ABSTRACT: Increased advancement in industrialization, engineering and general commerce has thrown a great challenge to managers. There is increased competitions, and the survival of any company lies on the ability of the managers to apply the scare resources efficiently. Efficient management of resources call for proper control of inventory and revenue therefore, effective system of costing and good pricing policy are central and pre-requisite for the survival and growth of any organization in the global economic village. The topic “cost Accounting information and price determination’ is aimed at establishing how adequate accounting information can assist management in making sound pricing decision. Many business organizations in Nigeria collapsed in the recent past because they could not break-even. In periods of boo, manufactuers are able to show profits notwithstanding the leakages which pass unchecked but in periods of trade competition, concealed inefficiencies have to be tracked down and rigorous control must be exercised to ensure even modest margin of profit, there is not yet an agreed best method of costing products though, it may be helpful to recognize that cost allocations are being used to obtain a mutually acceptable price and not necessarily to portray cause- and effect relationship of cost incurrence. But price determined from efficient traditional income statement approach and /or contribution margin approach will most probably approximate the price of the product to its value.
LIST OF TABLES
4.1.0 Effect of market forces on pricing decision
4.1.1 Contingency table (function of costing information).
TABLE OF CONTENTS
CHAPTER ONE
INTRODUCTION
REVIEW OF RELATED LITERATURE
RESEARCH METHODOLOGY
DATA PRESENTATION
DISCUSSION, IMPLICATION, AND RECOMMENDATIONS
References
Bibliography
CHAPTER ONE
INTRODUCTION
Accounting has often been considered as a series of activities which are linked together and culminate in a progression of steps summarizing and finally communicating information to its users.
We may say therefore that accounting information has a special purpose and that is “decision making”. The task of the accountant is to transform raw data information.
Cost and management accounting are the parts of accounting discipline which have developed, to meet up with the progress in technological advancement, production, sales and finance. These aspects of accounting have broadened the boundaries of accounting profession and made it more useful to modern business enterprise.
Cost accounting is probably the field of accounting which has developed most greatly within the last half of this conturing and there is no doubt about its growing importance. This is partly because of the growing complexity of modern production methods, which results in greater capital investment and higher proportion indirect costs, and partly a reflection for the growing competition and widening markets in the business world.
All these factors necessitate the keeping of systematic and accurate records which will show the cost of goods produced an contracts fulfilled.
The job of accounting has shifted emphasis and focus from recording, interpreting and analyzing historical financial transactions, to a more challenging task of setting controls, devising the most efficient method of collecting, interpretation, analyzing and transformation of costs into useful information which is made use of by management in decision making which effects the future.
A cost/ management accountant is now deeply involved in helping management to set-up control systems that make for co-ordination of all the activities of an organization thereby ensuring proper and purposeful direction and effective control.
The cost accountant will draw on information, provided by the financial accounting system but he will also need to obtain much more detail of the internal workings of the business. He will use data in monetary and non-monetary forms of house worked capacity of materials used, product manufactured, machine running hours, idel time ect. He is concerned with finding the actual cost of products operations and departments, often comparing this with an estimated or ideal cost. The emphasis on decision making in recent years has brought together different disciplines which once were viewed as separate areas of knowledge. The accountant has to be knowledgeable over a broad area if, he is to be efficient in providing information, which is relevant and useful for decision making. The great task of an accountant is to transform raw data into information. as an information specialist, the management accountant must be aware of the nature of information and its attributes.
“Information has no value in itself, its value is derived from the changes in decision behaviour caused by the information being available, it follows from this that more detailed information, more accurate information or earlier information is not necessarily better information only if its improves the resulting decisions, the production of information only incurs cost which are frequently considerable. Benefits only arise from actions”. Many difficult decisions arise as to whether to buy new equipments which will make new products or save cost and whether to make or buy components, whether to accept work at cut threat prices etc. this often require special cost analysis and studies.
The cost accountant discusses with the engineer about the life span of the plant and machinery, the most economic and efficient way of its use, the most appropriate method of depreciation, whether it will be more profitable to dispose it at a salvage value or to continue its use until it is scrapped.
The supervisor provides the cost accountant with the information needed as to the usage of fuel, gas, energy. Light and heat etc.
The cost accountant will also look into the administration of wages; determine whether it is economical to engage labour at a piece rate or at a time rate, employ more workers and make room for shift futy or pay overtimes, the profitability or otherwise of the firm being machine or labor intensive cost accounting ensures the maintenance of good salaries and wages record, of classes of workers. Cost accounting has aided management in the formation of a sound and enviable labour policy and the determine the rate of turnover of labour.
Accounting information has assisted managers to control cost of raw materials effectively, determine the re-order level of stocks of raw materials. That is, after taking into account the mimum stocks develop and the safety stock and also considering the carrying (ware-houseing) and ordering costs, rate of efficiency etc.
The cost accountant laises with the works manager and from him, knows the processes involved in the production or manufacture, the cost incurred at every stage and seeks ways of controlling costs or improving the method of work which leads to reduction in cost and ultimately to increased efficiency.
The cost and management accountant therefore should have an in-depth knowledge of cost in every sphare of the organization in which he works. He is usually a member of any budget committee set up in the organization and in some cases the chairman. Hence it is his knowledge about the operational standards and the information which he obtained from the analysis of collated costs that form the basic budgeting tool. In fact, with the development of cost and management accounting, the job of an accountant has increased from that of a financial historian to that of a financial analyst who provides management with needed information for future decision, for comparison and efficient management. Without an effective system of cost accounting, it is doubtful whether a business of any size can survive in the intensively competitive condition of today.
There are no more important decision in market affairs than those connected with pricing. No matter how intelligently the product distribution and communication mixes are conceived, improper pricing of a product may nullify the effect of all other actions. But, in spite of the importance if pricing decisions, the skills and analysis which are often used in practice do not approach the professional orientation used in the management of advertising, sales promotion or personal selling. Perhaps one of the reasons is that price decisions cut across all areas of Business Operation and are not central in any of the functional divisions of the firm’s organization.
This research work therefore among other things, intends to highlight on management’s seemingly indifference towards this all important issue. This research titled “cost accounting information and price determination” as stated, directs attention to the cost structure factor of the price. though the cost structure especially as it affects a manufacturing industry constitutes the major determinant of the price of the products. There are other factors which influence the price of products of firms which vary with circumstances, types of the commodity services rendered.
Before delving into some of these other factor that influence product prices, let us first and foremost, direct our attention to the most important factor at play in the cost and price of beer, including components of the cost structure.
These are financial statements prepared from past activities of the enterprise. Since these are actual figures of cost and revenue obtained in the previous periods, the management can determine the price of its products through the information obtained from this past financial statement. This method is more reliable when there is steadiness in economic activities.
The budgeted cost is an information system through which cost can be estimated and controlled. Management most often base it price policy on budgeted cost or estimated prices through observed trends in economic activities. This is mostly applicable in newly establishment firms whose products are making their first outing to the market.
DEMAND AND SUPPLY: The price of beer is affected by the forces in the market. Beer industry being free enterprises market cannot be so rigid in its price policy since it is a price taken, so with a high demand especially when there is a decrease / fall in the prices of other food stuffs, the price of beer will increase.
Equally, the reverse is the case with arise in the price of essential commodities (Food stuffs).
This refers to the quantity or volume of the products that can be produced in a run or an average of the total output possible within a period. The factory with larger size or capacity will produce and sell at a lesser price than a small sized one. For examples Nigerian Breweries plc has a capacity of about 750000 hectolitres or 625 million cartons per year while its sister industry, the life Breweries plc has a capacity of about 430 hectolites or 5.8 million cartons per year. Under normal circumstances and other varioables held constant, Nigerian Breweries bee
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