Cost Accounting as a Tool for Performance Evaluation in a Food and Beverages Company (a Case Study of Nestle Plc)
Chapter One
Purpose of the Study
The purpose of these study is to examine the effect of cost accounting techniques on performance of Food And Beverages Companies. Specific objectives include, to:
- To investigate the types of accounting records being kept and maintained by Nestle PLC.
- To evaluate factors hindering Cost accounting Techniques in Nestle PLC.
- To investigate the extent to which accounting information is being used in measuring financial performance by Nestle PLC.
CHAPTER TWO
LITERATURE REVIEW
Conceptual Review
Binnersley (2008) opined that firms compete in different fronts such as quality, price, reliability on delivery, and customer service and to effectively deliver on all of these fronts becomes a challenge therefore, the management accountants need to innovate and adapt new methods of management in order to be more relevant on optimal competitive fronts. Failure on the part of management accountants not to be more adaptive to new effective cost accounting techniques shall result in other professionals filling the gap which in the long term would render the cost accounting less relevant. Kaplan (1984) particularly emphasized that cost accounting serves the strategic objectives of the firm. The adoption and practice of cost accounting must be tailored to a firm’s specific objectives .As such it cannot be universally applied without regard to the firm’s individual uniqueness This is particularly important because of the ever changing nature of business environment which has constantly imposed serious responsibility on management of firms to continuously align strategic plans with strategic goals and objectives in order to remain competitive.
Rapid changes in business environment as noted by Nandan (2010), coupled with product diversification and intensified production, have led to more overhead cost incurrence by activities rather than volume, which has caused conventional management techniques to be of less value. However, the role of management accountants have become significant, particularly given the importance of various strategic decisions which has increasingly caused the shift in focus from traditional to modern cost accounting techniques in order to fulfil the emerging need for cost accounting as an aid to strategic decision making (Karanja et al, 2014). The shift in focus obviously has led to a wide range of remarkable innovations in cost accounting with attendant positive impact on the firm improvement in processes and outcomes. The evidence is clearly noted through the adoption of innovative modern cost accounting techniques such as strategic management, contemporary performance measurement systems the balanced score card, activity-based costing, lifecycle costing ( Karanja et al, 2014).This development, according to Kibera (2000), has made cost accounting information to be vital in the management of both small and medium scale enterprises which has moved the discipline from a passive role information provider to an active role information provider for decision makers Arguably, with the unfolding scenario, the hitherto ‘relevant lost’ opinion canvassed that management accountants have abandoned the concepts of conventional cost accounting due to variations and changes in the operating environment may as time went by be regained in the nearest future. In Nigeria, such hope is alive that the supposedly gains appear to be manifesting among Food And Beverages Companies due to gradual adoption of cost accounting.
The effectiveness of a particular cost accounting technique in any firm is not only a product of a number of factors but a combination of both internal as well as external factors intervening in the operating environment of the firm .In recognition of the operating environment, Sine and Krisch (2006) argue that technology has a very significant influence on the choice of a firm’s cost accounting practice and that firms’ cost accounting practices differ due to uniqueness of their individual operations and environment. However, the issues of timeliness, effectiveness, information needs and an adoption of best practice according to Alleyne and Marshall (2011) are important factors responsible for the choice of cost accounting practices adopted by Nestle PLC. Thus, cost accounting contemplates and anticipates the firm’s environmental factors to refocus the firm for better alignment of strategy and objectives, resource allocation and optimization, identification of business sustaining activities and wasteful activities in order to achieve desired objectives/ goals.
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The survey research design was adopted as a means of identifying those business which fall within the description of the priority sectors (manufacturing, construction, services and agriculture) considered by the Vision 20-2020 enunciated by the federal government of Nigeria as vital in realising growth, poverty reduction and employment generation.
Area of study
Port Harcourt is one of the most industrial cities in Nigeria. It is the capital of Rivers state, located in the southern part of Nigeria.
Population of study
Accounting /finance managers of Food And Beverages Companies constituted the population of the study.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
Presentation of Data relating to CA techniques contained in the Questionnaire.
The respondents were asked to indicate the level of adoption Out of the 120 respondents that were given structured questionnaire only 100 actually filled the questionnaire completely while 20 were wrongly filled which made them unusable. The usable questionnaire therefore account for 83.33% which is very high compared to the overall sample. Results emanating from the data as the study believe can be generalize to a large extent in line with other similar studies having usable response rate that fall between 50 % and above in the existing literature (see Howard et al, 2015, and Karanja et al, 2014).
CHAPTER FIVE
CONCLUSION AND RECOMMENDATIONS
Based on the findings emanating from the study, CA techniques are not strange to most of the business in Nigeria. This is obvious because many of the business were found to be familiar with some basic CA techniques. From the standpoint of the study, one cannot but appreciate the observation that some of the CA techniques used by Nestle PLC are carefully consider as appropriate for use in their various activities and operation .This is consistent with the view expressed by Kaplan (1984).Importantly, the study contribute to knowledge because it was able to establish a moderate adoption of CA techniques related to cost accounting systems, planning, budgeting/control systems, a high adoption of cost accounting techniques related to decision making purposes, a low adoption of CA techniques in pricing and management reporting systems.. Consequently, the study recommends continued high adoption of CA techniques related to costing systems, planning, budgeting/control systems, investment decision making purposes, pricing policy decisions and management reporting. Certainly, high adoption of these CA techniques would impact tremendously on the performance and sustainability of Food And Beverages Companies in the short and long run.
conclusion
The importance of small and medium-sized enterprises for the Nigerian economy is undeniable. As discussed, business in Nigeria play a crucial role by providing employment opportunities and boosting the growth of the economy. The business sector has also proved valuable in helping Nigeria to achieve sustainable economic growth as the sector has been resilient to the adverse impact of global economic challenges that impact on the Nigerian economy. Among the different sectors in which business operate, the manufacturing sector is most significant in terms of the contribution to GDP and exports from Nigeria, whereas the service and agriculture sectors contribute most in terms of employment. On balance it is reasonable to claim that the manufacturing sector is the most important business sector in Nigeria and to make it the focus of the research.
A major contributor to the success of Food And Beverages Companies has been support from the Nigerian government to this sector. Given the various potential advantages from a thriving business sector, the Nigerian government/policy makers have enacted various policies and interventions to promote business development and to ensure the sector‘s sustainability and survival. Financial assistance as well as training in technical aspects of business, marketing and management skills is among the support from the government for this sector. These policies and support have successfully stimulated the growth of this sector. Despite the increasing interest in the business sector, there is a dearth of academic research into Nigerian business including their use of cost accounting.
Research has shown that cost accounting have a role in ensuring that the management of a firm is efficient and effective and may also improve performance. Cost accounting also permit firms to compete in the market place and reduce the likelihood of business failure. Given these advantages from cost accounting use, it is important to promote knowledge and awareness of cost accounting among small business in Nigeria so that firms may benefit from the advantages that have been highlighted above. Furthermore, in a Nigerian context, this lack of research into cost accounting and business may result in a failure by government to appreciate the importance of cost accountings for business. For example, knowledge of MAPs is not included in management skills training for entrepreneurs provided by the government. This research may ensure that policy makers are better informed.
Recommendation
This research concerns the use of MAPs by Nestle PLC. Although there is a body of literature examining the use of MAPs, the focus has been on larger firms and no previous research has exclusively addressed the use of MAPs in business particularly in a developing country. This research therefore makes its own specific contribution by providing knowledge of MAPs in business in a developing country. The research is distinct not only because it documents the uptake of MAPs among Food And Beverages Companies; but also because it addresses the roles of MAPs in the management of Food And Beverages Companies; investigates factors affecting the use of MAPs, and examines the impact of MAPs on the performance of firms in business sector.
By filling this research gap, this study has sought to advance understanding of recent developments of MAPs in business particularly in a developing country context by adding new empirical evidence to the body of knowledge on the use of MAPs as well as responding to calls for research into MAPs in small business (see Mitchell et al., 1998; Mitchell and Reid, 2000; and Nimtrakoon, 2009).
This research considers a broad range of MAPs instead of focusing on a single MAP or a limited set of MAPs. The information will increase an understanding on how far small businesses have taken advantages of the available MAPs and whether they have adopted newly developed techniques to some extent.
Using the notion of contingency theory as a foundation, this research has also advanced the current state of knowledge by shedding light on factors influencing the use of MAPs in small businesses in a developing country. The findings indicate that MAPs can be influenced by external environment as well as by factors within the organization. As such this research has responded to the recent calls for additional contingency based research in management accounting in order to enhance understanding of potential contingency factors which explain the use of MAPs (Chenhall and Langfield-Smith, 1998; and El-Ebaishi et al., 2003). It extends the body of knowledge that use contingency theory to explore the significance of contingency variables in small businesses.
Further this research has made at contribution by exploring the roles of MAPs in the management of Food And Beverages Companies and examining for a possible association between the some use of MAPs and improved firm performance. As such this research has highlighted the importance of management accounting in the management as well as the relationship of their use to organisational performance. Consequently this research has extended the findings of Chenhall and Langfield-Smith (1998) and El-Ebaishi et al. (2003) among others.
This research has increased knowledge of MAPs in a business context. Nigeria as a developing country has strived to move to parity with more developed economies, and find the research useful to provide relevant knowledge that can support efforts to enhance the performance of Nigerian business. The findings will be informative for policy makers intent on developing management accounting skills among Nigerian business. In specific it is hoped that the Nigerian government will enhance the existing training programmes to the Nigerian entrepreneurs or young graduates by subsidising the training in the use of MAPs so that the business. The training should bring more awareness to the use of MAPs particularly to the use of more modern MAPs. More broadly this research will promote interest among Nigerian researchers as well as researchers of other countries to take the business sector as a focus of interest for their research. This study can be also astarting point for further investigations and analysis of MAPs among Food And Beverages Companies in Nigeria.
References
- Abdel-Kader, M & Luther, R (2008) .Impact of firm characteristics on cost accounting practises. A UK-based empirical analysis. The British Accounting Review ,40(1):2-27
- Alleyne, P & Marshall, D.W.(2011). An exploratory study of cost accounting practices in manufacturing companies in Barbados. International Journal of Business and Social Science, 2(9) :49-59.
- Binnersley (2008) .Do you measure up? Charte Paper presented at the Academic Business World. Nashville, Tennessee
- Chenhall, R.H & Langfield, S.K (1998).Adoption and benefits of cost accounting practices:An Australian study. Cost accounting Research, 9 :1-19
- Churchill (1979) A paradigm for developing better measures of marketing constructs .Journal of Marketing Research,16 (1) :64-73
- Clinton, B & White, L (2012). Roles and practices in cost accounting from 2003-2012.Strategic Finance, November: 37-43
- Dalberg Consultancy (2011).Report on support to business in Developing Countries through financial intermediaries in D. Group (ed),Geneva. Available at http// www.eib.org/attachments/dalberg-sme-briefing-papaer.pdf. Assessed on 31st May ,2019.
