A RESEARCH PROPOSAL ON THE APPLICATION OF COST

ACCOUNTING TO MANAGEMENT PLANNING, CONTROL AND

DECISION MAKING (A CASE STUDY OF COCA-COLA BOTTLING

COMPANY)

By

OLUDU OMOWUNMI GRACE

13/56/0383

SUBMITTED TO THE DEPARTMENT OF ACCOUNTANCY, MOSHOOD

ABIOLA POLYTECHNIC, OJERE, ABEOKUTA, OGUN STATE.

COURSE CODE: STA 427

COURSE TITLE: PROJECT

LEVEL: HND II

LECTURER: MR.
INTRODUCTION

The history of cost accounting can be traced back to the fourteenth century. From the mid 1980s,

the start of new movements in the field of cost/managerial accounting, a gap has emerged

between the opinions of academia and practitioners regarding the degree of usefulness of cost

accounting techniques (Sangladji, 2008). It is believed that practitioners generally prefer cost

accounting techniques which are simple, practical and economically applicable. On the other

hand, many authors and academia believe that the traditional cost accounting techniques are

obsolete and not effective for managerial decision making purposes that , most traditional cost

accounting information are usually too late, too aggregated, and too distorted to be relevant for

decision making purposes, still there has been an increasing interest in developing new cost

accounting models in recent years, the traditional cost accounting techniques are still widely used

by many organization (Sangladji, 2008).

Cost accounting (CA), which measures and reports financial and non-financial information

related to the organization’s acquisition or consumption of resources, has an exceptionally

important position within the entire accounting information system of an organization because it

provides information to both management accounting and financial accounting as subsystems of

the accounting information system. When its information is intended for the financial accounting

it measures product cost in compliance with the strict legal and professional regulations. When

used for internal purposes it provides the basis for planning, control, and decision making.

Accounting data used for external reporting very often do not completely satisfy manager’s

needs for decision making purposes. Attempts at slight modifications of financial accounting

systems for managerial purposes rarely end happily and far from effective (Wikipedia 2015).
According tom previous researchers, as stated by Nguyen (2011), different costing techniques

have different core competitive advantages to organizations. From the oldest to newest method,

decision of managers is still affected. As a result, finding the best method to reduce the failure

rates and increases the effectiveness of cost allocation and control is a hard question for both

managers and accountants. Based on the accounting history, there are many types of costing

method such as; traditional or absorption costing method, variable costing method, standard

costing method, throughput costing method, and ABC costing method. Changes in business

environment requires a better method which can help managers control their performance. For

many researchers, cost accounting techniques are still a major concern for them. Different

techniques lead to different decisions of the managers therefore profits to the organizations can

not be the same. A dynamic business environment lead to the need for new costing methods for

new cost objects. However, in the long run, some fixed costs still need to change. As a result,

new cost accounting method is invented. Instead of sharing equally among various departments

and maintaining the fixed costs in the long run, expenses are divided differently based on some

factors such as labour hours, direct materials and the fixed cost can be changes based on the need

of the production process. Not all the products need the some quantity of direct material as well

as the direct labour hours. So managers should know how to use and allocate costs more

effectively. However, for the purpose of this research, the researchers shall be examining the

application of cost accounting on management planning, control and decision making.

STATEMENT OF THE PROBLEM

This involves the identification of difficulties encountered by making use of cost accounting as a

tool for management planning control and decision making. This study is meant to investigate

and then to find solutions to the problems that are faced using cost accounting.

RESEARCH OBJECTIVES

The main objectives of this research is proposed to find out what cost accounting is all about, to

evaluate and critically examine the application of cost accounting for management planning,

control and decision making. To also investigate the problems arising from making use of the

techniques and then finally, finding solutions to the problems.

RESEARCH QUESTIONS

1. Can cost accounting be used as a tool for management planning, control and decision

making?

2. Does cost accounting have a positive effect on management planning, control and

decision making?

HYPOTHESES

Hypothesis One

H0: Cost accounting cannot be used as a tool for management planning, control and decision

making.
H1: Cost accounting can be used as a tool for management planning, control and decision

making.

Hypothesis Two

H0: Cost accounting does not have a positive effect on management planning, control and

decision making.

H1: Cost accounting has a positive effect on management planning, control and decision

making.

SIGNIFICANCE OF THE STUDY

This refers to the importance and benefits of this research project. This project work is proposed

to help organizations that adopt or use cost accounting as solutions on how to make an effective

management planning, control, and effective decision s will be offered to them. This study will

also create awareness on the risks involved by the technique of cost accounting during the

decision making. Equally, to benefit from the study is students and researchers who will also

serve as a source of information for further research.

HISTORICAL BACKGROUND OF CASE STUDY

The Coca-Cola Bottling Company is an American multinational, retailer and marketer of non

alcoholic beverage concentrates and syrup which has its headquarters in Atlanta Georgia. The

company is best known for its flagship product Coca-Cola, invented in 1886 by Pharmacist John

Smith Pembemton in Columbus Georgia.

The Coca-Cola formula and brand was bought in 1889 by Asia Candler who incorporated the

company in 1882. Beside its namesakes Coca-Cola beverage, Coca-Cola currently offers more

than 500 brands in over 200 countries and serves over 1.7billion people each day. Tab was Coca-

Colas first attempt to develop diet soft drink Saccharin as a sugar substitute introduced in 1963,

the product is still sold today, although its sales have swindled since the introduction of Diet

Coke. The company also produces a number of other soft drinks. During the 1990s, the company

responded to growing consumer’s interest in healthy beverages by introducing several new

carbonated beverage brands. These includes: Minute Maid, Juices to go. Powerade Sports

beverage flavored tea Nestea (in Joint venture with Nestea) etc.
LITERATURE REVIEW

In economic practice, various cost accounting systems are applied, which differ by time horizon

and accounting scope. Because of the different information needs of various groups of

stakeholders (e.g. directors, owners, subsidiaries), there are often several systems in place. This

may lead to divergence in results. This does not only concern situations where there is one

system in financial accounting (e.g. actual cost accounting) and other systems in the managerial

accounting (e.g. normal and planned cost accounting). The divergence caused by the

simultaneous application of different cost accounting systems may lead to misinterpretations and

incorrect business decisions being made. This raises the need to reduce data from various

systems to the lowest ‘common denominator’, i.e. their recalculation to results determined in the

base system. (Kużdowicz, Kużdowicz, Witkowski 2012). This article presents connections

between cost accounting characteristic for managerial accounting and financial accounting

within the normal and actual cost accounting systems. The research problem is to find the answer

to the question: is there a procedure for reconciling result data specified in normal and current

cost accounting?

Cost accounting systems

In respect of time horizon, there is actual cost accounting, normal cost accounting and planned

cost accounting. Actual cost accounting records and accounts for - ex post - the effectively

incurred costs. Normal cost accounting is based e.g. on average actual values from past periods,

and planned cost accounting on normative or postulated values relating to the future (Schmidt

2008; cf. Biernacki, Kowalak, 2010; por. Kotapski, Kowalak, Lew, 2008).
Actual cost accounting

Actual cost accounting is a traditional cost accounting method that is limited to business activity

with respect to the consumption of production factors and origination of products or services

(results). The effectively incurred costs are valued based on actually incurred (actual) prices.

This information is used to determine the actual profit/loss in the profit and loss account and

determine cost per cost-object as part of the final calculation. This does not, however, provide for

effective cost control, since it does not include the reference values as a basis of all comparisons.

This means that the application of actual cost accounting only partially helps in making business

decisions determining future costs and results (products, services) (e.g. Hoitsch, Lingnau 2007;

cf. Kasperowicz, 2009). In economic practice, there is no such thing as “pure” actual cost

accounting, since a portion of types of cost is embedded in planned values. For instance, write-

downs on machinery are made according to pre-defined useful life, since the actual period is set

only after disposal (sale or write-off) of a given asset. Moreover, some one-off or non-cyclical

expenses such as insurance premiums, holiday pay or taxes on vehicles are accrued using mean

values. Allocating such expenses to the period in which they originate would lead to

unreasonable cost fluctuations in an enterprise. “Pure” actual cost accounting would call for

repeated determination of calculation rates and cost object calculation at the end of each

reporting period (Schmidt 2008; Kużdowicz, Kużdowicz, Witkowski 2012).

Normal cost accounting

To simplify actual cost accounting and perform initial calculations, fictitious costs and results

(products, services) values are set. They are based on average values of costs from previous
periods, which are adjusted to the present or expected changes in future prices and quantities,

and are determined in normal cost accounting. This approach eliminates the impact of periodical

fluctuations and accidental changes in consumption quantities or prices. For instance, additional

costs, originating as an effect of a seasonal low or introduction of new product series, cannot be

allocated only to units manufactured over a given period, but should be divided into the

anticipated annual quantity or over the entire product life cycle. Such an approach causes a

steady development of cost calculation rates and calculation rates, which guarantees calculation

continuity (Kużdowicz, Kużdowicz, Witkowski, 2012).

Calculation rates are used to determine labour cost costs and machine hours. Calculation rates

called surcharge rates are used to determine the overhead cost surcharges in prime cost

calculation of calculation objects. Rates determined in normal cost accounting, being normal

rates, are also applied in allocations and calculations in actual cost accounting. This applies in

particular to the initial actual calculation, where at the time of delivery – e.g. at the beginning of

the reporting period – only normal rates can be applied. Actual rates will be known only at the

end of the period. Calling the system the “actual cost accounting” appears to be justified as long

as the quantities of consumption are based mostly on actual values (Schmidt 2008).

Stages of cost accounting

Cost accounting as an information processing system includes a series of ordered and logically

connected activities. The key purpose of these activities consists in translating data on the use of

resources involved in the company’s operations into information which reflects the costs of

specified reference objects (Nowak, Wierzbiński, 2010). The reference objects include cost

types, centers and drivers. The record and cost allocation covers the cost by-type accounting and
cost centre and object accounting. Object accounting is divided into cost object accounting

related to unit calculation objects and income object accounting, related to time. Cost accounting

and allocation takes place in financial and managerial accounting, however primary costs

(consumption or external resources) are accounted for simultaneously in financial and

managerial accounting, whereas secondary costs are accounted for only in managerial

accounting. Direct costs are accounted for directly to cost accounting objects, and overhead

(indirect) costs – sequentially, i.e. first in cost types and cost centers and then in cost object

and/or income object accounting. Figure 1 illustrates the stages of cost accounting.

Decision Making

Decision-making can be regarded as a problem-solving activity terminated by a solution deemed

to be optimal, or at least satisfactory. It is therefore a process which can be more or less rational

or irrational and can be based on explicit or tacit knowledge and beliefs. Human performance

has been the subject of active research from several perspectives:

 Psychological: examining individual decisions in the context of a set of needs,

preferences and values the individual has or seeks.

 Cognitive: the decision-making process regarded as a continuous process integrated in

the interaction with the environment.

 Normative: the analysis of individual decisions concerned with the logic of decision-

making, or communicative rationality, and the invariant choice it leads to. Kahneman,

Daniel; Tversky, Amos, eds. (2000)

Features or Characteristics of Decision-Making:

 Rational Thinking: It is invariably based on rational thinking. Since the human brain

with its ability to learn, remember and relate many complex factors, makes the rationality

possible.

 Process: It is the process followed by deliberations and reasoning.

 Selective: It is selective, i.e. it is the choice of the best course among alternatives. In

other words, decision involves selection of the best course from among the available

alternative courses that are identified by the decision-maker.

 Purposive: It is usually purposive i.e. it relates to the end. The solution to a problem

provides an effective means to the desired goal or end.

 Positive: Although every decision is usually positive sometimes certain decisions may be

negative and may just be a decision not to decide. For instance, the manufacturers of

VOX Wagan car once decided not to change the model (body style) and size of the car

although the other rival enterprise (i.e. the Ford Corporation) was planning to introduce a

new model every year, in the USA.

 That a negative decision and is equally important was stressed by Chester I. Bernard-one

of the pioneers in Management Thought-who observed, “The fine art of executive

decision consists in not deciding questions that are not now pertinent, in not deciding

prematurely, in not making decisions that cannot be made effective, and in not making

decisions that other should make. ”

 Commitment: Every decision is based on the concept of commitment. In other words,

the Management is committed to every decision it takes for two reasons- viz., (i) it
 promotes the stability of the concern and (ii) every decision taken becomes a part of the

expectations of the people involved in the organization.

 Decisions are usually so much inter-related to the organizational life of an enterprise that

any change in one area of activity may change the other areas too. As such, the Manager

is committed to decisions not only from the time that they are taken but up to their

successfully implementation.

 Evaluation: Decision-making involves evaluation in two ways, viz., (i) the executive

must evaluate the alternatives, and (ii) he should evaluate the results of the decisions

taken by him.

RESEARCH METHODOLOGY

This part of the research will be designed specifically to clarify certain terms used in the process

of obtaining relevant information presented in this study, the method of data collection, and

techniques employed in this study. The various data collection techniques will be briefly

explained, with the flaws of each of the methods also mentioned, not forgetting the limitation of

the study and also the study areas to be covered by the research.

Methods of Data Collection

There are various methods of collecting data needed for research study and its analysis. These

methods can be broadly categorized into two (2) broad headings which are primary and

secondary sources of data collection. These two methods will be examined.

Proposed Method

For the purpose of clarity, the primary data source has two major approaches to data collection.

These two approaches are questioning and observation. But here, the questioning approach or a
quantitative research design will be employed to carry out a survey by designing a questionnaire

which shall be distributed to the staff of the Coca-Cola Bottling Company.

Proposed Data Analysis

To analyze this research work, a descriptive approach and degree of relationship( correlation

coefficient will be used to examine the effect of cost accounting on management planning

control and decision making. The statistical software to be used for analysis is the Statistical

Packages for Social Sciences (SPSS) version 23.

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