Cost Accounting Principles
Cost Accounting Principles
Cost Accounting Principles
BY
DEPARTMENT OF ACCOUNTANCY
COLLEGE OF BUSINESS AND MANAGEMENT STUDIES (CBMS)
KADUNA POLYTECHNIC,
KADUNA.
DECEMBER 2010
i
DECLARATION
I here by declare that this project has been duly conducted solely by me
under the supervision of Mr. Adamu Ali of the department of
accountancy. College of business and management study {CBMS}
kaduna polytechnic.
Signature
ii
APPROVAL PAGE
_________________________ __________________
MR. ADAMU ALI Date
(Project Supervisor)
_________________________ ________________
MR. ADAMU ALI Date
(Project Coordinator)
_________________________ _______________
MR. ABUH ADAH Date
(Head of department)
_________________________ _______________
EXTERNAL EXAMINER Date
iii
DEDICATION
iv
ACKNOWLEDGEMENT
I give thanks to Almighty God who has been my very help in all things,
father I am grateful.
My profound gratitude to Mr. Adamu Ali who supervised this project work
giving me all the attention and advice I need to believe in myself and
also to move ahead, Thank you sir. And to all my lecturers Mallam
Yahaya, Mrs. Maduka, Mallam Usman Umar. Mallam Miyaki, Mr. Kelvin
and to all, I want to say thank you all.
I refuse to forget my fiancé Mr. Onyebuchi Eugene Efogu for all his love
and support both morally and financially. I appreciate you dear and God
bless.
v
ABSTRACT
vi
TABLE OF CONTENTS
Title page - - - - - - - - i
Declaration - - - - - - - - - ii
Approval - - - - - - - - - iii
Dedication - - - - - - - - - iv
Acknowledgement - - - - - - - v
Table of contents - - - - - - - - vi
Abstract - - - - - - - - - vii
Table of contents - - - - - - - - viii
CHAPTER ONE
Introduction
1.0 Introduction - - - - - - - - 1
1.1 Background of the study - - - - - - 1
1.2 Statement of study - - - - -- - 2
1.2 Objectives of the study - - - - - - 3
1.3 Research Hypothesis - - - - - - 4
1.4 Significance of the Study - - - - - 4
1.5 Scope of the study - - - - - - - 5
1.6 Historical Background of NBTE - - - - 5
CHAPTER TWO
Literature Review
2.1 Introduction - - - - - - - - 7
2.2 Meaning of cost accounting - - - - - 8
2.3 Planning and the application of cost accounting - - 9
2.4 Control and cost accounting - - - - - 15
2.5 Standard cost as a tool for control - - - - 19
2.6 Decision making - - - - - - - 24
2.7 The decision making process - - - - - 25
vii
CHAPTER THREE
Research Methodology
3.0 Introduction - - - - - - - - 29
3.1 Population and Sample Size - - - - - 29
3.2 Sampling Techniques - - - - - - 30
3.3 Sources and Method of Data Collection - - - 30
3.4 Method of Data Analysis - - - - - - 31
3.5 Justification for the Choice - - - - - 31
CHAPTER FOUR
Data Analysis and Interpretation
4.0 Introduction - - - - - - - - 32
4.1 Data Presentation - - - - - - - 32
4.2 Analysis of Questionnaire - - - - - 33
4.3 Testing Hypothesis - - - - - - 41
4.4 Summary of findings - - - - - - 41
CHAPTER FIVE
Summary, Conclusion and Recommendations
5.1 Summary - - - - - - - - 43
5.2 Conclusion - - - - - - - - 44
5.3 Limitation of the Study - - - - - - 45
5.4 Recommendations - - - - - - 46
Bibliography - - -- - - - - 48
viii
CHAPTER ONE
1.0 INTRODUCTION
making.
-1-
In essence, organization are established for a defined purpose
necessary is the input. Inputs do not come for free; payments have
etc. to produce goods (soft drink) and payment must be made for
-2-
standards, variance analysis and the automatic production of
Most companies are still using the simple analysis system to set
making.
control.
-3-
iii. An important tool in running a section, department or factory,
-4-
(2) Help managers and others in industry, commerce,
cost.
firm.
the company are Eva water, Five Alive fruit juice and the newly
-5-
Coca-cola, the product that gives the world its best known taste,
was first set up in Lagos, Nigerian in the year 1953. This became
with about 1.8 billion bottles sold per year making it the second
pineapple Sprite, Bitter Lemon and Coke etc. All of these are one
plants in various parts of the federation and more are yet to come.
-6-
CHAPTER TWO
LITERATURE REVIEW
2.0 INTRODUCTION
been done regarding this topic, the researcher admits that such
easy understanding.
the concepts and theories given in this research work are defined
-7-
Certified Accountant etc. Management needs a variety of
high quality goods and services. These demands are placing ever-
cost control.
-8-
ii. Cost of running a section department or factory to aid
iii. Wage cost for a unit of production or per period for the
The analysis and recording of past costs and activities is but one
know what costs will be in the future so that appropriate plans and
management.
-9-
Most businessmen at management level have a dual job:
this goal into actual sales, when the production and marketing
thinking.
- 10 -
set forth. The company’s policymakers must then answer in
ii. How can the company best go about getting this return?
decided upon?
iv. How much of these resources can come from within the
company?
the company?
objectives?
The overall planning process covers both the long-term and short-
term.
range planning”.
- 11 -
The process of long-term or corporate planning is a detailed,
TERMINOLOGY
corporate plan. The steer the organisation towards the long term
ensure that short term plans do not deviate from the long-term
plans
- 12 -
2.3.3 BUDGET
- 13 -
activities and departments of the organisation so that each facets
these objectives and transmits the agreed plans to all the staff
achieved.
- 14 -
targets against which performance can be judged is motivating to
those involved.
Control like planning is exerted in two ways short and long term.
made with long-term plans in mind, they are more likely to result in
- 15 -
day-to-day, month-to-month operations in accordance with the
long-range plan.
said ‘A company moves from small to big status when it can afford
sense only if the lowest level of supervision is brought into the act.
- 16 -
i Clarification of Authority and Responsibility: - The process
- 17 -
plan so that necessary corrective actions can be taken. This is
efficiency be obtained.
much of its time in planning for the future no matter how busy it
- 18 -
costing is a technique which establishes predetermined estimates
A standard cost can be defined “as the planned unit cost of the
but which include allowances for normal loss, waste and machine
above losses and are only attainable under the most favorable
- 19 -
2.5.1 BASIC STANDARDS:
unchanged over the years. Basic standards show the trend. Over
time, for such items as material prices, labour rates and efficiency
for use over a long period from which a current standard can be
inefficiency to this effect they would not normally form part of the
efficiency.
used because it is certain that labour (human) gets ill tired etc. and
machine too break down to mention but a few obstacles that affect
- 20 -
worthwhile for investigative and development purposes, but not for
fatigue machine break downs etc. This standard is the most used
to be worked for.
control, for stock valuation and as basis for budgeting. They can
variances that may arise and the meaning that can be attached to
the variances.
- 21 -
For realistic standards which can be used for control purposes to
for every single element which contributes to the product the types,
usage and prices of materials and parts, the grades, rate of pay
and times for the labour involved, the production methods and
procedures.
The prices used should not be past costs, but the forecast
- 22 -
labour time to be set. The labour standards to be set must
time).
standards be revised.
- 23 -
To show trends and to be able to compare performance and
periodic intervals.
is because past costs and revenues are only sunk costs and
- 24 -
Decision can be either short run tactical decisions are those
- 25 -
that firms do not seek to maximize profit. Baumol (1959) argued
pursue other objectives that reflect their own interest. Some still
OR STRATEGIES
future.
- 26 -
Alternative course of action could be
assess the potential growth rate of the activities, the ability of the
selected.
- 27 -
2.7.6 COMPARISON
- 28 -
CHAPTER THREE
RESEARCH METHODOLOGY
3.0 INTRODUCTION
problem.
threat on which the research is based and from which the sample
is drawn.
- 29 -
of the population is chosen for the study which sample is the
This refers to the method of collecting data from a sample. For this
of giving information.
first time. They are data colleted in the present research in its
study.
- 30 -
Newspapers, periodicals, bulletin and many such publication
Simple percentage method has been chosen for this work because
- 31 -
CHAPTER FOUR
4.0 INTRODUCTION
Table 1
- 32 -
4.3 DATA ANALYSIS AND INTERPRETATION
Question 1: Table 2
RECEIVE (%)
Male 18 90
Female 2 10
Total 20 100%
The above table shows the sex of staff in the Finance and
- 33 -
The above table shows the number of staff that answered the
questionnaire who are married and those that are single
Question 3: Table IV
What is the level of management?
RECEIVE (%)
Top 8 40
Middle 10 50
Low 2 10
Total 20 100%
From the data presented above it is obvious that staff at the three
Question 4: Table V
- 34 -
This table gives an analysis of the number of years the
Question 5: table VI
RECEIVE (%)
Marginal - -
Absorption 20 100
Total 20 100%
From the above table, it can be seen that, the company uses the
- 35 -
While 50% of the respondent answered that process contract is
used in the organisation and 40% said that contract costing used
Question 7:
program-software (PRS).
- 36 -
From the above table, costs are allocated to the various
(%)
Cost of 16 80
production
Economy 1 5
Average costs 3 25
Total 20 100%
Question 9 Table IX
The table above depicts the process by which products are of the
opinion that total cost for the production of products determines the
price for which goods will be sold plus the margin percentage.
15% percent says the Average of the overall cost is used plus the
- 37 -
SECTIONS RESPONSE PERCENTAGES
RECEIVE (%)
Fully 20 100
Partially - -
Not computerized - -
Total 20 100%
information
- 38 -
SECTIONS RESPONSE PERCENTAGES
RECEIVE (%)
High 15 75
Fair 4 20
Low 1 5
- 39 -
From the above data above 75% of the respondent give their
thinks it is low.
Question B Table
RECEIVE (%)
Fair 9 45
Very good 10 50
Good 1 5
Poor - -
Total 20 100%
From the above table it can be seen that cost accounting which
give information on cost of production that gives the basis for the
respondent say that profit are fair 50% say it is very good and 5%
- 40 -
4.4 TESTING OF HYPOTHESIS
objectives.
- 41 -
one. This been so, cost accounting with its diverse methods and
- 42 -
CHAPTER FIVE
5.1 SUMMARY
as they are set and where deviations exist detect their causes and
- 43 -
cost product line and their contribution to the overall profits. What
overheads will be, the time need for the production of a unit per
product and the total time required. The cost of idle time and the
way that the least possible costs are incurred while producing the
5.2 CONCLUSION
iii. It gives management the picture of the type of labour force that
what cost.
- 44 -
iv. That for any organisation to achieve its objectives it needs a
activities.
the full benefits of costing it should adopt the method that best
goals. Plans are made today for events which will occur in the
future. Today is known with perfection but the future can only be
manufacturing.
- 45 -
Costing in this research is limited to its use in planning, controlling
three.
research findings is limited to just a company and with this not the
Costing also applies to all organisations but the data given in the
5.4 RECOMMENDATION
- 46 -
accounting is very efficient (as can be seen from the
operating them.
adversely affected.
kept
- 47 -
BIBLIOGRAPHY
- 48 -
SAMPLE QUESTIONNAIRE
Dear Respondent,
a case study and is therefore seeking for your assistance with regards to
the data. Any information supplied for the purpose of this study will be
treated confidentially.
SECTION A
PERSONAL DATA
- 49 -
5. What costing techniques is used?
-----------------------?
computerized
information?
- 50 -
13 How do you asses your company’s Finance relative to cost?
(d) Poor
- 51 -