...International Journal of Management and Social Sciences Research (IJMSSR) ISSN: 2319-4421 Volume 2, No. 4, April 2013 i-Xplore International Research Journal Consortium www.irjcjournals.org 1 The Impact of Cost Control on Manufacturing Industries’ Profitability Siyanbola, Trimisiu Tunji, Lecturer in Accounting, Babcock University, Ilishan Remo, Ogun State, Nigeria. Raji, Gbolagade Mojeed, Lecturer in Accountancy at The Polytechnic, Ibadan. ABSTRACT Cost control is of utmost importance in every business concern, the negligience of which will affect the earnings at any point in time. In controlling costs, wastage is eliminated during the course of production and even during the administrative, selling and distribution activities. A good system of cost control begins with the behaviour of workers in the organisation as workers are instrumental to the achievement of organisational goals. In carrying out this research, budget was considered as the basic tool for achieving effective cost control and the study was concentrated on West African Portland Cement Plc (WAPCO), where cost control was viewed from a strategic perspective. Pearson correlation model was used in analysing the data and the hypotheses tested confirmed positive impact of cost control on the industries’ profitability. Keywords Cost, control, profitability, management, budget, production, sales. 1.1 INTRODUCTION Cost and profit in business undertakings form part of what determines the financial position of a business...
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...traditional cost management VS lean cost management by Mahanim Hanid, Lauri Koskela and Mohan Sinwardena, the term of cost management is not a well defined term. It’s built on both cost accounting and management accounting, but goes beyond these two terms (P. Agrawal and Mehra 1998). For Brinker (1996) defines it as a set of techniques and methods for controlling and improving a company’s activities and processes, its products and services. In addition, Maskel (2009) also described that the cost and management accounting is used internally to help the company’s manager control and improve the business. Although there is an accounting standards associated with these tasks, there is no legal requirement to perform these tasks in any particular way or to perform them at all. A company can do as much or as little cost and management accounting as it wishes and it can be done in any way it wants. Furthermore, cost accounting practices are seldom exactly similar in different companies (P. Agrawaland and Mehra 1998). According to text referred, cost management is equally important to all companies, regardless of size. Small companies generally have tighter monetary controls, mainly because of the risk with the failure of as little as one project, but with less sophisticated control techniques. Large companies may have the luxury to spread project losses over several project whereas the small company may have few projects. Cost management is not only “monitoring” of costs and recording...
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...CHAPTER 1: MANAGEMENT ACCOUNTING Introduction: Accounting may be broadly classified into two categories – accounting which is meant to serve all parties external to the operating responsibility of the firms and the accounting which is designed to serve internal parties who take care of the operational needs of the firm. The first category which is conventionally referred to as financial accounting, looks to the interest of those who have primarily a financial stake in the organization’s affairs – creditors, investors, employees etc. On the other hand the second category of accounting is primarily concerned with providing information relating to the conduct of the various aspects of a business like cost or profit associated with some portions of business operations to the internal parties viz., management. This category of accounting is called as Management accounting. In order to perform the primary task of decision making managers of business enterprises need information about the past, present and future in the functional areas of management such as personnel, finance, marketing and production. Right decision making has to be based on quantitative and qualitative information. The management thus constantly needs accounting information to base its decisions upon. Thus management accounting provides the information needed by management personnel. Definition: The Institute of Chartered Accountants of England has defined management accounting as: “Any form of accounting...
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...Cost Management Laura M. Davis BUS630: Managerial Accounting (NAH1226A) Professor John Kuhn August 7, 2012 Cost Management There are many aspects of accounting that are important to the functions of a company. I believe that one of the most important is cost management. Cost management is when you manage the cost within a company by tracking all cost that is involved in all of the day to day processes. This allows for the company to keep the cost of the company lower by managing those cost within the company to keep them as low as possible and to be able to explain and understand why a cost may rise or how to decrease a cost. Cost management is an aspect of managerial accounting. “Managerial accounting is concerned with providing information to managers-that is, the people inside an organization who direct and control its operations. In contrast, financial accounting is concerned with providing information to stockholders, creditors, and others who are outside the organization.” (Noreen, Brewer, Garrison (2011)). From the inception of a business idea cost management is implemented. When considering opening a business the very first activity that is performed is a cost analysis of what the cost will be to open a business. From there a revenue projection is completed in detail of a certain time period to determine if there will be profit after the cost of the business. By using managerial accounting the Controllers and Cost Accountants within a company are...
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...SCHOOL OF BUSINESS, ECONOMICS AND MANAGEMENT AFIN317 : ADVANCED MANAGEMENT ACCOUNTING DISTANCE STUDENTS ASSIGNMENT TWO DUE DATE 17TH APRIL 2015 LECTURER : MR OSCAR CHINYANTA EMAIL :chinyantao1976@gmail.com CELL NUMBER :0964405740 Instructions to Candidates: 1. All questions to be answered. 2. Full credit will be given only if all the working is shown. 3. Begin answering each question on a new page 4. Clarity and neatness of presentation will earn you an extra marks 5. Only hard copies will be accepted for marking no emailed copies will be marked. Page 1 of 8 QUESTION ONE a) Monk Plc is a manufacturer of small domestic electrical appliances. Its market is very competitive in terms of both price and new product innovation. As a result product life cycles are short. Monk Plc’s managers are concerned about the reliability of its product costing system. It currently uses an absorption costing system, and absorbs overheads on the basis of budgeted direct labour hours. On this basis the estimated cost of its latest product, a talking electric kettle, is as follows: K per unit Direct material 9·00 Direct labour (K24 per hour) 1·00 Production overheads (K240 per hour) 10·00 ––––– Production cost 20·00 –––––– The firm’s management accountant has suggested that more accurate product costs would be obtained if an activity based costing (ABC) approach were used. He has collected the following information as a starting point...
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...CHAPTER 5: ACTIVITY-BASED COSTING AND MANAGEMENT QUESTIONS 5-1 Product costs are likely distorted when a firm uses a volume-based rate if the plant has more than one activity in its operations and not all activities consume overhead in the same proportion. The more diverse the product mixes of the plant are in volume, sizes, manufacturing processes, or product complexities, the greater the cost distortions are likely to be in using a volume-based rate. Undercosting a product may appear to have increased the reported profit the product earned (assuming the firm did not lower its selling price because of the reported lower product cost). However, the increased profit is, at best, a twist in truth. Costs of the product not charged to the product itself are borne by other products of the firm. Worse, undercosting a product may result in managers erroneously believing the product to be more profitable than other products and shifting the limited resource the firm has into manufacturing, promotion, and sales of the product when, in fact, other products are more profitable to the firm. Severe cost distortions may lead firms not to drop unprofitable products because the cost data show these products are profitable. 5-3 Overcosting does not increase revenues. A firm can increase the selling price of a product, thereby increasing the total revenue from the product only if the market allows. Increases in the selling price of a product without experiencing noticeable decrease in the sales...
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...managers to make short and long-term decisions is cost function. In other words, this concepts helps managers to predict future costs using historical accounting and non-accounting data, assumptions and qualitative factors. This concept helps to estimate costs of goods production, facilitation or other business activities. First, cost is identified as fixed or variable. Fixed costs are not changed when the quantities number of goods or services change, so it will occur whether production occurs and include overhead, administrative salaries, insurance . On the other hand, variable costs depends on the number of units and can include direct materials, labour, sales commissions. This concept is useful for the businesses in case they have enough data to make predictions. Additionally, the cost function is reliable only for relevant range and will change below or above this range. Generally, total cost include fixed costs and variable costs per unit multiplied by units. For example, we are considering opportunity to celebrate New Year together with classmates and friends in Toronto or Greater Toronto Area. In that case we need to rent a house, to buy food and drinks, to buy fireworks. However, the number of people can be between 10 and 20 people depending on the results of our discussion and other factors such as MBA Games, which started on the 2nd of January. The cost of the house for up to 14 people is $1400 for two nights, when the cost for the house for 20 people is $2000 for two...
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...Deere Cost Management Case In this case the Cost Management specialist received a call from Sales manager in the Agricultural product division, to look into the costs on gatherer chain. The company Deere manufactured and distributed a line of agriculture products and also construction and forestry equipment, the popular product sold for agricultural division was a conveyor system. The gatherer chain is part of the conveyor system and also sold as a replacement part, the supplier Saunders Manufacturing had a long-term relationship with Deere. Over the past three years, the sales revenue and margin for the gatherer chain had been declining, see chart below: Two years ago Last year ago Current Budget Aftermarket Price $40.00 $36.25 $30.00 Purchase Cost $21.25 $22.61 $24.12 Cost-price ratio 53% 62% 80% Unit Sales 475,000 410,000 350,000 After this situation, the cost management specialist met Susan from purchasing and Jose from engineering, to do a financial analysis, and estimate the cost of raw material content in the chain gatherer, they also indicates the cost of those material with the suppliers they already had, Susan’s observation was, they have not able to find anyone that capable of beating the current price, they do not want to lose Saunders as a supplier. The budget cost price ratio was still unacceptable, the idea was 50-50 cost price ration on their product lines, and it will be a solution meet the supplier with all the cost information gathered and negotiate...
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...1.0 Introduction Intense competition and pressure from customers to reduce prices has forced many companies to reduce their costs to survive. Automotive manufacturers such as BMW and Mercedes have found that most of their costs are committed once the production begins, and thus, the cost must be reduced earlier in the product life cycle, particularly while the product is in the planning and design stages. Mercedes Benz is a multinational division of the German manufacturer Daimler AG, headquartered in Stuttgart. The brand is often used for building luxury automobiles, buses, coaches, and trucks, widely known as one of the most established and oldest automotive brand in the world today. 2.1 Cost Management Techniques Adopted by Mercedes Benz 2.1.1 Target Costing Target costing prices are assumed to be set by the market on a competitive basis. In a market economy, values are defined by the users. As Mercedes move closer toward a global economy, prices increasingly become uncontrollable variables, while costs, because of technological advances, increasingly become controllable variables. When selling price and profit margin are fixed by competitive pressures and management policies, respectively, reducing the firm’s production costs may be the only source of increased earnings. Mercedes Benz, one of the worlds most prestigious and tradition laden car makers, has taken its time to wake up to the daunting dimensions of the challenges it faces in the rapidly changing world...
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...Exercise 2-3 (15 minutes) | | Product Cost | Period Cost | 1. | Depreciation on salespersons’ cars | | X | 2. | Rent on equipment used in the factory | X | | 3. | Lubricants used for machine maintenance | X | | 4. | Salaries of personnel who work in the finished goods warehouse | | X | 5. | Soap and paper towels used by factory workers at the end of a shift | X | | 6. | Factory supervisors’ salaries | X | | 7. | Heat, water, and power consumed in the factory | X | | 8. | Materials used for boxing products for shipment overseas (units are not normally boxed) | | X | 9. | Advertising costs | | X | 10. | Workers’ compensation insurance for factory employees | X | | 11. | Depreciation on chairs and tables in the factory lunchroom | X | | 12. | The wages of the receptionist in the administrative offices | | X | 13. | Cost of leasing the corporate jet used by the company's executives | | X | 14. | The cost of renting rooms at a Florida resort for the annual sales conference | | X | 15. | The cost of packaging the company’s product | X | | Problem 2-16 (45 minutes) 1. | Cost of goods sold | Variable | | Advertising expense | Fixed | | Shipping expense | Mixed | | Salaries and commissions | Mixed | | Insurance expense | Fixed | | Depreciation expense | Fixed | 2. Analysis of the mixed expenses: | Units | Shipping Expense | Salaries and Commissions...
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...H & R Block is one of the largest and oldest service providers. The company was founded by brothers Henry and Richard Bloch in 1955. The company began franchising in 1956 and they went public in 1962. The company employed over 100,000 tax professionals that are trained both within the U.S. and worldwide. The company has prepared more than 550 million tax returns since the business started in 1955. One key important key to the company success is that they have a retail office within 5 miles of most Americans. You are able to do your taxes both in person and on-line because H & R Block offers these services. The tax-payer can chose to walk into an office and work face-to-face with the tax specialist, they can work totally on their own using the online or packaged do-it-yourself tax prep tools, or they can utilize the do-it-yourself software with unlimited help from and online tax professional. H & R Block will offer you a wide variety of tax consulting services. Straight forward tax return offers the most basic start which is simple. You are able to accomplished this either on-line or in house. H & R Block also offer “drop off” service. A small business service is offered by H & R which includes helping the preparer to navigate the tax requirement of running a business. This is done throughout the year and not just a year-end service. H & R offers a service called “Best of Both”. This is where you get the convenience of doing it online with tax support preparation from...
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...The author, William, explored the role of CMA (Certified Management Accountant) certification and IMA (Institute of Management Accounting) play in accountants’ and financial professionals’ career story through this article” growing your career”. The CMA is the globally recognized, and advanced-level credential appropriate for accountants and financial professionals in business. It is the key to greater career potential. As the author mentioned, there are several characteristics in the CMA credential. That is prestigious, professional, rigorous, empowering and competent. The CMA covers the in-demand skills for accountants and financial professionals in business needed on the job today as a professional and as a leader. Pursuing the CMA certification makes difference for whom want to obtain the combination skills of accounting and finance. For the compensation, the “gold standard” of management accounting credential also makes a difference. Professionals who hold the CMA credential on average earn $34,000 more in annual total compensation than their noncertified peers.* Whether candidates want to enhance the value that brings to the current position, or expand their career potential, the CMA will help them set the standard for professional excellence. IMA, the worldwide association of accountants and financial professionals working in business, empowers accountants and financial professional to drive business performance. IMA is committed to help the members which are more than...
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...rojects cost. Have you ever worked with a client who had a huge vision for a project, but had little capital to invest into the vision? Or have you worked with a client who gasped when you revealed how much it would cost to complete their desired scope of work? Or have you been fortunate and had a customer who accepted the costs for the project at face value, made certain the funds were available, and sent you on your way to complete the work? As a general rule, management and customers are always concerned with how much a project is going to cost in relation to how much a project is going to earn. Most likely there is more negotiating, questioning, and evaluating for larger projects than for smaller ones. The relation between the project cost and the project scope should be direct: you get what you pay for. Think it’s possible to buy a mansion at ranch home prices? Not likely. Think it’s possible to run a worldwide marketing campaign at the cost of a postcard mailer? Not likely. A realistic expectation of what a project will cost will give great weight to the project’s scope. As the business need undergoes analysis, progressive elaboration and estimates are completed based on varying levels of detail, and eventually the cost of project will emerge. Often, however, the predicted costs and the actual costs vary. Poor planning, skewed assumptions, and overly optimistic estimates all contribute to this. A successful project manager must be able to plan, predict,...
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...Overview of Project Cost Management According to an accounting textbook, cost is defined as a resource sacrificed or foregone to achieve a specific objective. It is something given up in exchange. It is necessary for project managers to understand project cost management since project costs money and consumes resources. There are reasons for project cost overrun and these are as follows: * Not emphasizing the importance of realistic project cost estimates from the outset. IT project cost estimates are low to start with or based on unclear project requirements. * Many IT professionals think that preparing cost estimates is a job for accountants when in fact, it is a very demanding and important skill that project managers need to acquire. * Many IT projects involve new technology or business processes that involve untested products and inherent risks. Project cost management involves the processes required to ensure that the project is completed within an approved budget. These processes are as follows: * Estimate costs * Determine budget * Control costs As project managers, understanding the basic principles of cost management is a must in order for them to be effective in managing project costs. Important concepts include profits and profit margins, life cycle costing, cash flow analysis, internal rate of return, tangible and intangible costs and benefits, direct costs, sunk costs and learning curve theory. Profits are revenues minus expenses...
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...BBA – 201 Cost and Management Accounting Max. Marks: 15 Last date of submission: Note : Question No. 1 is of short answer type and is compulsory for all the students. It carries 5 Marks. (Word limits 50-100) Q. 1. Answer all the questions: 1. 2. 3. 4. 5. What do u understand by Economic order quantity (EOQ)? What do u mean by variance analysis? Give four differences between management accounting and financial accounting. What is trend percentage? How cash flow statement is different from Fund flow statement. NOTE: Answer any two questions. Each question carry 5 marks (word limit 500): Q. 2. What is the meaning of Cost Accounting? Explain the difference between cost accounting and financial accounting. Q. 3. Write short note on (any two): a) Comparative Balance sheet statement. b) Ratio analysis. c) Fund flow statement. Q4. Prepare a cost sheet from the following particulars: PARTICULARS Stock of finished goods 1.1.2009 Stock of raw material on 1.1.2009 Purchase of raw material Productive wages Sale of finished goods Stock of finished goods on 31.12.2009 Stock of raw material on 31.12.2009 Factory overheads Office and administrative overheads Selling overheads 72,800 33,280 7,59,200 5,16,880 15,39,200 78,000 35,360 1,29,220 70,161 20,000 RUPEES JAIPUR NATIONAL UNIVERSITY, JAIPUR School of Distance Education & Learning Internal Assignment No. 2 Bachelor of Business Administration Paper Code: Paper Title: BBA – 201 Cost and Management Accounting...
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