"EVALUATING THE MANAGMENT ACCOUNTING APPLICATION

ONORGANIZATINAL PLAN "ACASE SYUDY OF KEDIJA FLOUR COMPANY

A SENIOR RESEARCH PROPOSAL IN PARTIAL FULFILMENT FOR THE

REQUIRMENT OF BACHELOR OF ART DEGREE IN ACCOOUNTING AND
FINANCE

PREPARED BY: SINESIRAT GETNET

ID NO: AcFnR/ 0091/11

ADVISOR: Behailu. T (MCS)

Awada Business and Economics College

Department of Accounting and Finance

AUG, 2021

YIRGALEM, ETHIOPIA

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ACKNOWLEDGEMENT
I would like, before everything thank God, who with his protection walked me to this
day.I would like to extend my deepest gratitude to my advisor Behailu. T.(Msc) for
his useful suggestion, constructive criticism, advice and guidance and without his
genuine help this paper would not have its present shape. I would like to take the
opportunity to express my deepest love and respect to my family; they are the ladder
of my life and my success

.Finally I would like to thank my best friends for their contribution.

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TABLE OF CONTENTS PAGE

ACKNOWLEDGMENT…………………………..
………………………………….............................…...i

ABSTRACT…………………………………………..…………………..................................
………….….ii

CHAPTER ONE

Introduction
1.1. Background of the study…………………………....................…..…….......….
…….1

1.2. Statement of the problem………………................………….................….….….2

1.3 . Research question…………………………..............…..………………….….....

….…....2

1.4 . Objective of the study………………………….………...............…………..…....

………3

1.4.1 General objective…………………………………….…..............……....…..

……...3

1.4.2. Specific objective…………………………………......…..........……......….

…..….3

1.5 Significance of the study……………………………...............…….…………….

……..3

1.6 .scope of the study..........................................................……………….........3

1.7 Limitation of the study…………………………………… ................……...…..….

….…..3

1.8. Organization of the study………………….…………................

…………………...….…4

CHAPTER TWO

Review of related literature.

iii
2.1Definition of management accounting………………………..…….....……...
….........….5

2.2 Key management accounting guidelines……………………….......…..…..….

….........7

2.3 Organization structure and management accounting……………....….…..

……....8

2.3.1 Line and staff relationship…………………………,…….………..

…….......................8

2.3.2. The chief financial officer and controller………..…………....…......…....

……..9

2.4 Management accounting and information technology..………..………..…...….

….9

2.5 Management accounting techniques………...………….………….…….............

…......10

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2.6 Roles of management accounting………………………………..............………..
…...…11

2.7 Comparison of management accounting, cost accounting and Financial

account..........……………………………………………..………….............................
………….……..12

2.8 Professional ethics and management accounting……………..…………...….....…

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CHAPTER THREE

Methodology of the study

3.1Study area…………………………………………………..…………..….
….............. …..…...….15

3.2 Sources of
data…………………………………………….........................................….…15

3.3 Method of data collection……………………………....………...……............

…….……...15

3.4 Sampling Techniques………………………………….......................

…………………….… .15

3.5 Method of data analysis…………………………………............................……....

….…..16

CHAPTER FOUR

Presentation and analysis of data

4.1 Problems of management accounting application of

Kedija Flour company

………………………………………………………........................…….16

CHAPTE RFIVE

Conclusion and Recommendation

5.1 Conclusion..
……………………………………………………………….........................….…25

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5.2 Recommendation……………………………………..….
………………….....................…. 26

Reference……………………………………………………………..............................
..........… 28

Questionnaires…………………………………………………..
……...................... ................29

ABSTRACT
This study was conducted on evaluating management accounting application on
organizational plan a case of Kedijja Flour Company .The main purpose of this study
is to assess information about the importance and effectiveness of management
accounting application and to investigate the factors that hinder application of
management accounting in the company. This research tries to provide more
information to management accounting application of the company. For the purpose
of the research data were collected through primary data collection (questionnaires)
and secondary data through the company’s published reports or documents and the
data was analyzed made on descriptive basis by using tables and percentages.This
paper begins with introduction and ends with questionnaire with close ended and
open ended type.

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 CHAPTER ONE
INTRODUCTION
1.1. BACKGROUN OF THE STUDY
Early studies place management accounting in a production function with the scope to
provide all level of management with high quality score keeping ,attention directing
and problem solving information and also to provide management with data in order
to establish polices , developing plans and control operations.(Horngren,Foster
Datar.2005)

Every organization has managers , however , these managers have a responsibility to

the organization’s stakeholders to manage the organization in the most effective and
efficient way ,to maximize the organization’s potential ,thus involves the managers
undertaking adequate planning for the short-term and long-term future of the business,
ensuring that the business is being properly controlled to ensure plans succeed , and
making decisions that will enable the business to survive and grow in the future.
Though, the fundamental objectives of planning are to assist management in deciding
how to allocate organizational resources.

It should be noted that, in addition to principles of financial analysis, the application

of management accounting in an organization captures good knowledge of the
business operations, fluent communication skills and knowledge of project of
management. Further analysis has clarify that the emergence of team-oriented
management accounting roles. Management accounting now a days need to have
hybrid skills from the traditional roles, this is because management accounting is
becoming wider involved in integrated business situations, agenda sand decision
making forums.

1.2. BACKGROUND OF THE ORGANIZATION

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Kedija Floor Company is located in southern nations, nationalities and people’s
regional state of Ethiopia in Sidama zone which is 47Kms far from Hawassa. The
total fund needed to establish this company was approximately 700,000 Birr. The
investment capital was obtained from the owners. It was established in 1999 E.C.
As a firm in developing countries the firm faces a common problem like lack of
skilled manpower, raw materials and market problems. This and other problems
undermined the management accounting as well as the overall performance of the
company. The primary objective of the company while it was established is to
overcome the lack of floor and its products around Dalle woreda and to create job
opportunity for citizens who have lower income level around the area. In addition it
was established to improve the living standards of the people as a whole, specifically
to the farmers of the region who produce maize and wheat and the retailers who are in
shortage of capital can be a good opportunity to get goods on credit.

1.3. STATEMENT OF THE PROBLEM

The business world has changed totally. As a result, the role of management
accountant is very different now than it was years ago. In the past, management
accountants operation is strictly staff capacity usually separated from the managers for
whom they provided reports and information.

From a broad perspective financial reporting is one of the significant objectives for an
accountant, due to its major effect in highlighting and examining the financial
information of a company. The quality of reporting financial information is an
international issue and the decision making skills of the accountant play a major role
in reaching the overall company objectives. But Kedija flour company lag behind
when reporting

Financial activities of the company as a result of inadequate application of

management accounting skills and functions, this sometimes diminish the integrity
and reputation of the company.

The main objectives of Kedija flour company is to produce sufficient amount of flour
with good quality ,provide enough amount of flour for customers in order to fulfill
their basic needs and for trade purpose , and create job opportunities. Even though
these objectives are important for planning, accountants and managers are not
engaging it because of the absence of appropriate techniques. The major problems that
hinder the company’s plans are lack of infrastructure , heavy tax , lack of integrity
among workers and other bodies ,lack of capacity to operate machine-res , and
employees are not arrive a work place on time. There for, the aim of this research
work is to have a look at or show the information, management can derive from
management accounting techniques and other problems.

1.4. RESEARCH QUESTION

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For the purpose of the research study, the following research questions will ask.

1. Are management accounting information provide at the right time for planning?

2. Are there any constraint affecting the application of management accounting on the
company’s planning?

3. What is the effect of poor management planning?

4. What looks like the budgeting system of the company?

1.5. OBJECTIVES OF THE STUDY

1.5.1. General Objective
The main objective of the study is to evaluate the application of management
accounting on Kedija Flour Company.

1.5.2. Specific Objective

1. To ascertain whether management accounting information are provided at the right
time for planning of Kedija Flour Company.

2. To eliminate the constraint affecting the application of management accounting on

the company’s planning.

3. To identify the effect of poor management planning.

4. To explain the budgeting system of the company.

1.6 SIGNIFICANCE OF THE STUDY

This research work when completed will be very use full to the following.

 The research work will provide them with the requisite knowledge of
management accounting in making provision and interpretation of
information required by management at all level for formulating
company’s policies and planning.
 This paper will contribute to the understanding of an accountant’s role in
the formulation of company’s planning.
 This study will be of great significance to schools and students it will
serve as references point for future research will want to research more on
the topic.

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1.7 SCOPE OF THE STUDY
For the forgoing discussion, the research focused on evaluating management
accounting application on organizational planning using Kedija Flour Company.

1.8 LIMITATION OF THE STUDY

Limitations envisage in this research work are:

 Uncooperative attitude of the staff in the company: this is the major

limitation which increase the time spent in completing the research work.
 Monetary constraints: This factor serve as a deficiency for the research
work, and as a result low financial capacity, it was not enough to give us
desired results.
 In addition to these lack of experience in conducting research and lack of
communication as well as well-organized data.
 Some employee of the company cannot speak and read English for the
collection of information through questionnaire.

1.9 ORGANIZATIONS OF THE STUDY

The study is organized in to five chapters. It organized in such a way that the first
chapter contains the introduction part , the second chapter contains review of related
literature , the third chapter contains methodology of the study ,and the fourth and
fifth chapters contains data presentation and interpretation , and data recommendation
and conclusion respectively.

CHAPTER TWO

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 REVIEW OF RELATED LITERATURE
2.1. DEFINITION OF MANAGEMENT ACCOUNTING
There are many definitions of management accounting by various organizations and
authors.

 Management Accounting – an integral part of management is concerned with

identifying, presenting and integrating information used for:
 Formulating strategy
 Planning and controlling activities
 Decision making
 Optimizing the use of resources
 Disclosure to shareholders and other external parties to the entity
 Disclosure to employee and
 Safeguarding assets (Donar R. Hansen and Maryanne M.
Mowen: 2005)

The above ensure that there is effective:

o Formulation of plans to meet objectives (strategic planning)

o Formulation of short- term operational plans
o Acquisition and use of finance (financial management)
o Recording of transactions (financial & cost accounting)
o Communication of financial and operating information
o Correction to align plans and results (financial control)
o Reviewing and reporting on systems and operations (internal audit,
management audit)

 Management accounting defined as the process of identification ,measurement

, accumulation , analysis , preparation , integration and communication of
financial information used by management to plan , evaluate and control
within an organization and to ensure appropriate use of and accountability for
its resources. (R F.Polimen,F J. Fabozzi, A H. Adelberg&M A. Kole:2009)

Identification - The recognition and evaluation of business

transactions and other economic events for appropriate accounting action.

Measurement – The qualification including estimates of business transactions or

other economic events that have occurred.

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Analysis – The determination of the reason for, and the relationship of the reporting
activity with other economic events and circumstances.

Accumulation – The disciplined and consistent approach to recording and classing

appropriate business transactions and other economic events.

Preparation Interpretation - The meaning full coordination of accounting and

planning data to satisfy a need for information presented in a logical format, and it
appropriate, including the conclusions.

Communication - The reporting of pertinent information to management and other

for internal and external use

 Management accounting can also be defined as the application of professional

skills in the preparation and presentation of accounting information in such a
way as to assist management in the formulation of polices and in planning ,and
control of the operations of the undertaking.(Ronald W. Hilton. 2003).
 Management accounting measures, analysis, and reports financial and non-
financial information that help managers to make decisions to fulfill the goals
of an organization. Managers use management accounting information to
choose, communicate, and implement strategy. They also use management
accounting information to coordinate product design, production, and making
decisions and to evaluate performance. Management accounting information
and reports do not have to follow set principles and rules .(Horngren,Datarand
Rajan (2012):14thed )
 Management accounting also comprises the preparation of financial reports for
non- management groups such as shareholders ,creditors , regulatory agencies
and tax authorities

In the above definitions, we note that policy making, planning and control are general
descriptions of all the functions of management. It means that any information use full
to managers which can be evaluated in monetary terms is regarded as management
accounting responsibility. In order to carry out this task efficiently, the management
accountant will:

 Use data from the financial and cost accounting;

 Conduct special investigations to gather required data;
 Use accounting techniques and other appropriate techniques from statistics and
operational research;
 Take into account human element in all activities; and
 Be aware of the underlying economic logic.
 Management accounting assists management to plan, control, and makes
decisions. The elements involved in the decision making, planning and control
processes are as follow.
- Identify the objectives that will guide the business;

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 - Search for a range of possible course of action that might enable the
objectives to be achieved ;
- Gather data about the objectives ;
- Select appropriate alternative course of action that will enable the
objectives to be achieved;
- Implement decisions as apart of the planning ,budgeting process;
- Compare actual and planned out comes; and
- Respond divergences from plan to take corrective action.

2.2. KEY MANAGEMENT ACCOUNTING GUIDELINES

Three guidelines help management accountants provide the most vales to their
companies in strategic and operational decision making (Horngren, Datar and
Rajan.2002)

A. Cost -Benefit Approach

Management accountants continually face resource allocation decisions, such as

weather to purchase new software package or hire a new employee. The cost-benefit
approach should be used in making decisions. Resource should be spent it the
expected benefits to the company. The expected benefits and costs may not be easy to
quantify.

B. Behavioral and technical consideration

A Management accounting system has two simultaneous missions, one technical and
the other behavioral. The technical consideration helps managers make wise economic
decisions by providing them with the desired information in an appropriate format and
at preferred frequency. The behavioral considerations motivate managers and other
employees to aim for goals of the organization.

Both accountants and managers should always remember that management is not
confined exclusively to technical matters. Management is primarily a human activity
that should focus on how to help individuals do their jobs better.

C. Different Costs for Different Purposes

The management accountant’s version of the one size does not fit all notions. A cost
concept used for the external reporting purpose of accounting may not be appropriate
concept for internal, routine reporting to managers.

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2.3.ORGANIZATIONSTRUCTURE AND MANAGEMENT
ACCOUNTING
I focus first on broad management functions and then look at the accounting finance
functions.

2.3.1. Line and Staff Relationships

Organizations distinguish between line management and staff management. Line
management, such as production, marketing and distribution management, is directly
responsible for attaining the goals of the organization. For example, managers of
manufacturing divisions may target particular level of budgeted operating income,
certain level of product quality and safety, and compliance with environmental laws.
Staff management, such as management accountants and information technology and
human resource management, exists to provide advice and assistance to line
management.

A plant manager (line function) may be responsible for investing new equipment. A
management accountant (staff function) work as a business partner of the plant
manager by preparing detailed operating cost- comparisons of alternative pieces of
equipment.

2.3.2. The Chief Financial Officer and the Controller

The chief financial officer (CFO) also called the finance director in many countries is
the executive responsible for overseeing the financial operations of an organization.
The responsibilities of the CFO vary among organizations, but they usually include
controller and treasurer.

Controller: In most organization, the controller is the chief managerial and financial
accountant. The controller usually is responsible for surprising the personnel in the
accounting department and for preparing the information and reports used in both
managerial and financial accounting. As an organization chief managerial accountant,
the controller often interprets accounting information for line managers and
participants as an integral member of the management team. Most controllers are
involved in planning and decision making at all levels and across all functional areas
of the enterprise.

Treasurer: The treasurer typically is responsible for raising capital and safeguarding
the organization’s assets. It oversees lenders, investors, and the governmental
agencies that supply partial funding. In addition, the treasurer is responsible for the
company’s assets, the management or its investors, credit policy, and insurance
coverage. (Colin Drury (2009):6thed p21).

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2.4.MANAGEMENTACCOUNTING AND INFORMATION
TECHNOLOGY
One advanced information technology that has had a considerable impact on business
information system is enterprise resource planning system (ERPS). An enterprise
resource planning system comprise asset of integrated software application modules
that aim to control all information flows with in a company. Standards enterprise
resource planning system accounting modules incorporate many menus including
bookkeeping, product profitability analysis and budgeting. All the modules are fully
interpreted in common database and users can assess real time information on all
aspects of the business. Major factors of enterprise resource planning system are that
all data are entered only once, typically where the data originates.

The introduction of enterprise resource planning system has the potential to have a
significant impact on the work of management accountants. In particular, enterprise
resource planning system substantially reduces routine information gathering and the
processing of information by management accountants. Instead of managers asking
management accountants for information, they can assess the system to drive the
information that require directly by personal computer. Because enterprise resource
planning system integrate separate business functions in one system for the whole
company co-ordination is usually under taken centrally by information specialists who
are responsible for both the implementation and operation of the system.

Enterprise resource planning system performs the routine tasks that were once part of
the accountant’s daily routines; accountants must expand their roles or risks possible
redundancy. It provides the potential for accountants to use the time freed up from
routine information gathering to adopt the role of advisor and internal consultants to
the business. This role will require management accountants to be involved in
interpreting the information generated from the ERPS and to provide business support
for managers. (Colin Drury (2009): 6thed p 16)

2.5. MANAGEMENT ACCOUNTING TECHNIQUES

Planning: The management accountant’s main contribution is to planning lies in the
preparation of the budgets.

Control: Control in the management sense, has been defined as “the process by which
managers assure that resources are obtained and used efficiently and effectively in the
accomplishment of the organization’ goals “.

Cost control: The book keeping aspect of management accounting is a useful tool for
cost control in small business. It facilitates a permanent record of costs incurred in
conducting the business. It should be noted that the adequacy and reliability of

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accounting information contained in the records of the business concern are essential
for success full planning and controlling.

Standard costing: The use of standard costing has the added advantage of
encouraging a greater degree of cost – consciousness within the organization.
Standards are set against which actual costs are compared, in order to determine
variances from the standard. Unfavorable variances can be investigated in order to
determine possible explanation for the deviation.

Credit control: This is another area of great importance in management accounting.

In the case of small businesses which operate strictly on cash basis, this area would
appear to be unimportant. However, it is probably not uncommon to find that small
retailer or manufacturer who supplies several regular customers will provide credit
facilities as a normal part of trading activities.

Decision making: Management accounting techniques are use full effective decision
making. An understanding of the concept of relevant-costs,cost-volume-profit
relationship and the contribution approach to decision making may facilitate more
efficient and effective decisions by enabling the immediate determination of relevant
factors that have to be considered.(Pauline Weetman, 3rd ed. P.449-63).

2.6. ROLES OF THE MANAGEMENT ACCOUNTING

It is duty of the management accounting to:

 Plan appropriate future for the business;

 Install and maintain an accounting system to monitor the performance of the
business;
 Identify potential problems;
 Record transactions by producing accounting statements ;
 Generate information to meet the following requirements :
 Allocation cost between cost of goods sold and inventories for internal and
external reporting.
 Helping managers make better decisions; and
planning, control and performance measurement.
 Assisting managers in directing and controlling operational activities ;
 Motivate managers and employees toward the organizational goals;
 Measuring the performance of activities , sub unites , managers , and other
employees within the organization ; and
 Assessing the organization’s competitive position, and working with other
managers to ensure the organization’s long-run competitiveness in its industry.

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Nowadays, managerial accounting analysis is considered so crucial in managing an
enterprise that in most cases managerial accountants are integral members of the
management team. Far more playing a passive role as information providers,
managerial accountants take a proactive role in both the strategic and day to day
decisions that comfort an enterprise.(R S. Polimen, FJ. Fabozzi, AH .Aderberg& MA.
Kole (1991): 3rded P5).

2.7COMPARISON OF MANAGEMENT ACOUNTING,

COST ACCOUNTING AND FINANCIAL ACCOUNTING
Cost accounting can be defined as “The establishment of budgets, standard cost and
actual cost of operations, processes, activities, or products, and the analysis of
variance, profitability or the social need of funds.”

Financial accounting is defined as “The classification and recording of the

monetary transactions of an entity in accordance with established concepts ,principles
accounting standards and legal requirements and their presentation by means of profit
and loss accounts , balance sheet and cash flow statements during and at the end of an
accounting period.”

The main difference between management accounting and financial accounting are as
follows:

Rules &Regulations -Financial accounting reports adhere strictly to statutory (legal)

requirement. On the other hand, management accounting reports need not adhere
strictly to these rules & regulations.

Degree of details –Management accounting reports are much more detailed than
financial accounting reports .Whereas financial accounting reports show the total
profit made by an organization, management accounting report lays more emphasis on
the department, branch, division or segment that contributes to the profit.

Time focus –Management accounting reports are futuristic and predictive in nature,
while financial accounting reports are historical.

Period of presentation of reports –Financial accounting reports are usually rigidly

prepared for periods such as monthly ,quarterly ,semi- annually or annually. On the
other hand, management accounting reports can be prepared any time the
management of the company needs it.

Estimation & approximations – Since management accounting reports are futuristic,

they entail usage of estimates and approximations, while in the case of financial
accounting reports which are usually historical, the use of estimates and
approximations are reduced to the barest minimum.

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Objectivity – The objective of financial accounting reports is stewardship, while
management accounting reports are used for planning, controlling and decision
making.

Inter-disciplinary relationship –Management accounting relates to other courses.

For example: Economics, Statistics, psychology, Quantitative techniques. On the
other hand, financial accounting reports are prepared strictly in line with accounting
standards &regulations.

Dual concept - Financial accounting is based on the dual concept of debit and credit
while in management accounting, this is not necessary.

Taxation – Management accounting is not prepared for taxation purpose while

financial accounting is prepared for taxation purpose.

Monetary & non –monetary concept– Financial accounting reports are expressed in
monetary terms while management accounting reports are expressed in monetary and
non –monetary terms.(2002)

2.8. PROFESSINAL ETHICS AND MANAGEMENT

ACCOUNTING
As professionals, Management accountants have an obligation to themselves, their
colleagues, their organizations to adhere to high standard of ethical conduct. In
recognition of this obligation, the IMA developed the following ethical standards for
practitioner and management accounting and financial management.(Ronald W.
Hilton (2007): 4thEd. P 21-22)

1. Competence: Practitioner of management accounting has a responsibility to:

a) Maintain an appropriate level of professional competence by ongoing

development of their knowledge and skills.

b) Perform their professional duties in accordance with relevance laws, regulation

and technical standards.

c) Prepare complete and clear reports and recommendations after appropriate analysis
of relevance and reliable information.

2. Confidentiality: Reactionaries of management accounting has a responsibility to:

a) Refrain for disclosing confidential information acquired in the course of their work
except when authorized, unless legally obligated to do so.

b) Inform subordinates as appropriate regarding the confidentiality of information

acquired in the course of their work and monitor their activities to assure the maintain
ace of that confidentiality .

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3. Integrity: Practitioner of management accounting has a responsibility to:

a) Avoid actual or apparent conflicts of interests and advise all appropriate parties of
any potential conflict.

b) Refrain from engaging in any activity that would prejudice their ability to influence
out their duties ethically.

c) Communicate unfavorable information and professional judgment or opinion.

4. Objectivity: Practitioner of management accounting has a responsibility to:

a) Communicate information fairly and objectively.

b) Disclose fully all relevant information that could be influence an intended users
understanding of the reports, comments, and recommendations presented(2006)

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 CHAPTER THREE
METHOOLOGY OF THE STDUY
3.1. STUDY AREA
This study was take place in Aposto town taking of Kedija Flour Company as a study
area. The area is selected Dale worda in Yirgalem from south in Hawassa because.of
its nearest to the campus in order to reduce wastage of time and minimize cost.

3.2. SOURCE OF DATA

The study intends to employ to use primary and secondary data to collect all
necessary information.The primary data collected from employees and customers using
questioner, which contains both close-ended and open-ended questions, because, close ended
question are often good for surveys, you get higher response rates when users don’t have to
type so much. And also, open ended question is used, because, to collect more thought and
more than a simple one-word answer. secondary data is collected from annual report of the
kedja Flor factory and longitudinal data type is used for this purpose.

3.3. METHOD OF DATA COLLECTION

The study was conducted on Kedija Flour Company. The study was based on primary
and secondary data. The primary data is collected through questionnaires and the
secondary data is obtained from the organization’s published documents. because of
to used questionnaires many advantage . It is free from the bias of the interviewer;
answers are in respondents’ own words.. Respondents have adequate time to give well
thought out answers. Respondents, who are not easily approachable, can also be
reached conveniently. Large samples can be made use of and thus the results can be
made more dependable and

3.3.1. Questionnaires
The researcher used questionnaires with both opened and close ended questions to get
the respondents to get both quantitative and qualitative data. The participant are given
general guide line on how they can complete the questionnaires. The entire question
will present in English.

3.3.2. Published Documents

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Data was gathered from Kedija flour company annual report, directives and other
reports.

3.4. SAMPLING TECHNIQUES

The study used a non-probability sampling technique that is convenience sampling.
because In this type of sampling, items for the sampleare selected deliberately by the
researcher; his choice concerning the items remains supreme. Inother words, under
non-probability sampling the organisers of the inquiry purposively choose
theparticular units of the universe for constituting a sample on the basis that the small
mass that they so select out of a huge one will be typical or representative of the
whole. . Population sizes for the questionnaire are 28 employees of Kedija Flour
Company. The sample size from the population is 12, target respondents are group of
employees, finance and marketing departments, personnel and quality control
departments, and manager.

3.5. METHOD OF DATA ANALYSIS

Depending on the nature of collected data in analyzing the data, the information is
grouped in to quantitative and qualitative. The quantitative data analysis was
organized and summarized in tables and percentages. So that meaningful
interpretation is made so as to draw conclusions and recommendations.

CHAPTER FOUR

17
PRESENTATION AND INTERPRETATION OF
DATA
This section of study deals with the presentation and interpretation of data gathered
through structured questionnaire to identify and investigate to evaluate the
management accounting application on organizational plan of Kedija Flour Company.
The result is believed to enable the researcher to give some suggestion and
recommendation as to these problems related to management accounting application
of Kedija Flour Company may overcome.

4.1.Constraints Affecting Management Accounting Application of

Kedija Flour Company
The Kedija flour company has encountered different constraints on management
accounting application in broad terms. This can be very wide to explain, but to start
with few of them are information technology, budgeting system, management
accounting system, management planning and others are tried to explain through
structured questionnaire applied to finance and marketing heads, personnel and
quality control heads, employees and managers of Kedija flour company by the
researcher and explained as follows:

Table 1: Poor management planning

What is the major problem that you face in Frequency In percent (%)
connection with poor management planning?
Lack of management accounting system 2 16.67%
Inappropriate budgeting system 7 58.33%
Lack of infrastructure 3 25%
Other - -
Total 12 100%

As we can see from the above table 1, problems related to poor management planning
are, lack of management accounting system (16.67%), inappropriate budgeting system
(58.33%) and lack of infrastructure (25%).

Due to lack of management accounting system, the company cannot install and
maintain an accounting system to monitor the performance of the business, not record
transactions by producing accounting statements and generate information to meet
planning.

Especially budgeting problem related to lack communication and co-ordination

among departments, behavioral aspects of budgeting and single budgeting system

18
leads to miss appropriate budgeting process and finally leads to poor management
planning.

Lack of infrastructure is another major problem for management planning. As

infrastructure is not full, the company leads to area of conflict to which infrastructure
is gives first emphasis.

Table 2: Management accounting information:

Problem Frequency In percent (%)

Are management accounting information Yes No Yes No
provide at the right time for planning? 3 9 25% 75%

Total
12 100%

The above table shows that 75% (no) of the respondents said that management
accounting information is not provide at the right time, and 25% of the respondents
are said yes.

The following table describes “why” not management accounting information

provides at the right time.

Table 3: Management accounting information:

Problem Frequency In percent (%)

Poor information technology 4 44.44%
Absence of specialized labor 2 22.22%
Information asymmetries 3 33.33%
Other - -
Total 9 100%

From the above table 3, we can understand that poor information technology
(44.44%), absence of specialized labor (22.22%), and difficulty to apply management
accounting information (33.33%).

Due to poor information technology, the company has not enterprise resource
planning system. This decreases routine information gathering and the process of
information by management accountants.

Especially lack of specialized labor, the company cannot refrain for disclosing
confidential information acquired in the course of action and not fully disclose all

19
relevant information that could be influence an intended users understanding of
reports, comments and recommendations presented on timely basis.

Since information asymmetries, the quality of information of the disclosure of

information is low. All information is not easily and timely available and it involves
cost.

Table 4:Source of finance:

What is the source of finance for the Frequency In percent (%)

company?
Equity financing 12 100%
Debt financing - -
Total 12 100%

As we can see from the above table4, the sources of finance of Kedija Flour Company
are equity financing (100%).

The company uses its sources of finance from equity financing; the company obtains
their income without any tax shield. Due to this reason the company pay higher
amount of taxes and gets small portion of income.

Table 5: Causes of in appropriate budgeting system

Problem Frequency In percent (%)

Conflicting roles of budgeting 3 25%
Behavioral aspects of budgeting 3 25%
Lack of communication and co- 6 50%
ordination among departments
Other - -
Total 12 100%
As we can see from the above table 5, the causes that leads to inappropriate budgeting
system of Kedija flour company are conflicting roles of budgeting (25%) behavioral
aspects of budgeting (25%) and lack of communication and co-ordination among
departments (50%).

Due to conflicting roles budgets, a single budget system is normally used to serve
several purposes. There is in danger that they could conflict with each other. This
would not be appropriate to motivate maximum performance, but they are unsuitable
for planning purposes. There is a conflict between the planning and performance
evaluating roles.

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The behavioral aspects of budgeting include motivation, participation, feedback,
group effect, budget slack, budget tapping and politics of the company. These factors
affect the budgeting process of the company.

Especially lack of communication and co-ordination among departments affects the

budgeting system. The process of communication and co-ordination starts with the
early stages of the budgeting process. When each divisional heads cannot contact to
review required plans for the decision to other divisions, this causes’ absence of
detailed budget plans.

Table 6: Constraints affecting management accounting application:

Problems frequency In percent (%)

Heavy tax and VAT problem 4 33.33%

Lack of full utilization of labor and time 5 41.67%%
In adequate amount of water and electricity 3 25%%
Other - -
Total 12 100%

As we can see from the above table 6, constraints affecting application of

management accounting of Kedija Flour Company are heavy tax and VAT problem
(33.33%), lack of full utilization of labor and time (41.67%) and in adequate amount
of water and electricity (25%).

Due to heavy imposition of income tax, the ability and willingness of the company to
work is affected adversely or the company would reluctant to work more since their
additional income is taxed more. This affects production adversely.

Especially labors are not contributing their capacity to the company on specified time
basis. Due to their carelessness and other problems like transportation shortage, labors
reduce to contribute their full capacity for production.

In adequate amount of water and electricity are other problem related to management
accounting application. When there is shortage of electricity and water, normal
operation of the company is stop. In addition to this transactions are not recorded and
sales are not recorded properly.

Table7: What do think labors are not contributing their full capacity on the
company?

21
Problem Frequency In percent (%)
Lack of incentives and motivation 3 25%
Poor personnel management 5 41.67%
Work load 4 33.33%
Other - -
Total 12 100%

From the above table 7, the reason of labors cannot contributing their capacity to
kedija flour company are lack of incentives and motivation (25%), poor personnel
management ( 41.67%) and work load (33.33%).

Due to lack of adequate motivation and training of labors cannot contribute their
capacity on production/operation activity. And also the company cannot pay enough
amount of incentives like house allowance, transportation allowance, these reduces
their willingness to work.

Especially lack of personnel management, like monitoring of employees , employees

are not arrive a work place on time and even they are in the company, they are not
work properly. The personnel management cannot take effective measures for such
type of workers.

Increase work load is other major problem labors cannot contribute their capacity on
the operation activity. Flour companies run on operation on 24 hours on a day, in this
case labors work on a long time per a day. This reduces their willingness to work and
their effort is decline.

Table8: What is the impact of heavy tax?

Problem Frequency In percent (%)

Decrease production 5 41.67%
Increase the price of flour 3 25%
Reduce consumption 4 33.33%
Other - -
Total 12 100%

From the above table 8, the impact of heavy tax VAT of Kedija flour company are
decrease production (41.67%), increase the price of flour (25%) and decrease
consumption (33.33%).

Due to imposition of high income tax adversely affects the ability of the company to
generate income. When the income of the company reduced, their saving /capital
formation will also decline. In addition, the ability of the company to invest depends

22
on their saving resources. So the adverse effect of tax on capital formation will also
adversely affect the ability of the company to invest and consequently production.

In order to cover VAT related expanses like VAT register machine cost and a person
who control and exercise VAT, the company incurs additional cost in addition to
production costs. In this case the company transfers these expanses to the final
consumer of the flour. This increases the price of flour.

Due to imposition of heavy taxes on the company, the company cannot improve their
production capacity. This leads to reduce the amount of output / flour, when the
amount of flour reduces; the company increases the price of flour. So the consumers
are not able to purchase and consume the company’s flour.

Table 9: Not effective customer selection:

Problem Frequency In percent (%)

Yes No Yes No
Is customer selection is effective in the 2 10 16.67 83.33%
company %
Total
100%
12

The above table shows that 10 or 83.33% of the respondents said that the customer
selection in the company is not effective and 2 or 16.67% of the respondents said no.

If the company’s customer selection is not effective, the company’s flour extends to
the interested consumer. As a result the company’s flour could be sold.

The following table describes “why” the customer selection is not effective.

23
Table 10: Not effective customer selection?

Problem Frequency In percent (%)

Most of customers have similar economic 2 20%
status
Fear of market related problems 3 30%
Problem of excessive and inadequate amount 5 50%
of inventories
Others - -
Total 12 100%

From the above table 10, we can understand that most of the customers have similar
economic status (20%), fear of market related problems (30%) and problem of
excessive and in adequate amount of inventories (50%).

Due to customers have similar economic level; the company cannot separate its
customers. As a result the company sold the flour for any customer who is interested
to purchase flour.

Marketing risk results from several factors such as unexpected competition, problem
of marketing channels, non-acceptance by customers, quantity or price.

When there is excessive amount of inventories/flour/ has problems like unnecessary

tie-up of the firms, loss of profit, excessive carrying cost and risk of liquidity. On the
other hand in adequate amount of inventories are not meet the demand of customers
regularly, they may shift to competitors which will amount to a permanent loss to the
company.

24
Table 11: Management accounting application of Kedija Flour Company is poor:

Problem Frequency In percent (%)

Yes No Yes No
Is possible to say that the management
accounting application of Kedija flour 10 2 83.33% 16.67
company planning is poor.

Total 12 100%

From the above table 11, it clearly understands that the management accounting
application of Kedija Flour Company planning is poor (83.33%)says “yes” and
16.67% are says “no”

Since management accounting application is the major instrument for manufacturing

companies to produce and controlling outputs. Poor management accounting
application affects the whole activities of the company. Especially the company
budgeting system becomes weak, internal controlling system is not strong.
Consequently the company could not able to operate its activities as planned as
possible and successfully.

The following table describes the main weakness of management accounting

application of Kedija Flour Company.

Table 12:Poor management accounting application:

Problem Frequency In percent (%)

The accounting system is not computerized 4 40%
Conflicting role of budgeting 1 10%
Have no strong business process re-engineering 2 20%
The company does not use JIT inventory system 3 30%
Others - -
Total 10 100%

According to the above table 12, management accounting application of Kedija flour
company is poor because of the accounting system is not computerized (40%),
conflicting roles of budgeting (10%), have no strong business process re-engineering
(20%), and the company does not use just in time inventory system ( 30%).

If the accounting system is not computerized, it delays to the achievement of the

company’s objectives and strategies and all other activities like internal controlling,
transactions related to journals and ledgers.

25
There is single budgeting system which used to serve several purposes, this in danger
that they could conflict with each other. This could not be appropriate to motivate
maximum performance and unsuitable for planning purposes. There is a conflict
between the planning and performance evaluation roles. As a result management
accounting application of the company is weak.

Since have no strong business process re-engineering, it delays to redesign of business

process, structure and the use of technology to achieve breakthrough in business
competitiveness. As a result the management accounting application of the company
is poor.

The company does not use just in time inventory system, every activity does not
occurs exactly at the time needed for effective execution. The activity is not happens
exactly as planned. It cannot reduce costs, idle time for production and cannot create a
demanded-driven business. As a result management accounting application of Kedija
Flour Company is poor.

CHAPTER FIVE
CONCLUSION AND RECOMMENDATION
5.1. CONCLUSION
It is discussed that management accounting application of Kedija Flour Company has
encountered many problems that limits management accounting information,
management planning, and its application. The main thrust of this study was, therefore
to find out the main problems of management accounting application of Kedija Flour
Company. Structured questionnaires and observation by the researcher were
employed to collect the necessary data. Interpretation was made based on the gathered
data and the following findings are obtained.

 The management accounting information is not provide at the right time due to
different problems such as poor information technology, absence of
specialized labor and information asymmetries.

26
  The major problems that the company faces In connection with poor
management planning are lack of management accounting system,
inappropriate budgeting system and lack of infrastructure. As a result the
company planning is limited
 There is also inappropriate budgeting system. The problems faces associated
with are: conflicting roles of budgeting, behavioral aspects of budgeting. In
addition to this there is lack of communication and co-ordination among
different departments. Consequently the company’s budget could not able to
cover its business activity.
 The management accounting application of kedija flour company affected by
different constraints, these problems are heavy tax and VAT related problems,
lack of full utilization of labor and time. In addition, in adequate amount of
water and electricity. As a result the company can intend to reduce its
production and productivity.
 Labors are not contributing their full capacity on the company caused by
different factors such as lack of incentives and motivation, poor personnel
management and increase work load. As a result labors are not sensitive to do
well.
 Kedija flour company pay heavy tax on sales of flour with VAT. The main
problems in connection with heavy tax are decrease production and
productivity, increase the price of flour and reduce the consumption pattern of
customers. As a result the company capital formation and investment is weak
and unable to use new technology.

 There is also ineffective customer selection in the company. The problems

faces associated with are: most of the customers have similar economic status,
fear of market related problems and problem of excessive and in adequate
amount of inventories. This limits the company to select customers.
 Kedija Flour Company uses only equity financing in their source of capital. As
a result the company pays heavy tax. There is no any amount of tax deductions
like interest expense. Consequently the company management accounting
application is limited.
 Generally the management accounting application of Kedija Flour Company is
poor. The main problems faces associated with are: the accounting system is
not computerized, conflicting roles of budgeting, have no strong business
process re-engineering and the company do not use just in time inventory
system.

5.2. RECOMMENDATION
In this study problems were identified which considerably hinder management
accounting application of Kedija flour company. If the necessary remedies are given

27
and implemented the management accounting application will improved to great
extent. Therefore based on the findings the following recommendations are
forwarded.

A. The company should try to design appropriate budgeting system and

financing sources:

 The management body of budgeting of the company is to function efficiently,

there should be definite line of communication and co-ordination so that all
the parties will be kept fully informed of plans and polices, and constraints, to
which the company is expected to conform. Everyone in the company should
have a clear understanding of the party. They are expected to play in achieving
the annual budget.
 The company involved in the budgeting process need to be aware of the
behavioral aspects of budgeting in order to maximize good points and
minimize the problems such as budgetary slack and budgetary tapping, politics
of the company.

 In order to develop good capital structure of the company, the financing

function determines the possible source of finance for firms to finance its
assets by using 70% of debt financing and 30% of equity financing.

B. There should be a means to minimize constraints to evaluating management

accounting application:

 The company can reduce its heavy tax liability by using tax saving methods
such as deferring income or profit of one period using an acceptable
accounting like installment sales method in place of accrual basis so as to
defer current tax burden and use of financing methods that minimize tax
burdens like debt financing.
 In order to increase full utilization of labors, the company should be give
training and promotion to labors, incentives such as house allowance,
transportation allowance; and reduce work load to increase their willingness to
work.
 The company should be used just in time inventory system, strengthen its
business process re- engineering in order to achieve required quality, quantity,
time and competitiveness of a firm; and develop computerized accounting
system instead of manual system to increase internal control system and other
transactions.

C. The company should be provided management accounting information at the

right time:

28
  The company used enterprise resource planning system to reduce routine
information gathering and the processing of information. And also users can
access real time information on all aspects of the business.
 Improve information efficiency on the level of information disclosure and the
speed with which information is processed easily, timely available and
involves low cost.

D. The company would be solving poor management planning:

 Management accounting system should provide information for planning in

order to translating goals and objectives in to specific activities and resources
that are required to achieve the goals and objectives.
 The company can install and maintain an accounting system to monitor the
performance of the business and generate information to meet planning

REFERENCES
.Charless T. Horngren, Srinkant (2000); Cost Accounting: A managerial emphasis;
10thed, Prentice Hall, USA.

Charless T. Horngren, Srikant M. (2012); Cost Accounting: A managerial emphasis;

14thed, Prentce Hall, USA.

Colin Drury (2009); Management and Cost Accounting, 6thed, Akash Press, India.

Don R. Hasen and Maranne M. Mowen; Cost Accounting and control; Sw New York

Pauline Weetman (2003); Financial and Management Accounting; 3 rded ,Prentice

Hall, England.

Raiph S. Polimen, Frank J. Fabozzi,Kole (1991) ;Cost Accounting;3 rded , Mcg raw
Hill inc USA.

Ronald W. Hilton (2002); Management Accounting;5thed, Mcgraw-Hill, New York.

29
 HAWASSA UNIVERSITY
College of Awada business and Economics
Department of Accounting and finance
Dear respondent this questionnaire has been prepared to collect data to conduct a
research on evaluating management accounting application to organizational plan case
study of Kedija Flour Company for the fulfillment of BA degree requirement in
accounting and finance program. It is prepared for only academic purpose, so frankly
fill the appropriate answer in the space provided. The provided information will not
be used for other purposes.

Thank you!!!!

1. What is the major problem that you face in connection with poor management
planning?

A. lack of management accounting system

B. In appropriate budgeting system

C. lack of infrastructure

D. other, please specify …………………………………………………………..

2. Are management accounting information provide at a right time for planning?

A. yes B. no

3. If your answer for question number 2 is no, why?

A. poor information technology

B. absence of specialized labor

C. information asymmetries

30
D. other, please specify ………………………………………………………………

4. What is the source of finance for the company?

A. equity financing

B. debt financing

5. What is the cause of in appropriate budgeting system?

A. conflicting roles of budgets

B. behavioral aspects of budgeting

C. lack of communication and co-ordination among departments

D. other, please specify ………………………………………………………...

6. What are the constraints affecting the application of management accounting on

your company’s planning?

A. heavy tax and VAT related problems

B. lack of full utilization of labor and time

C. in adequate amount of water and electricity

D. other, please specify

7. What do you think labors are not use their capacity utilization on the company?

A. lack of incentives and promotion

Poor personnel management

C. increase work load

D. other, please specify ………………………………………………………………

……….

8. What is the impact of heavy tax VAT?

A. decrease production

B. increase the price of flour

C. reduce consumption

D. other, please specify ……………………………………………………

31
…………………..

9. Is customer selection effective in the company?

A. yes B. no

10. If your answer for question number 9 is No why?

A. most of the customers have similar economic status

B. fear of market related problems

C. problem of excessive and in adequate amount of inventories

D. other, please specify…………………………………………………………

11. Is possible to say that the management accounting application of Kedija flour
company planning is poor?

A. yes B. no

12. If your answer in question number 11 is yes. Why?

A. the accounting system is not computerized

B. Conflicting roles of budgeting

C. has no strong business process re-engineering

D. The Company does not use just in time inventory system

E. others, please specify……………………………………………………………..

32