resarch suleman

7/30/2019 Resarch Suleman

1/8

A study on the Process Costing System

Followed by Asmara Brewery Company,

Gajeret, Asmara.

1.Introduction

Costing system is a specialized area of accounting that

attempts to satisfy the information needs of management.

Management at all level with in an organization has the

responsibility of planning, coordinating, executing and controlling

business oriented programs and it is the job of the cost

accountant to accumulate, prepare and interpret this information.

Accounting has become the most intellectually challenging

area in the field of management, and the most turbulent one. The

competitive challenge facing businesses are changing rapidly.

Cost accounting methods must respond accordingly. Management

faces a world that requires not only a sound understanding of cost

accounting concepts, but also innovative and responsive

application of those concepts. Costing system is the process of

accumulating the cost of manufacturing process and identifying

them with the units produced1. It is a unique subfield of

accounting that interfaces with both managerial and financial

accounting. Data prepared by cost accountant is used in financial

reporting to value ending inventory and cost of goods sold. The

same data is broken down by a manufacturing component in

management report to assist management in operating the

business.

Generally costing system are divided into two, these arejob order costing system and process costing system.Job order

costing1 In this system, the cost object is a unit or multiple units

of a distinct product or service called a job. Each job generally

uses different amounts of resources. The product or service is

often a single unit, such as a specialized machine made at


2/8

Hitachi, a construction project managed by Bechtel Corporation, a

repair job done at an Audi Service Center, or an advertising

campaign produced by Saatchi & Saatchi. Each special machine

made by Hitachi is unique and distinct. An advertising campaign

for one client at Saatchi and Saatchi is unique and distinct fromadvertising campaigns for other clients. Job costing is also used

by companies such as Ethan Allento cost multiple identical units

of distinct furniture products. Because the products and services

are distinct, job-costing systems accumulate costs separately for

each product or service. Process costing In this system, the cost

object is masses of identical or similar units of a product or

service. For example, Citibank provides the same service to all its

customers when processing customer deposits. Intel provides thesame product (say, a Pentium 4 chip) to each of its customers. All

Minute Maid consumers receive the same frozen orange juice

product. In each period, process-costing systems divide the total

costs of producing an identical or similar product or service by the

total number of units produced to obtain a per-unit cost. This per-

unit cost is the average unit cost that applies to each of the

identical or similar units produced in that period .

Exhibit 1-1; Differences between job-order and process

cost system

Job-order cost system Process cost system

Many different products

produced in batch

A single product produced on a

continues basis

Batches receive varying degree

of attention in each productiondepartment or operation

Units receive identical attention

in each production departmentor operation

Costs are assigned to jobs and

averaged over unit in job

Costs are assigned to units of

work performed during a given

time period


3/8

Job cost sheet for each job are

the backbone of the system

Cost of production reports for

each production department or

operation are the backbone of

the system

1, Exhibit 1-2 for more information, see Charles Horngren, Srikanta m. Datar,

Madhav Rajan cost accounting managerial emphasis 14th edition, pp 100-101

Exhibit 1-1 for more information, see Wayne j.Morse, cost accounting 2ndedition.

Exhibit 1-2

Recently, developments in such related disciplines as

economics, behavioral science, statistics, and operations research

have also had a major impact on costing system. These

disciplines generally regard the data as given and focus on the

concepts and methods of their respective disciplines. This

approach, in mirror image, is followed by focusing on the use of

cost data in decision model and on the application of techniques

and concepts from other disciplines as they are related to costing

system. This approach allows more time for discussion of

accounting issue and emphasizes the comparative advantage of

accountants in managing an organization. Costs are associated

with all types of organizations business, non-business, service,retail, and manufacturing. Generally, the kind of cost that are

incurred and the way in which these costs are classified depends

on the type of organization involved. Costing system, as a general

concept, is applicable to one type of organization as to another.


4/8

Nowadays there is an increasing emphasis on cost control in

hospitals, in industries facing extensive foreign competition, in

governments and others that traditionally have not used cost

control.

Asmara Brewery Company

2.Significance of the study

The main significance of the study is to broaden our knowledge of

costing system, thus being able to practice the costing system in

the real world. Next it is important because it is a partial

requirement of the course. The study could also serve as for a

further research that is as a reference for a secondary data, it isimportant because it deals with the major area of complaint in

manufacturing firms that is costing system, and it supplements us

with the proper knowledge in costing system that will help us in

our future profession as accountants.

3.Need of the study

If the problems forwarded by this research project are solved this

study will serve as a preliminary task towards the improvement of

the firm's costing system. It could also provide a ground for a

better understanding of the concept, costing system, to reduce

the firm's current delay in using of the cost accounting.

Remember that this study makes it possible for the accountants

and managers of the firm, to identify their costing system's

strengths and weaknesses. And last but not least by conducting

this research, students will have an opportunity to understand thecosting system followed by Eritrean manufacturing companies.

4.Statement of problem


5/8

The costing system adopted Asmara brewery either in complete

or outdated.

What is the main problem that should be tackled by the

accounting department?What are the main factors that cause the specified problem?

What are the main possible solutions which could able us to solve

or alleviate the problem?

Can the proposed solution be implemented?

5.Objective of the study

To search for specific measures that should be taken to

reduce problems associated with the process-costing systemutilized by Asmara Brewery Company.

To relate theoretical aspects of the study with the practical

one.

To assist in the development of cost accounting data for use

in external and internal report.

To understand the information feedback process and how

accounting data is used in performance evaluation.

To assist in the development of performance report.

To determine whether a new costing system is beneficial to

the firm.


6/8

Recommendation

6. Overview of research method

6.1 research design

This research project will heavily dependent on intensive

interview and distribution of questionnaire to collect the primary

data necessary for it. Interview will be conducted with the

accounting department to get a feed back about whether the

process costing is properly applied in the firm. And questionnaire

will be distributed to the production line employee's. The

questionnaire will be prepared in Tigrigna to avoid the language

problem expected.

6.2 sampling

The population from which a random method will be drawn

includes the management group, accounting personnel, and

production line employees. From each sample category, a

representative number will be taken to have a total of 50

samples.

7. Data collection

In gathering data pertinent to the subject matter we used both

primary and secondary source. As secondary data sources, we

used different books, internet, magazines, journals, the firms

documents and lecture notes to prepare the theoretical aspect of

the study. The previously mentioned primary data, including the

interviews and questionnaires are also used.

8. Limitation of the study

As is common to most research projects our study is also having

certain limitations including, the fact that this is a busy season for


7/8

the company and most of the staff is too busy to answer our

questions, there is also a security delays when getting in and out

of the company .

9. Organization of the studyThis paper includes five chapters arranged in the following

manner:-

Chapter One - Introduction

Chapter Two - Review of literature

Chapter Three -Profile of Asmara Brewery

Company

Chapter Four - Analysis of data and

presentation

Chapter five - Conclusion and

Recommendation


8/8

resarch suleman

Documents