Cost Accounting and Financial Health: Analysis of Cost

Reduction Policy Effect in Selected Enterprises of Metallurgy

Industry in Uzbekistan
Summery
The purpose of this article was to study accounting specially cost accounting reforms in
Uzbekistan after Post- Soviet Union era. This includes analyzing the historical practices
of cost accounting, reforms towards free market accounting. After the collapse of Soviet
Union many countries are enter to economy reform transiting from planned to market
economy had to change not only accounting system, but also business structure and
people’s views towards ownership. Because, the regulatory bodies, laws and regulations
on accounting in the post-soviet countries were develop over a long period of
communistic rule. So, emerging of private ownership and creation of a business
environment required new accounting policy. Uzbekistan also decided for stepwise
adoption of accounting principles to remove the gaps in accounting competency. But,
Cost accounting remained in ‘traditional’ era of accounting, despite its current
importance for business and investment environment. And these reforms begin with the
implementation of Production Cost Regulation which was a guide for accountant’s
business finance, tax accounting, and income statement preparation. The government
start cost reduction policy in main local business areas, which directly affect the cost,
profit and tax aspects of industries. In this article by choosing 13 heavy industries
enterprise samples that start cost reduction under government support, analyzed the
impact of cost related decision in firm's financial health.

This article chosen Enyi’s Relative Solvency Ratio (RSR) model to examine the effect of
cost reduction policy in firm's financial health. Which evaluate organization’s ability to
recover costs and make profit. It is accompanied by the concept of operational break-
even point (OBEP), operational mark-up rate (MUR) and a required working capital
volume. And it has four steps:

First by dividing Profit Before Tax (PBT) by Total Operating Costs (TOC) mark-up ratio
(MUR) is calculated, which indicates the competence and ability of the management of a
firm to recover costs (Enyi, 2005).
Next Operational Break Even Point (OBEP) is calculated by using the first step result:
1+ MUR
OBEP=
2∗MUR

Then by dividing Total Operating Costs (TOC) by 52(represents the number of weeks in
a year) and multiplying the result by operational break-even point (OBEP), Working
capital required (WCR) is calculated

After that, The relative solvency ratio (RSR) is measured, 𝑅𝑆𝑅 = 𝐴𝑊𝐶/𝑊𝐶 , it tell us the
liquidity of a business in terms of the availability of adequate working capital.

Here, AWC – available working capital.

Finally Chance of Insolvency (COI) = 1 – RSR, is calculated which measure insolvency

likelihood

Using the above formula and 13 enterprises data, dated from 2012 – 2015, the below
cumulative data result was found.

2012 2013 2014 2015

MUR 0.0166 0.0045 0.0154 0.0051
OBEP 30,632 112,024 33,008 99,107
RWC 1,621,680 1,717,589 1,858,926 2258557
RSR 0.97 0.92 0,.96 0.97

In the sample of selected 13 enterprises and cumulative data for the industry, cost
reduction policy of the government influenced positively. Despite the unavailability of
common conclusion for all selected enterprises, comparison of solvency between first and
last years of the selected period suggests that unevenly distributed effect led to an
increase in overall solvency status in the industry.
General Critique

This research topic is definitely important, especially for countries in economic

transition(developing countries). The problem stated is researchable, and could be done
in a variety of ways.

Out of this the entire article was very poor;

 The study has a poor introduction; it doesn’t presented relevance and the context
of the study clearly. The questions of the study don’t clearly state.
 The problem statement doesn’t properly illustrate the variables of interest and the
specific relationship between those variables which are investigated. The author
doesn’t clearly put what he tries to discover in the research.
 When sample was selected, method of selecting the sample doesn’t clearly
identified, the size and major characteristics of the population poorly described,
Are the size and major characteristics of the sample described
 When Enyi’s Relative Solvency Ratio (RSR) model is selected it doesn’t give us
the rationale behind the selection of the measurement. Even though the purpose
instrument describe, their appropriateness for measuring the intended variables
aren’t stated
 It’s difficult to understand how the results are found(it doesn’t show us step by
step) and the data in each tables are poorly described
 The data presented, analyzed and final result of the research, doesn’t have any
linkage with its initial problem, presented in the introduction part, which is Post
Soviet Union economic transition, even though the in the first phase of the
research, the author give wide coverage economic transition, he doesn’t tell us
how this result related with that.

As I stated earlier the research topic is important, so Future researchers can properly
study the topic