ABSTRACT

The purpose of the study is to evaluate cost accounting practice of bekas chemicals PLC. The
specific objectives set are 1) to assess current practice of cost accounting 2) to examine the
extent of using cost accounting information in the company and 3) to assess the role of cost
accounting information in managerial decision making. Thus, the study will be guided by basic
research questions: What is the current cost accounting practice adopted in the company? What
is the extent of the use of cost accounting information in the company? What are the roles of cost
accounting information in managerial decision making? And what factors affects the extent of
the use of cost accounting? of bekas? To do that, both theoretical and empirical literatures were
reviewed. A descriptive research with mixed approach is chosen to study sample from 521 total
employees at bekas. Then both descriptive and inferential analysis using SPSS will be employed
to determine. The result of this paper may help top management of beckas as alternative solution
for decision making options.

Key Words: cost accounting, accounting information, decision making, efficiency

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 1. INTRODUCTION

1.1 Background of the study

Cost accounting is the process of recording, analyzing, classifying, summarizing and allocating
costs associated with a process and then developing various course of action to control the costs.
Its goal is to advise the management on how to optimize business practice and process based on
cost efficiency and capability. It also provides the detailed cost information that management
needs to control current operations and plan for the future. Cost accounting is the art and science
of recording, classifying, summarizing and analyzing cost to help management make provident
business decision. There are basically three purposes of cost accounting; these are cost control,
cost computation and cost reduction. (Abdallah, 2011).

The vital importance that cost accounting has acquired in the modern age is because of the
growth of complexities in modern industry. It is a formal system of accounting for costs in the
books of account by means of which costs of products and services are ascertained and
controlled. The main objectives cost accounting is: ascertainment of cost, control of cost, and
guide to business policy, determination of selling price, and measuring and improving
performance. Cost accounting provides information for both management accounting and
financial accounting. It measures and reports both financial and non-financial information that
relates to the cost of acquiring or consuming resources by an organization. Cost accounting
includes those parts of both management accounting and financial accounting where cost
information is collected or analyzed (Marco, 2016)

Every business must control all its costs if it wishes to remain competitive. It also needs to
control cost in total as well as the costs of a particular department or activity. Sound business
management depend up on timely and rational judgment or decisions: in turn effective and
rational decision making depends upon proper planning and control functions. Planning and
controlling activities are continuous interrelated and the success would depend up on the quality
of accounting data supplied effective decision making. It is just a question of being able to
disentangle the information and finds costs that a

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ABSTRACT....................................................................................................................................................3
1. INTRODUCTION.................................................................................................................................4
1.1 Background of the study....................................................................................................................4
1.2 Statement of the problem.................................................................................................................6
1.2.1. Research Questions...................................................................................................................6
1.3. Objective of the study.....................................................................................................................7
1.3.1 General objective of the study....................................................................................................7
1.3.2 Specific Objectives......................................................................................................................7
1.4. Significant of the study...................................................................................................................7
1.5. Scope and Delimitation of the study..............................................................................................7
1.6. Research Methodology...................................................................................................................8
1.7. Organization of the Study............................................................................................................10
2. LITERATURE REVIEW...................................................................................................................11
2.1. Theoretical Framework of Study.........................................................................................................11
2.1.1. Definition of cost accounting...................................................................................................11
2.1.2 Cost accounting practice...........................................................................................................11
2.1.3 Purpose of Cost Accounting......................................................................................................11
2.1.4 Types of cost.............................................................................................................................12
2.1.5 Elements of manufacturing cost...............................................................................................12
2.1.6 Techniques of costing...............................................................................................................12
2.1.7 Cost System..............................................................................................................................13
2.1.8 Cost Control..............................................................................................................................13
2.2. EMPIRICAL EVIDENCE OF COST ACCOUNTING PRACTICE...............................................................13
4.1. TIME TABLE.....................................................................................................................................14
4.2. BUDGET TABLE................................................................................................................................14
REFERENCE................................................................................................................................................15
APPENDIX I................................................................................................................................................16
re relevant to this purpose. The cost data will be an important element in the decision. So; good
cost accounting system supports the pricing technique while quoting the bids or accepting the
offers (Aron, 2014). The purpose of the study is to assess cost accounting practices in control and
reducing manufacturing cost at Bekas Chemicals Plc, Adama Branch.

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1.2 Statement of the problem

The importance of cost accounting practices has increased more than ever. The reasons for this
are the domestic and global competition getting severer by globalization, decreases profit
margins, increasing input prices due the tightening energy sources, economic crises, etc.
Therefore, companies operating in developing countries have also begun to implement cost
accounting practices which were first adopted by companies operating in developed countries.
Parallel to these developments, research studies which have been conducted initially in
developed countries are followed by studies conducted in developing countries. (Ali, 2010).
Many organizations today are still not making use of cost accounting tools to assist them in
providing sustainability information for decision making. This may impede the financial
performance and success of organizations since erroneous decisions, increases in information,
the use of antiquated cost drivers, large amount of information and human errors may occur .
Without applying cost accounting tools, managers of organizations may find it difficult to
improve the day to day operations and take decisions that will enhance the financial performance
of the business.
Despite the increasing amount of research in cost accounting in the past decade, little is known
of its form and effectiveness within firms in developing countries (McChlery, 2004). This lack of
research based knowledge may have been based on a belief that the discipline in cost accounting
is best served by studying the most innovative and successful examples of practice that can be
found in the leading western and Japanese firms (Michell, 2006).
In the same token, cost accounting practice in manufacturing companies in Ethiopia was not yet
widely examined. Thus, this study will examine and evaluate cost accounting practices in Bekas
Chemicals PLC.

1.2.1. Research Questions

To this end, the researcher has developed the following broad and specific research questions to
seek answer for the possible causes of the above research problem.
 What is the current cost accounting practice adopted in the company?
 What is the extent of the use of cost accounting information in the company?
 What are the roles of cost accounting information in managerial decision making?
 What factors affects the extent of the use of cost accounting?

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1.3. Objective of the study

1.3.1 General objective of the study

The general objective of the study is to assess Cost accounting practice in Bekas Chemicals PLC
Adama Branch

1.3.2 Specific Objectives

The specific objectives of the study are:
 To assess the current cost accounting practices.
 To examine the extent of the use of cost accounting information in the company.
 To assess the role of cost accounting information in managerial decision making
 To identify factors that affects the use of cost accounting in the company.
1.4. Significant of the study
This research will have a significant contribution to the company to create a well-defined and
sound cost accounting system which enables to achieve the overall goal of the company. The
researchers believe that the results of this study will have the following benefits.
 It will help to create awareness for managers of the company to explore what is
expected from them and also to increase their motivation;
 It will provide useful information to internal and external users.
Manufacturing firms to practice cost accounting for the effectiveness and efficiency of
the company;
 It will be used as a source of reference and guideline for other researchers who make
further studies in the area;
 It will help companies to identify factors that affect the use of cost accounting.

1.5. Scope and Delimitation of the study

This mainly focuses on Assessment of cost Accounting practice in Bekas Chemicals PLC
Adama Branch. The scope of this study covered the collection of data from management and
staff of finance and production departments. This research tried to explore the logic behind cost
system and cost structure of the company cost Accounting practices. The study will be carried
out geographically at Adama branch which hold 80% of workforce. The scope of the study will
be confined to assess the factors, the roles and extent of use of cost accounting practice in bekas

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chemicals plc. However, the time of study delimited to the period from may 2022- up to July
2022.

1.6. Research Methodology

1.6.1 Research Design

According to (Cooper and Schindler, 2014) descriptive study is used to describe phenomena
related with a subject. The major purpose of descriptive research is describing, recording,
analyzing and reporting condition that exists (Kothari, 2004). A descriptive method is used to
state the purpose of the study where accomplish through the data collected from secondary and
primary source. After information was gathered through the employed methods, the clarification
and analyzing will be done through both quantitatively and qualitatively. The data will be
presented and analyzed by using different tools such as SPSS, tables and percentages. The
objective of this study is to assess cost accounting practice in Bekas Chemicals PLC Adama
Branch. Thus, descriptive case study will be chosen for this study as it answers more of research
questions developed based on theory.

1.6.2. Sources, Types, and data collection methods

Data will be obtained from both primary and secondary sources. Primary data are more accurate
and reliable compared to secondary data (Ngechu, 2004). Primary data will be obtained using
closed questionnaires that will be given to respondents working in department of finance,
central warehouse, and production and purchasing; and interviews will be scheduled with CEO,
Corporate Managers, and some Department Heads.

1.6.3. Data Collection Methods/Instrument/

Both questionnaires and Interview instrument will be utilized as data collection instrument.
Questionnaire: The method of survey using questionnaire will be deemed appropriate since part
of the questionnaire will provide respondents a choice of picking their answers from a given set
of alternatives while the other part of the questionnaire will allow them to qualify their
responses (Amin, 2005).

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Interview Guide: The method of interview using interview guide will be deemed appropriate
since the mentioned categories of respondents has vital information yet may fail to get enough
time to fill in questionnaires (Cooper and Schindler, 2014) It will involve the use of a semi-
structured interview schedule/guide as an instrument while interviewing is a method. It will be
used to collect primary data from Heads of Departments, Heads of Programs, Heads of Sections
and Support Staff.

1.6.4. Target Population

The study target population focused on of management and finance department employees of
bekas chemicals plc at Adama branch. A total population of 521 respondents from both Adama
and Addis Ababa branch offices; comprising of; Managing Director(1), CEO(1), Corporate
Managers(5), Dept Managers (12) Heads of sections (14), Forman (13) and Support Staff (475).
However, targeted groups comprise more than three fourth 75% of staff that work in Adama are
believed to be knowledgeable about cost accounting concepts and organizational performance
of the company.

Category Target Popn Sampl size Sampling Techniques

Corporate Managers 5 2 Purposive Sampling
Dept Managers 12 5 Purposive and Random Sampling
Heads of sections 14 6 Purposive and Random Sampling
Forman 13 6 Purposive and random sampling
Support Staff 475 209 Convenience and random sampling
Total 521 224

1.6.5. Sampling Techniques and Sample Size

According to Mugenda and Mugenda (2003), sampling is a process of selecting a number of

individuals for a study in such a way that the individuals selected represent the large group from
which they were selected. The purpose of sampling is to secure a representative group which
will enable the researcher gain the necessary data that the study seeks to find. Therefore the
study will use stratified sampling method in which each stratum will be purposively determined

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and elements randomly selected from each. In this study, the researcher will ensure that each
stratum is appropriately represented in a sample.

A total target population in the bekas chemicals is 521,out of which this research takes sample
size as calculated using Taro Yamane’s simplified formula where sample size(n)= N/(1+N*e2)
is approximately = 226 respondents, in order for the researcher to come up with this sample
size, the use of convenience and purposive sampling techniques will be employed.

1.6.6. Data Analysis and Presentation

Quantitative data analysis will involve the use of both descriptive and inferential statistics in the
Statistical Package for Social Scientists (SPSS). Descriptive statistics will entail determination
of measures of central tendency such as mean and measures of dispersion such as standard
deviation and percentages. Inferential statistics will include both regression and correlation
analysis. After data collection, information of same category will be coded together to be
interpreted using SPSS analytical tool, after which will be reported in writing and presented in
display. Qualitative data will be interpreted by composing explanations or descriptions from the
information. The qualitative data will be illustrated and substantiated by quotation or
descriptions.

1.7. Organization of the Study

The study will be organized into five chapters. The first chapter will deal with the background of the
study, statement of the problem, research questions, and significances of the study. Next chapter will
provide the literature review as to be classified into theoretical and empirical parts. Chapter three will
present research methodology, comprises of; research design, source of study, target population, data
collection instruments and data analysis. Chapter four will contain findings and discussion whereas last
chapter will deal with the summary, conclusion and recommendations.

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 2. LITERATURE REVIEW

2.1. Theoretical Framework of Study

2.1.1. Definition of cost accounting
Cost accounting is the process of recording, analyzing, classifying, summarizing and allocating
costs associated with a process and then developing various course of action to control the
costs .Its goal is to advise the management on how to optimize business practice and process
based on cost efficiency and capability. There are basically three purposes of cost accounting;
these are cost control, cost computation and cost reduction. (Samaha and Abdallah, 2011).

2.1.2 Cost accounting practice

(Wilson and Chua, 2003) claimed that cost accounting was practiced by the mechanized multi
process, cotton textile factories that appeared in England and United States around 1800. This
point of view was consistent with one who pointed out that cost accounting had emerged only
after eighteenth century as a result of the rise of the factory system in the industrial revolution.
The evolution of cost accounting is a single in to three eras-the first era from the first appearance
until before the industrialization; the second from the industrialization to the twentieth century
and there after the third (Antonelli and Vetal, 2009).

2.1.3 Purpose of Cost Accounting

The main objectives of cost accounting are as follows: Ascertainment of cost-This is the primary
objective of cost accounting. Control of cost; Cost control aims at improving efficiency by
controlling and reducing cost. It is becoming increasingly important because of growing
completion. Guide to business policy- cost data provides guidelines for various managerial
decisions like make or buy, selling below cost, utilization of idle plant capacity, and introduction
of a new product. Determination of selling price-cost accounting provides cost information on
the basis of which selling prices of products or services may be fixed. Measuring and improving
the performance of cost accounting measures efficiency by classifying and analyzing cost data
and then suggest various steeps improving performance so that profitability is increased.
(Samaha and Abdallah, 2011):

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2.1.4 Types of cost
Fixed Cost: These are costs that do not always change with activity level. They are constant
within certain range of activities. It is when the maximum limit of a particular activity range is
exceeded that fixed costs jump up. It can also be defined as costs that do not respond to a change
in the level of activity such as an increase in output. Thus they represent one extreme of cost
behavior in that within a certain period they remain the same. (Asaolu and Nassar, 2007) defines
fixed cost as the cost which tends to be unaffected by increases or decreases in the volume of
output.
Variable Costs are costs that vary with the level of activity. The higher the activity level the
higher the amount of the cost incurred. Activity level is measured in terms of number of units
produced. Variable cost is the cost which tends to vary with the volume of output, the variable
cost per unit is the same amount for each for each unit produce, which means that the amount of
resources used and the price of these resources are constant for each additional unit product
(Asaolu & Nassar, 2007)
Direct Cost: Where an item of cost can be traced to a product or service unit, that cost is direct
to that product or service unit. Such a cost should be allocated to that product or service unit.
defines direct cost as the cost that is traceable and attributed to a product.
Indirect Cost: This is the opposite of direct cost. This is a cost that cannot be traced to a product
or services unit. All indirect cost added together make overhead.(Akeem, 2017)
Marginal Cost is the additional cost to be incurred in order to get additional work done. All
additional fixed costs are added to make incremental cost. (Akeem, 2017)

2.1.5 Elements of manufacturing cost

Three terms commonly used when describing manufacturing costs are direct materials costs,
direct manufacturing labor costs, and indirect manufacturing costs. These terms build on the
direct versus indirect cost distinction of manufacturing costs.

2.1.6 Techniques of costing

In developing an effective cost accounting system; executives can apply several techniques that
will undoubtedly assists in the operations of the organization. Executives should understand the
importance of these methods in producing one efficient cost accounting system that will help cut
costs and produce quality out puts. Techniques that management can utilize to develop a better

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cost accounting system to compete in the global market include standard costing, target costing,
ABC and the just in time approach ( Hansen, 2009).

2.1.7 Cost System

Types of costing system refer to the techniques and processes employed in the ascertainment of
costs. There are different methods of costing for different industries. The methods costing to be
used in the particular company depends up on the type of manufacturing and nature of industry
(Hansen, 2009).

2.1.8 Cost Control

In the process of manufacturing companies, the concern of cost control management is essential
in order to effectively utilize the material resources. The significance of cost control cannot be
over emphasized as an existence technique for manufacturing companies because they ensure
appropriate monitoring of cost against budget and correct any financial impropriety the
company. The term cost control is used widely and no uniform definition exists ( Horngren et.al,
2012).

2.2. EMPIRICAL EVIDENCE OF COST ACCOUNTING PRACTICE

In the study that amid to assess and examine the cost accounting practices utilized by Des
General Trading PLC in Ethiopia. This study adopted a descriptive survey design. The sample
size of the study consists of 25 employees of the company, using self administered questionnaire
and structured interviews with selected accountants of the finance departments and other
department staffs. The major findings of the study are as follows: that indicates the accounting
system provides data to allow the organization to analyze costs by product and the most widely
used product costing method is process costing and the technique used is absorption costing; the
most widely used overhead allocation is units produced; the most important area where the cost
information is used for financial accounting, inventory valuation and to some extent for price
decisions which is low on other decision making and cost control. The findings indicate that
company perceives traditional cost accounting is still important and yet not familiarized with the
new cost accounting practices such as activity based costing. This study recommends the
creation of awareness about the importance of information for decision making practices and the
advantage of using activity based costing. (Alemu, 2019)

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 4. BUDGET PLAN AND COST ESTIMATE

4.1. TIME TABLE

Months of activities in 2022
Activities April May June July
Literature review
Data collection
Data analysis
First draft
Final submission

Source: researcher data

4.2. BUDGET TABLE

Item Units Quantity Cost /unit Total
Paper Pack
PEN Each
Flash Disc/CD Each
Photo copy Each
Computer writing Page
Travel expenses Km
Mobile card Card
Contingency cost  
Total

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 REFERENCE
Abdela-Kedir, M.Luther, R.(2011), Management accounting practice in the Britsh food and
drinks industry. British food Journal, 108(5),336-357

Akeem, L.(2017). Effects of cost control and cost reduction Techniques in organizational
performance. (14)3,pp. 19-26, DOI:10.3968/9686.

Alemu F.(2019) An assessment of cost accounting practice in case of national alcohol and liquar
factory (NALF)

Ali U.(2010),COST and management Accounting practice: A survey of manufacturing

companies

Asaolu & Nassar. (2007). Essential of management accounting and finacial management
(2nded.). Ile-Ife, Nigeria: Cedar Productions Ltd.

Cooper,D. and Schindler,P. (2014). Business research method (12thed).Florida Atlantic

University, Pamela S. Schindler, Wittenberg University, ISBN 978-0-07-352150-3.

Hansen, S.C., Van der Stede, W.A. (2009), Multiple facts of budgeting: an exploratory analysis.
Management Accounting Research, 15,415-439.

Horngren,C. Datar, S., & Rajan,M. (2012). Cost Accounting: A managerial Emphasis (14thed.).
Pearson Education, Inc., New Jersey: Pearson /Prentice Hall

Kothari,C. (2004). Researh Methodology (2nded.). New age international publishers, 4835/24:
Ansari Road, Daryaganj, New Delhi – 110002, ISBN (13) : 978-81-224-2488-1.

Marco, D. (2016). Design of cost accounting system. At Papitech 47

Ngechu, M. (2004). Understanding The Researcher Process and Methods: An Introduction to

Research Methods. Nairobi: Act Press.

Schweizer, G.(2009). Quantitative versus qualitative research.

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Yin, K. (2003). Case study research design and methods (3rded). Sage publication, Thousand
Oaks,London, Newdelhi

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 APPENDIX I

UNITY UNIVERSITY

FACULTY OF BUSINESS AND ECONOMICS

Dear Respondent

The purpose of this study is to Evaluate Cost Accounting Practice, in Case Study of Becas
Chemicals PLC in Adama City. The success of the study is highly dependent on your valuable
response for the question raised. Therefore, you are kindly requested to give your response for
each question raised related to the use of cost accounting practice in your company. The
participation is fully voluntary and responses will be treated confidentially.

SECTION A: BIOGRAPHICAL DATA

Instructions: Please provide the following information by making a “tick mark” in the
appropriate block where the options are provided.

1. Please indicate your gender

Male Female

2. Please indicate your age group (in years):

20 – 29 30 – 39 40 – 49 50 and above

3. Please indicate your highest education qualification level

General education Bachelor Degree 12th grade complete

Master Degree and Above Diploma

4. Your work Experience in this organization (in years)

Below 5 years 5 to 10 10-15 above 15

5. In what position are you working in your company? ______________________

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SECTION B: QUESTION UNDER RESEARCH

The following are scales you attach to each question posed. Indicate how strongly you agree to
each by making/putting a tick symbol (√) in each column. Please use the following scale: Not at
all (1), little (2), somewhat (3), considerably (4) and to a very great extent (5).

6. To what extent does your organization is using the following costing systems?

Job-order costing 1 2 3 4 5
7. Identify to what Process costing 1 2 3 4 5 extent the cost
accounting system provides data to allow
Activity-based costing 1 2 3 4 5
you to analyze costs by :
Absorption Costing 1 2 3 4 5
Product 1 2 3 4 5
Marginal Costing 1 2 3 4 5
Cost 1 2 3 4 5
Center
Activity 1 2 3 4 5
8. What costs includes the cost structure of your Organization

Direct Material 1 2 3 4 5
Direct labor 1 2 3 4 5
Manufacturing Overhead 1 2 3 4 5
Administrative 1 2 3 4 5
Overhead
Selling & Distribution 1 2 3 4 5
9. What costs include in the ending work in process

Percentage completed Material cost only 1 2 3 4 5

Percentage completed Material and labor cost only 1 2 3 4 5
Percentage completed Material, labor and manufacturing overhead 1 2 3 4 5
10. Identify to what extent the cost accounting system calculates the following Variances

Material variance 1 2 3 4 5

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 Labor Variance 1 2 3 4 5
Overhead Variance 1 2 3 4 5
11. Users make use of cost accounting information when they make decisions

Financial accounting 1 2 3 4 5
Inventory Valuation 1 2 3 4 5
Pricing decision 1 2 3 4 5
Performance evaluation 1 2 3 4 5
Cost Control 1 2 3 4 5
Production Process 1 2 3 4 5
12. To what Extent the cost accounting system provides information on a systematic regular base

Daily 1 2 3 4 5
Monthly 1 2 3 4 5
Quarterly 1 2 3 4 5
Yearly 1 2 3 4 5
Up on request 1 2 3 4 5
13. To what extent the accounting information has qualitative characteristics

Up to date 1 2 3 4 5
Accurate 1 2 3 4 5
Reliable 1 2 3 4 5
Relevant 1 2 3 4 5
14. Do you have separate cost accounting department (section)?

Yes ( ) No ( )

15. Do you think the organization is benefiting from the cost accounting function?

Yes ( ) No ( )

16. Do you think that cost accounting department has satisfactory information for pricing special
orders?

Yes ( ) No ( )

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17. Which control methods do you use for cost control?

Operational budgets ( )

Standard costing ( )

Defect, spoilage, etc., ratios ( )

Departmental performance evaluation ( )

Kaizen Costing ( )

18. Which base or basis do you use for the allocation of manufacturing overhead costs?

Direct labor hours ( )

Direct labor costs ( )

Machine hours ( )

Direct materials amount ( )

Direct material costs ( )

Production ( )

19. Does your company allocate support/service department costs?

Yes ( ) No ( )

20. If your answer to number (13) above is "yes", please describe the method used;

a. Service department costs are allocated directly to operating departments ( )

b. Service department costs are allocated to other service departments, then to operating
departments ( )

c. Other (Specify) _________________________________________

21. Has your company established Activity Base Costing (ABC) Principles?

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 Yes ( ) No ( )

22. Do you discuss to adopt activity based costing (ABC)?

Yes ( ) No ( )

23. If not, why?

Current system provides accurate results ( )

ABC is not suitable to this company ( )

It is expected that ABC’s additional cost is greater than its benefit ( )

ABC is not very well known ( )

Other (Explain) __________________________________________

Thank you for taking the time to complete this questionnaire. Your assistant in providing this
information is very much appreciated.