COST ACCOUNTING TECHNIQUES AND MANAGEMENT ACCOUNTING AS A TOOL FOR PERFORMANCE EVALUATION OF COMPANIES IN NIGERIA

COST ACCOUNTING TECHNIQUES AND MANAGEMENT ACCOUNTING AS A TOOL FOR PERFORMANCE EVALUATION OF COMPANIES IN NIGERIA

ABSTRACT: This study evaluates cost accounting techniques and management accounting as a tool for performance evaluation of companies in Nigeria. Its specific objectives are to determine: How to cost accounting techniques and management accounting can be used as a tool to evaluate the performance of companies in Nigeria. To ascertain the relationship between cost accounting techniques and management accounting on companies’ performance in Nigeria. 30 manufacturing companies were selected as the sample size and stratification random sampling technique. Descriptive analysis was employed through the use of tables, percentage, ranks, etc. However, the hypothesis was tested using regression analysis through the use of the strata. The study recommends that companies in Nigeria should make use of appropriate and advance techniques like marginal and absorption cost techniques to evaluate companies’ performance regularly in other to determine the profitability status of the company.

Keywords: cost accounting techniques, management accounting performance evaluation, companies in Nigeria.

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CHAPTER ONE:

INTRODUCTION

BACKGROUND OF THE STUDY

The importance of this research is to talk about the importance of cost accounting techniques and management accounting as a tool for performance evaluation of companies in Nigeria. The concept of performance evaluation in Nigeria has gained strong attention to improve results in the midst of challenging economic conditions. Many organizations instead of looking at external improvements such as market growth and advance technology are looking internally. Performance evaluation which is a means of measuring the financial performance of all the group efforts in the company helps to determine the profitability status of the company which helps shareholders to determine their shares will perform, investors and banks to determine if they risk their money, it also helps management inefficient planning and decision-making.

The primary focus of economic planning and management in Nigeria over the years has been the transformation of the economy through industrialization. However desired results are not obtained, the economy is far from industrialization. The need to increase the company’s level of efficiency has been a dominant suggestion offered as a key to revising unimpressive performance.

Cost accounting techniques have been suggested as one of such important management techniques that can help ensure efficiency in the US of companies’ resources (IFAC 1998). Ayodele and falokun 2003, also suggested the adoption of the combination of suitable management techniques with suitable technology and other resources in addressing the low productivity of the sector.

Cost accounting techniques which is the process of using costing and accounting techniques, methods to ascertain the cost. It is used to cost a product, prepare income statements and determine future costs. Traditionally the main objective of the cost accounting system has been to provide information for costing a product and promoting efficiency in the use of Labour and materials (Johnson and Kaplan 1987). while management accounting is the process of making decisions from financial records. Both cost and management accounting techniques are used for decision-making.

However, cost accounting techniques and management accounting will be used as a tool for performance evaluation of companies in Nigeria.

STATEMENT OF THE PROBLEM

Over the years in Nigeria, there has been an increase in the establishment of companies but most of them crumble immediately it is established, the well-known companies get richer while the smaller ones keep declining this is as a result of low productivity, the decline in sales which leads to lack of profit.

Most researchers say this is a result of lack of adequate funds (money) and lack of infrastructure and support from the government looking at it from another angle, most of these companies lack information on how to cost their products, services, to prepare income statements.

Companies should adopt cost techniques like marginal and absorption to cost their product to ensure higher productivity, they should prepare income statements to determine their net profit or loss, they should be able to use cost estimation to determine the future cost. (Ayodele and felokun 2003) also suggested the adoption of the combination of suitable technology and other resources in addressing the low productivity of the sector. Also with the use of management accounting like return on investment etc. can be used to solve it. (Ifac, 1998) also said that cost and management accounting has been suggested as one of such important management techniques that can help ensure efficiency in the use of companies’ resources.

All these problems will be solved by adopting adequate cost accounting techniques and management accounting as a tool for performance evaluation of companies in Nigeria.

OBJECTIVES OF THE STUDY

The major aims or objectives of the study is to determine the following:

1. How cost accounting techniques can be used as a tool to evaluate the performance of companies in Nigeria.
2. How management accounting can be used as a tool to evaluate the performance of companies in Nigeria.
3. To ascertain the relationship between cost accounting techniques and management accounting on companies’ performance in Nigeria.

The following objective is to:

1. Ascertain how marginal costing techniques can be used to determine profit after tax.
2. To ascertain how marginal costing techniques can be used to determine the return on asset.
3. To ascertain how absorption costing can be used to determine profit after tax.
4. To ascertain how absorption costing can be used to determine the return on assets.

RESEARCH QUESTIONS

In line with the stated objectives, the following are research questions to be addressed.

1. Can marginal costing techniques be used to determine profit after tax?
2. How can marginal costing techniques be used to determine the return on assets?
3. To what extent can absorption costing techniques be used to determine profit after tax?
4. To what extent can absorption costing be used to determine the return on assets?

RESEARCH HYPOTHESIS:

In line with the stated objectives the research hypothesis is as follows:

Ho₁: Marginal costing techniques cannot be used to determine profit after tax.

Ho₁: Marginal costing techniques cannot be used to determine the return on assets.

Ho₁: Absorption costing techniques cannot be used to determine profit after tax.

Ho₁: Absorption costing techniques cannot be used to determine the return on assets.

SIGNIFICANCE OF THE STUDY

The following are the beneficiaries of this research work.

1. Academic benefit: This research will serve as a resource base to scholars and other researchers interested to carry out further research on this field.
2. Political benefit: This research will be of immense benefit to the government. It will give them an insight into the true performance of companies in case of investment and others to fix tax.
3. Economic Benefit: It will be a major help to prospective investors in other to know which company they should invest in or not.

SCOPE OF THE STUDY

The scope of cost and management accounting techniques as a tool for performance evaluation in Nigeria covers the following:

1. Geographical scope: It cover covers companies in Nigeria especially Choba areas.
2. Level scope: It deals with the macro-level (organization).
3. Content scope: The variables used are costing techniques (marginal and absorption) return on assets, profit after tax.

LIMITATIONS OF THE STUDY:

The following are limitations to this research carried out.

1. Measurements of variables: Measurement of variables is one of the major factors limiting the progress of this research work.
2. Statistical tools to be adopted: determining the right statistical tool to be used is a major constraint to the development of this research work.

DEFINITION OF TERMS

Cost Accounting Techniques

This is defined as the methods of using cost accounting and financial accounting principles, methods, and techniques in other to ascertain the cost. It deals with the costing of companies’ products and used internally for decision making.

Management Accounting

It can be defined as an aspect of accounting that deals with the use of information prepared by financial Accountants by managers in other roles plan, organize, control and make effective and efficient decisions for the company.

Performance Management

It can be defined as a means of measuring all the efforts of individuals and groups in an organization in monetary terms. That is it is used to determine the profitability of a company.

Marginal Costing

 It is a type of costing method or techniques that separate fixed cost from the variable cost in the calculation of contribution. It is mainly used for decision making. 

Absorption costing

It is defined as a costing technique that includes fixed cost and variable cost in the calculation of production cost. It is known as full cost production.

Cost Estimation

It is the process of using historical costs to predict future costs. Its methods are as follows: high and low method, regression analysis, graphical method, and inspection method.

Profit after Tax

It is a performance evaluation ratio that is used to determine the net or total income earned after expenses like depreciation and tax have been deducted.or it is the total amount of income a company receives after tax has been deducted by the government. It is calculated as thus: net income divided net sales.

Return on Asset

It is a financial ratio that shows the percentage of profit a company earns about its overall resources. Or it can be defined as how profitable a company is about its assets. It is calculated as thus: net income divided by total assets.

ORGANIZATION OF THE STUDY

It deals with how the study is been organized, that visitors the contents of chapter one to five and it is as follows:

Chapter one: Introduction, the background of the study, statement of the problem, aims and objectives of the study, research questions, research hypothesis, significance of the study, the scope of the study, limitations of the study, operational definition of terms, organization of the study.

Chapter two: Literature reviews theoretical framework, conceptual framework, empirical framework, identification of gap.

Chapter three: Methodology of research method- research design, the population of the study, sampling and sample size determination, data collection method, operational measurements of variables, statistical analysis, validity, and reliability.

Chapter four: Result and discussion.

Chapter five: Summary of findings, the conclusion of findings recommendations, contribution to knowledge, reference.