management support and employee’s involvement by which the
management reviews standard cost and budget monthly and the employees have incentives,
motivation, training and job rotation to enhance their morale and productivity but they do not
participate in budget preparation and standard setting.

 The company has cost accounting policy and it uses standard cost control, budgetary control
and quality cost control as cost control and reduction tools and techniques but target costing is
not applicable

 The company identifies the obligation of each responsibility center, has proper recording,
keeping and accumulation of cost, creates good cooperation among departments and the
responsibility centers provide information for budget control. However, in time of reporting
the actual does not relate with planned information and the company does not assign costs to
particular cost objects and each cost object has not separate measurement of cost.

 The company has timely proper keeping documents, sending and receiving documents,
recording documents, material specification form and exchanging information between cost
department and others. However, the production department does not return back to store and
inform the costing department when it has excess raw materials.
  Cost information uses in the company for fixing price, budget determination and allocation,
accepting or rejecting any project, future product and investment plan and performance
evaluation. But, the company does not supply cost information for external users.

 The company has separate cost accounting department, written manuals and guidelines and
professionally qualified employees in accounting and finance. It classifies cost as material,
labor and overhead costs. On the other hand it also classifies as manufacturing and non-
manufacturing.

 The company does not use modern techniques of costing system like ABC system rather it
uses traditional techniques of costing system.

5.2. Recommendation
The following recommendations are forwarded based on the conclusion of the study:

 The company should include employees in budget preparation and standard setting for the
productivity and effectiveness of the company.

 In time of reporting, the company should try to relate actual with planned information and
assign costs to particular cost objects and each cost object should have separate measurement
of cost. Since assigning costs enable to be ascertaining for the costs that the company needs to
know which helps to control cost.

 The company should classify costs as fixed, variable and semi variable since it helps to
measure costs in relation to the change in levels of activities and it should use cost principle
to value fixed asset.

 The company also tries to use modern system of costing since it allocates each cost for each
activity, use more data provide more informed estimates of product costs, give better cost
information for decision making and helps to reduce costs.

 Although the company has timely proper keeping documents, sending and receiving
documents, recording documents, material specification form and exchanging information
between cost department and others, its production department should return back to store and
inform the costing department when it has excess raw materials.

 Even though the company use cost information for price fixing, budget determination and
future product and investment plan and performance evaluation, it should also give cost
information for external users in time of need.
 This research is conducted only in one company. More research should be conducted in
different companies to get comprehensive results and to understand the importance of cost
accounting practice and its effective on manufacturing firms’ performance.
References

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 Appendix

RIFT VALLEY UNIVERSITY

FACULTY OF BUSINESS AND SOCIAL SCIENCES

ACCOUNTING AND FINANCE UNDERGRADUATE PROGRAM

Questionnaires to be filled by employees of Cost Accounting Practice of Manufacturing

Companies Africa Food Complex PLC

Dear Respondents: -The aim of the questionnaire is to gather data in order to

“assess Cost Accounting Practice of Manufacturing Companies of Africa Food Complex PLC)”
This questioner is collect for academic purpose. Therefore, I kindly request you to fill this
questionnaire genuinely and freely assuring that the data will be used solely for the intended academic
purpose (for partial fulfillment of bachelors Art of accounting and finance (BA) in Accounting
Specialization in Organization Excellence and Total Quality Management). Please follow the
instructions and answer all questions. Your answers will be treated strictly confidential. You don‘t
needs to make public your identity.

Thank You for Your Participating!

Part One: - Demographic and other information

Please put tick mark (√) in the circle with most closely represents your personal situation and mark
one item only per question.

1. Gender
Male Female
2. Age (in years)
Under 20 21-35 36-50 51-65 Over 65
3. Educational level
Grade 10 completed Grade 12 completed
Diploma Degree Master PHD
 4. How long have you been employed at African Food Complex PLC?
Less than year One to two year two to three years
Three to four years

Part II: - Cost Accounting Practice Level Questions

Please put tick mark (√) in the box corresponding to the option that identifies your level of overall
(agreement) on the true feeling you have on a five point scale ranging from extreme disagreement to
extreme agreement where 5 is extremely agreement and 1 is extremely disagreement.
(1=strongly disagree 2=disagree 3=neutral 4=agree 5=strongly agree)

S/N Description of Statements 1 2 3 4 5

Cost management practices for reducing and controlling
manufacturing costs and improving performance
1 Cost management practices applied in this company are effective to
enhance the profitability of the organization.
2 Management exercises cost reduction and control tools and techniques
in managerial decision-making.
3 The company efficiently uses cost reduction and control techniques to
measure performance.
4 Cost management practices have a significant influence on the profit
margin of the organization.
5 The cost management practice of cost reduction and control tools and
techniques applied in this organization reduces the cost of products
without affecting the quality of the products.
Budgetary Cost Control
6 The company has a good budgeting process that can effectively control
costs
7 The company budgeting process helped to enhance profitability
8 In this company, budgetary control system serves as a tool to estimate
costs.
9 Budgetary control helps to motivate employees and to enhance
productivity.
Standard Costing
10 All organization department representatives participate in setting
 standard costs of goods and service.
11 The company uses standard costing for establishing yardstick in
exercising control.
12 Standard cost of the company is helpful in decision making
by providing forecast of future cost.
13 Standard costing facilitates delegation of authority and
fixation of responsibility
Product Quality Control
14 The company quality control method is effective because it enables to
decrease defect products and increase productivity.
15 The quality control method of the company enables to reduce
the cost of inspection.
16 Material quality control system of the company used as a cost control
tool for decreasing material cost by avoiding wastages.
Employee Involvement in Cost reduction and Control Practice
17 Employees participate in budget preparation and standard setting.
18 Trained employees are helpful in reducing labor cost of the company.
19 Skilled labor in the company produces quality products this in turn
inspection cost decreased.
20 Job rotation in the company is helpful for employees easily train,
motivate and enhance productivity
Comment and Suggestions:- _____________________________________________________

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Thank You!