COST ACCOUNTING AS A TOOL FOR MANAGEMENT

DECISION MAKING PROCESS.

(A CASE STUDY OF ASABA TEXTILE MILL, DELTA
STATE).
ABSTRACT
The study,cost accounting, as a tool for management decision making process (a
case study of Asaba Textile Mill, Delta State) is targeted at exploring the various
ways which cost accounting information could help the management of enterprises
especially manufacturing and processing companies in the formation of polices
and making of sound and reliable decisions. In order that this purpose could be
established, the researcher formulated various relevant research questions and
also two major hypotheses were also formulated. Interview was conducted with the
aid of instrument known as questionnaires which were administered to the staff of
the said company. The chi-square method was used for testing the hypotheses. The
result obtained therefore revealed that cost accounting is an aid to management
decision making. Also, to be clear of every sentiment, relevant literatures complied
in authorities in the relevant fields were reviewed. The opinion of authorities were
not different, showing that costing information is necessary for fixing selling price,
valuation of inventory, inventory control, labour remuneration, waste reduction,
capacity utilization, cost control ascertainment of profitability. Thus, the study
proves that cost accounting is a tool for management decision making process.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY.
The main concern of this work is to research and find out, cost accounting
information, and management decision making process.
Ever since the use of money replaced “Barter” people have been into one
form of business. It is obvious that business has out grown the traders of micro to
macro to mega-business units all over the world, such as the large manufacturing
concerns hospitals banks, etc, it would be proper to have the knowledge of what
might happen and the resultant effect of the happenings in order that efficiency
could be achieved.
Cost accounting analyzes and allocates the expenditures of a business in
such as way. It is possible to ascertain in the cost of each job, contract carried out.
However, this is by no means its function. Amongst other benefits accounting from
cost accounting is that it distinguishes profitable activities from the non-profitable
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ones. It indicates sources of losses, whether of time, material or in the usage of
machinery equipment or tool. It would not be too result-oriented to be wholly
dependent on the generation that is generated from the financial accounting
recording system since financial accounting records transactions on a post-mortem,
subjective basis in contrast with cost accounting recording system which is
futuristic and objective. Decision making as a function of management is a process
that requires the past, present and future to be able to achieve set goals.
Cost accounting can therefore be seen from this perspective as that of
management accounting which establishes standard cost and actual cost of
operations and analyses varies, with a view of enhancing efficiency in the use of
the resources available for production, for there to be an effective plan and it
therefore follows that the roles of cost accounting in an organization such as
transport companies, financial houses, manufacturing companies, it should not be
under-rated.
1.2 OBJECTIVE OF THE STUDY.
The main purpose of this research work is to find out hoe costing system and
techniques are being used to analyze and allocate the expenditure of a business in
such a way, that it is possible to ascertain the cost of each job. Contract or process
carried out in a manufacturing firm such as the Asaba Textile Mill. It is also aimed
at highlighting some costing methods and techniques which the management may
consider before making policies or plans that only lead to the fixing of selling price
being in aggregate of cost of production and cost of sales including an in-built
profit margin that is: Where:
SPZ = Selling Price.
COP = Cost of Production.
Cost = Cost of sales.
Pix = Profit margins.
1.3 SCOPE OF THE STUDY.
For there to be an adequate focus on the subject matter of this study with a
view to enhancing depth of the analysis of how cost accounting stands as a tool for
management decision making process, research work should be centered around
manufacturing companies and the Textile Mill in particular.
1.4 STATEMENT OF THE PROBLEM.
From the foregoing, it had been stated that management has the
responsibility of making decisions in a business entity. It should also be known

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that if wrong decision is made, it will go a long way in effecting the output of such
an organization, and when a right decision is made at the right time, there would be
a positive result and the organizational goals and standards would be achieved. It
therefore remains that an efficient application of cost accounting techniques and
method is necessary and business concern. Though this is a well known fact and
also an integral part of the cost control, one still complain of high cost of
installation and maintenance of this vital system, other see this system as a mere
duplication of financial accounting role.
It has been observed at large extent, that the cause of failure in most business
organizations is due to the negligence of management making use of some vital
tools or costing techniques in its day to day operations while some variables are
neglected, some others are over emphasized.
It is therefore the primary aim of this study to identify the problems which
continue to plague these companies as a result of failure to adopt the ever efficient
costing techniques in organizations or establishment and suggest possible ways of
solving them. It would be benefiting to an organization that adopts this system of
making decision. This study shall enumerate some of the likely problems that
could be encountered in waiting to use costing methods and techniques in
management decision making process.
1.5 RESEARCH QUESTIONS.
The researchers have drawn the following question so as to see the extent to
which cost accounting acts as a tool for management decisions.
a.
What is cost accounting?
b.
What is decision making?
c.
What is the relationship between costing and management?
d.
Does cost accounting generate adequate accounting information for the
organization?
e. Does management make use of this information generate in formulating its
policies for the organization?
f. What is the perception of workers vis-à-vis the design and operation of cost
accounting techniques?
1.6 STATEMMENT OF HYPOTHESES.
In trying to find out how cost accounting acts as tools for management
decision making, the researchers shall formulate two hypotheses.
HO: Null hypotheses.
HI: Alternative hypotheses.

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1. HO: Cost accounting information is not an aid to management decision making.
2. HI: The management of Asaba Textile Mill does not make use of cost
accounting information in its decision making process.
1.7 SIGNIFICANCE OF THE STUDY.
Efficient management cannot be achieved without adequate quantitative and
qualitative accounts. This research work will help ascertain the correctness and
application of costing information in the business environment.
Every business has its set goals and objectives in coping with an economy
like ours with an ever changing trend.
This work sees that the poor performance of firm lies in their inability to
chart the proper course of action human resource, cost and evaluation. It is
therefore hoped that if the findings of the research are followed in the decision
making process, profitability would be achieved and maximized and the poor
performance of firms as earlier observed by the researcher will be eliminated.
1.8 DEFINITION OF TERMS.
 Cost Accounting: Cost Accounting can be defined as the part of
management accounting which establishes budgets standard cost and actual
cost of variance profitability or social use of fund. Ndidi Ekwu Sunday
(2004) in this book studies of financial accounting activities that is
concerned with the systematic process of cost finding and cost recording of
produced product or services rendered.
 Cost: Economics is usually measured as the monetary amount that must be
paid to acquire goods or services.
 Accounting: According to American Institute of Certified Public
Accountants, (AICPA) is the art of recording, classifying and summarizing
in a significant manner and in terms of money transaction and event which is
in part of at least of a financial character, and interpreting the results
therefore, A.A. Abohi (2000) opined that it is the recording of financial
transaction which can be manipulated to produce result that can be
interpreted.
 Management: This is the process of achieving organizational goals and
objectives through the use of people and other resources of the organization.
When management is defined as a process, we refer to the function
performed by all managers.
 Planning: Patrick .A. Omoile (2005), in his book “Fundamentals of
Management” defined planning as the inclusions of those activates of
managers that result in pre-determining course of activities. Thus the
manager should make the best double forecast of future events that the firm
can draw up plans that guides their decisions.

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 Decision Making: This is a suspect of management function which involves
the examination of alternative course of action, and choosing the variable of
all the alternative with a view to achieving organizational objectives.
Managers at all levels in an organization make decision as well, decision
making have influence on the survival of the organization.
 Budget: A detailed plan expressed in quantitative terms that specifies how
an organization will acquire and use resources during a particular period of
time.

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