80 pages. COST ACCOUNTING SYSTEMS AND APPLICATIONS IN SELECTED ENTERPRISES IN CAMEROON.

CHAPTER ONE

Background To Study

Cost accounting systems are designed to record, measure, and analyze the costs associated with production and operations. These systems provide essential financial and non-financial information to management for decision-making, cost control, and performance evaluation. The primary goal is to determine the cost of producing goods or services, facilitating efficient resource allocation and enhancing profitability. Cost accounting systems encompass various methods and techniques, such as job order costing, process costing, activity-based costing, and standard costing. They support budgeting, pricing, inventory valuation, and strategic planning, contributing to overall organizational success.

Enterprises worldwide establish systems and procedures to record and report the costs of goods. This information serves as a management tool for the optimal use of scarce resources, ultimately enhancing business profitability (Arora, 2004). Cost accounting, a specialized accounting field, primarily focuses on identifying, measuring, recording, reporting, and analyzing costs associated with production, marketing, and other decision areas. Its scope extends beyond calculating product costs for inventory valuation, as required by GAAP, to providing crucial cost information for decision-making (APO-ILO, 1997).

Cost accounting systems deliver financial and non-financial cost-related information. Product costing involves direct labor, direct materials, and manufacturing overhead costs to create a product, serving purposes such as financial statement preparation, price setting, and control (Horngren, 2003). The primary objective of cost accounting is to supply key cost information to managers for decision-making, supporting both management accounting and financial accounting. In manufacturing firms, cost accounting aids in achieving and maintaining a competitive advantage through manufacturing excellence, requiring attention to all performance aspects (Turney, 1989).

Cost control and reduction significantly contribute to profit maximization. Organizations excelling in these areas can sell products at lower prices than competitors without compromising quality, thus enhancing market share and becoming market leaders (Akeem, 2017). Effective cost reduction and control tools and techniques are essential to minimize costs without exceeding budgets or reducing product quality. The success and feasibility of a business venture hinge on the cost and pricing strategies developed. The potential risks and profits are considered during the cost and price-setting process, making it a critical stage in business operations (Swamidass, 2000).

Historical academic research has influenced the development of costing systems. By the late 19th and early 20th centuries, engineering managers like F. Taylor and Emerson had devised new cost accounting procedures to assess and control financial and physical efficiency (Johnson & Kaplan, 1991). These systems provided relevant information for efficiency and product differentiation decisions, although they were eventually phased out due to the difficulty and expense of collecting cost information for a broad range of products (Kaplan & Atkinson, 1989).

Maurice Clark’s 1923 book “Studies in the Economics of Overhead Costs” made significant contributions to cost accounting literature by discussing various cost concepts from an economist’s perspective. Clark advocated using different costs for different purposes, a principle that has influenced cost accounting practices.Cost accounting continues to evolve dramatically. Developments in information technology have nearly eliminated manual bookkeeping, and cost control has become increasingly emphasized across various industries, including banks, hospitals, manufacturing, airlines, and school districts (Lanen et al., 2011). Cost accounting is now a necessity in virtually every organization, including fast-food outlets, professional organizations, and government agencies.

In business organizations, cost accounting is crucial for managing internal affairs. Managers use it to examine past performance and explore alternative ways to make informed future decisions, enhancing the organization’s overall efficiency and productivity. Cost accounting measures and reports both financial and non-financial information related to resource acquisition and consumption. Organizations, from small sole proprietorships to large corporations, utilize cost accounting to provide key data for planning, controlling, and evaluating various business aspects, including product pricing (Lanen et al., 2011).

Cost accounting systems are designed to provide valuable information for management functions such as planning, control, and decision-making. Accurate, fast, and reliable cost information is essential for administrative decisions like pricing, determining optimal product mixes, and evaluating operational costs (Alahdal et al., 2016). Cost accountants work closely with information users to provide the best possible data for managerial purposes.

Historically, cost accounting emerged in the late 18th century, driven by the industrial revolution and the rise of factory systems. Mechanized multiprocess cotton textile factories in England and the United States practiced cost accounting around 1800 (Wilson & Chua, 2003). The evolution of cost accounting can be divided into three eras: pre-industrialization, industrialization to the 20th century, and beyond (Antonelli & Vetal, 2009).

Modern business firms employ various cost accounting practices to manage expenditures and maximize profits (King et al., 2009). Effective cost accounting systems are vital for controlling costs and producing quality outputs. Techniques such as standard costing, historical costing, target costing, marginal costing, absorption costing, material resource planning (MRP), enterprise resource planning (ERP), total quality management (TQM), activity-based management (ABM), activity-based costing (ABC), and just-in-time (JIT) approaches help develop efficient cost accounting systems (Hansen, 2009).

Cost accounting is essential for enterprises to achieve desired profits, particularly in managing raw material costs. While costing methods vary by industry and business type, effective systems are crucial for efficient cost management and control. This research examines cost accounting systems and practices in selected businesses, emphasizing the importance of these systems for organizational success.

Problem Statement

Cost accounting serves multiple purposes, including financial statement preparation, price setting, and control (Horngren, 2003). It provides information for both management and financial accounting. Over the past three decades, most research on cost system design has focused on Activity-Based Costing (ABC) systems, contrasting traditional systems (Drury & Tayles, 2005). However, in developing countries, there is limited knowledge about current management accounting practices (Joshi, 2001).

Existing research primarily focuses on cost accounting in developed countries, with few studies in developing nations. Studies have examined various aspects, such as ABC versus traditional systems, cost control techniques, and cost management practices, but there is limited emphasis on cost accounting practices in developing countries like Cameroon. This research aims to assess cost accounting systems in Cameroonian enterprises, identify managerial problems, and propose solutions.

In conclusion, cost accounting has evolved significantly, influenced by historical developments and modern technological advancements. It remains a critical tool for managing resources, controlling costs, and enhancing organizational performance. Effective cost accounting systems are essential for achieving competitive advantages and sustaining business success in today’s dynamic market environment.

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