EFFECTIVENESS OF COST ACCOUNTING INFORMATION IN PRICE DETERMINATION

(A CASE STUDY OF DEVEABLE VENTURE LTD)

By

ORJIAKO JENNIFER TOCHI

Presented To

Department of Accountancy

Preface

Cost are estimation of all expenditure incurred in exchange of goods & services. Therefore will can wee cost accounting. So cost accounting is systematic analysis and recording of financial transactions in respect of material. Are these in any help in determination of price?

The aim of this research work is to find out effectiveness of cost accounting information in price determination, how to regulate and fixed price in any existing goods. This work has only three chapters.

Chapter one contain introduction and discussion of cost accounting by different categories of people. It proceed further to state the objective of the study, scope and limitation, significant of the study, statement problems and finally the definition of terms.

Literature review examined by other studies as it related to effectiveness of cost accounting information in prove determination. Like cost determination cost control, fixed and variable cost, the flow of costing devable venture. Determination of processing system etc. is in chapter two.

Finally, the summary of findings, conclusion and recommendation made by the researcher are all in chapter three.

If the industries put the recommendation made in the study to use, there will know how to regulate and fixed price for profit maximization.

TABLE OF CONTENT

COVER PAGE I

TITLE PAGE II

CERTIFICACTION III

DEDICATION IV

ACKNOWLEDGEMENT V

PREFACE VII

CHAPTER ONE

Introduction 1

Background of the study 1

Objectives of the study 4

Scope and limitation 6

Significant of the study 6

Definition of terms 7

CHAPTER TWO

Review of literature 11

Cost determination 11

Cost control 12

Fixed and variable cost 13

Natural and functional classification 14

The transfer finished goods in industry firm 18

The transfer to cost of sales in venture 18

Deforming the cost structure of fire pricing purposes 20

The nature of problem 26

Summary of literature of review 37

CHAPTER THREE

Summary of findings 39

Recommendation 39

Conclusion 45

Bibliography 47

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

So much that we are hearing about "Cost accounting". This cost accounting are two words with differently meaning join together to make up a course that we steely in field of accounting, without cost there will be no account.

Before introduction of this word cost accounting we can view the historical background of cost. Some where arouse the turn of the century cost were caught up in general industrial movement which later became known as scientific management. The role assigned to them was some what subordinate. Therefore cost definition is money outlay in exchange of goods and services, other definition goes like this, it is incurred expenditure occur on exchange of goods and services. While accounting has been define by Squiter and muder down in his book titles "Accounting theory and practice as a reporting activity that forms party of any management information system.

Cost accounting in an area in accountancy which has developed very rapidly in the recent years, and there can be no doubt about it's growing importance in the modern production methods. The growing need of cost accounting in business organization could be partly attributed 60 huge capital involvements, higher proportion of indirect costs, widening markets, competition and improved technology, these factors, however establish the need for proper and accurate keeping of records for cost ascertainment.

Cost accounting, originally referred to as ways of gathering and assigning historical costs of units of products and departments specifically for purposes of products and departments specifically for purposes of inventory valuation and profit determination. Fundamentally, cost accounting refers to the gathering and providing of information to the management needs for its daily operations, making important decisions and formulation of policies for the present and future activities if the organisation. Cost accounting also assists, in fulfilling the legal requirements of reporting of shareholders, creditors, government agencies and other external parties.

Cost accounting is the process of accounting for cost while beings with the record of income and expenditure or the bases on which they are calculates the ends with the preparation of statistical data. As has been said, it is the formal mechanism by means of which costs are ascertained and should not be confused with costing.

It should be noted that cost accounting deals with the recording, not only of expenditure, but of income. This is accordance with the present day conception of a cost accounting functions, which now embrace the ascertainment of selling and distribution and their measurement in relation to sale. The cost account is also concerned with the income arising from the sale of scrap and similar item which go to reduce costs. It should also be noted that the preparation of statistical data, which summarizes the information collected during the process of accounting for cost, falls within the scope of cost accounting.

The institute of cost management accountants (IMA) define cost accounting as the application of accountancy and costing principles, methods and techniques in the ascertainment of costs and the analysis of savings and of excess as compared with previous experience or with standard.

1.2 OBJECTIVES OF THE STUDY

If a system is to be successful, it should be designed with a specific business in mind. In another to put, the objectives should specific before hand. So in this study effectiveness of cost accounting. Inflation in price determine its objectives in manufacturing industries here in Enugu DAVEABLE VENTURE

First objectives before hand:

1. Determination of cost of each cost centre

2. Service cost centre

3. Producing cost centre

2. Accumulation cost of each stage of production is cover. In accounting system, the key accounts may be regarded as those of work - in - process, each one linked with the next as the work progresses.

3. To ascertain the unit cost in a period of each process and each item they produce.

4. Where worthwhile, to incorporate standard costing into the system standard costs would be pre-determined and used as a basis for planning and control.

5. To provide managers with the details for controlling costs reports and statements would be prepared to focus attention on any losses or waste.

6. To calculate cost of "materials" transferred to the next process and. In the final process to evaluate the cost of the finished goods.

1.3 SCOPE AND LIMITATION

At the outlet, it is essential to determine what positive cost accounting occupies in the large field industries.

The study is limited to Venture and the finding how the pricing and cost estimation on the process of the production. The scope may be summarized as follows:

The ascertainment and control of costs, to see money as a measure of economic performance, determination of cost, the methods and techniques employed are aimed at arranging money, information, in such a way that management is given as clear on ladication as possible of their economic performance and the direction in which they must move in order to improve their economic efficiency.

1.4 SIGNIFICANT OF THE STUDY

From all that has been written above, the importance of this study effectiveness of cost accounting information in price determination is that to enable the manufacturing industries in material policy, change of to production on a consistent and reliable basis the cost of material items at valuation of stock on hard and pricing taxation.

1.5 STATEMENT OF PROBLEMS

The statement of problems of this study is estimation of cost applied in each unit of production cost will determine how to regulate the price of each product manufactured in the industries. In cost behaviour that is fixed, variable and semi variable cost, the volume of production is fixed while the price per unit changes.

1.6 DEFINITION OF TERMS

The explanation and definition of terms in cost accounting are as follows:

JOB COSTING

Job costing is concerned with the accumulation of costs relating to a single cost unit. In the process of production the costing is identified or signed to that product.

CONVERSION COST

It is thus total production cost minus initial material input i.e, the sum of additional direct material direct wage, direct expense and absorbed production over head. Alternatively, term conversion cost is used to describe the cost of converting material from one stage which need not be finished stage.

PROCESS COSTING

Process costing is the second principal method of cost accounting. It is generally employed when a standard product is being made which involve a number of district process performed in defined sequence.

COST UNIT

Cost unit is a unit of quantity or produce, saves of time in relation to which cost may be ascertain

COST CENTRE

The place person or item of the equipment (or group being) in relation to which cost may be ascertain and related to cost unit the simple definition is a place where assemble cost or unit concern.

Cost allocation

Cost allocation is allotment of the whole item of cost to cost centers and cost unit.

COST APPORTIONMENT

The allotment of two or more cost centers or proportion of common items of cost on estimation bases of benefit received is cost apportionment.

SUNK COST

This is an irrecoverable of the cost incurred at the beginning of the ventures. It is also related to fixed cost.

FIXED COST

This is a cost which is incurred for a period and which within certain output and turnover limits tends to be unaffected by fluctuations in the levels of acting. Example are rent, rates and insurance.

INTERGRATED COST ACCOUNTS.

These are single system of accounting with no divisions between financial and cost accounts.

INTERLOCKING COST ACCOUNTS

These are systems in which separate financial and cost account are kept.

OPPORTUNITY COST

It is the value of the benefit sacrificed as the result of taking a given cost of action.