“THE ROLE OF COST ACCOUNTING

SYSTEM IN THE PRICING DECISION OF

AMARE APPAREL, A DIGITAL T-SHIRT
PRINTING BUSINESS IN ROXAS,
ORIENTAL MINDORO”

An Accounting Research Presented to the

Faculty of John Paul College,

Department of Bachelor of Science in Accountancy

In Partial Fulfillment of the Requirements

for the Degree of Bachelor of Science in Accountancy

By:

Herminado, Wenjun H.

Castillo, Kristine Rose D.

Esteban, Elline Mariz G

CHAPTER 1: INTRODUCTION

Accounting information system is an important resource of an

organization as it works to provide management practice with necessary

information for decision-making. It also plays a key role in the

provision of an integrated vision of the organization to align its

capabilities and resources available to them, and their areas of work

for the purpose of optimizing use of these resources in the case of

the use of data and information in an efficient and effective manner.

For an organization, the decision to set prices has a direct impact on

the revenue it can earn. Price and volume are the two components of

the revenue equation, and the choice to focus on one will directly

affect the other (Lane & Durden, 2013). If the price is set too high

the customer may turn away, but a high price may also associate with

desirability to the customer (Skinner, 1970). If a business can

achieve an efficient price for their product, they will maximize their

revenue earned. According to economic theory an efficient price relies

on market forces of demand, competition and costs (Claret & Phadke,

1995). Today’s cost accountant must understand many functions of a

business’ value chain, from manufacturing to marketing to distribution

to customer service. This is particularly important when the company

is involved in international trade (Ali, 2015). Accountants also have

recognized that information is a costly asset and have questioned the

necessity of acquiring additional information.

This study is going to talk about the role of cost

accounting system in the pricing decision-making of Digital T-shirt

Printing Businesses in Roxas, Oriental Mindoro. The results of this

study will give experts and manager’s clues and needed info for taking

price decisions by using cost accounting system.

BACKGROUND OF THE STUDY

Costing is one of the main components of a production

process. Some productions are over budgeted leading to unfavorable

results. This often includes wasting materials, labors, and processes.

Others are under budgeted that somehow compromise the quality of the

product. This somehow involves lack of materials, labor applied and

processes. The importance of costing is that not to overstate the

expense while maintaining the good quality of the product. Costing

will also monitor the expenses in daily activities.

As of now, during pandemic, costing will be very beneficial

since this will be a factor in the survival of the business. In

business, most people aim for profitability. However, by proper

costing this will also yield to profitability.

Azad et al (2016) in study named “the Effect of Cost Accounting System

Inventory on Increasing the Profitability of Products have

investigated that the use of appropriate storage systems inventory can

increase the efficiency and profitability of the plant.

Ahadi et al (2016) have showed that there are significant differences

between the information of cleared cost based on activity-based

costing system with the traditional system in the General Directorate

of Roads and Urban Development of East Azerbaijan Province.

 Lane & Durden(2013) have investigated the role of cost

information and costing systems in the pricing decisions of tourism

organizations. Data was collected via an online survey instrument from

a range of Queensland tourism organizations. Full cost information was

found to have relatively greater importance.

STATEMENT OF THE PROBLEM

This study aims to answer the following questions:

1. What are the roles of the cost accounting system in digital t-

shirt in the digital t-shirt printing of Amare Apparel business?

2. How can cost accounting system impact the unit cost and pricing

of Amare Apparel business?

THEORETICAL FRAMEWORK

This study is anchored from the theoretical support of

“theory of cost” by Nwokoye and Ilechukwu 2018, where short run costs

are divided into fixed and variable costs. On top of that there are

also three concepts of total cost in the short run: total fixed cost,

total variable cost and total cost. Total fixed cost is constant

regardless whether there is output or not. These include salaries of

administrative staff, machine and building depreciation and repairs.

Total variable cost depends on the output generated. They rise when

output is high and fall when output is low. Examples of these are raw

materials, direct labor and running expenses of fixed capital such as

fuel, ordinary repairs and routine maintenance. Total cost is where

the aggregate of variable and fixed cost. With this we can properly
identify the cost that is being generated from the start of producing

a printed t-shirt.

CONCEPTUAL FRAMEWORK

INPUT PROCESS OUTPUT

T-shirt Process Better

costing allocation
Pigment ink
cost
Job costing
Dark transfer
Competitive
paper
pricing
Labor
Unit cost
Heat press
Teflon sheet
Rubber mat
Printer
computer

The first figure describes the conceptual framework of the

study where in the input consist of the following materials, labor and

overhead.

On the middle consist of process that will synthesize the

input by using process costing and job costing. The output of this

study is to achieve better allocation cost, competitive pricing and

unit cost
 The researcher wants to find out the implication of cost

accounting system in digital t-shirt printing of Amare Apparel

business.

SCOPE AND LIMITATION

This study focuses on the role of cost accounting regarding

pricing decision in Digital T-shirt Printing Businesses in Roxas,

Oriental Mindoro. The primary subject of this will be the digital t-

shirt printing business in Roxas, Oriental Mindoro. This study will

only be limited cost accounting field.

ASSUMPTION AND HYPOTHESIS

H1: There are implications of cost accounting in the digital t-shirt

printing in Roxas, Oriental Mindoro.

H2: Using a cost accounting system in digital t-shirt printing

businesses in Roxas, Oriental Mindoro will yield a competitive

pricing.

DEFINITION OF TERMS

Cost – The monetary value of resources used or sacrificed or

liabilities incurred to achieve an objective, such as to acquire or

produce a good or to perform an activity or service.

Profits – a financial gain by deducting amount earned or sales less

cost or amount spend.

Expenses – outflow of money in a business to generate income

Sales – revenue from sale of goods or services.

Production Cost – total price paid for the resources used to

manufacture products such as raw materials, labor and other expenses

Costing – system for assigning cost to an element of a business. It

is typically used to developed cost.

Production Process – process where input is turned to outputs or

finished product

Cost Accounting System – Manufacturing cost accounts that are fully

integrated into the general ledger of a company.

Competitive Pricing – Process of selecting strategic price to best

take an advantage of a product or services based on market relative

Mark up Price – Value that a player adds to the cost price of the

product

Benchmark – systematically measuring and comparing the operations and

outcomes of organizations, systems, processes, etc., against agreed

upon “best-in-class” frames of reference.

CHAPTER 2: REVIEW OF RELATED LITERATURE

Using cost accounting to determine the competitive price is

not an easy task. You have to price in every aspect of your effort and

materials whether it is quantifiable or not.

Daniel R. Mamburger (2008) conducted a study between the

cost theory and cost accounting practices. Study pointed out that one

of the most unobservable is marginal cost with regards to the

production environment. Since it is unobservable, it is usually

replaced by average cost estimates in cost accounting practices; often

it includes fixed cost where others do not.

In addition, Waleed M. Al-ahdal and Mohammed Alsamhi (2016)

conducted a research about role of cost accounting system in the

pricing decision – making in industrial companies of Taiz City, Yemen,

shows an affirmative result that cost accounting system that provide

quality information affects the price decision making.

Eric Noreen (1991), conducted a study where an activity-

based cost system gives more accurate estimates about the product

profitability. It also reduces the cost of manufacturing products

during the design stage by giving the detailed cost information.

 Cooper and Kaplan (1998) cited that product costs are

essential to company success. It will affect the important decisions

such as pricing.

Martin & Stevens (2011) have analyzed cost accounting system

from a cost – benefit perspective and find that in some circumstances

traditional methods with their aggregated level of detail are

economically optimal. They have proposed an effective approach to

integrate both ABC and ECA systems. A case

study analyzing process is used to compare the traditional accounting

system and the ABC system for allocating environmental costs. The

results enable managers not only to understand financial information

regarding the activities for environmental protection and the

percentage of environmental costs in the overall product costs but also

to make more objective and accurate decisions.

Lucas (2003) has evaluated the research supporting the

accountants‟ and economists‟ respective positions and argues that

neither is strongly supported by the conflicting empirical evidence. It

then identifies the issues that need to be resolved by future research

intended to assess whether empirical evidence supports neoclassical

price theory or (full) cost plus pricing.

CHAPTER 3: RESEARCH METHODOLOGY
INTRODUCTION
Understanding and predicting costs can be extremely

beneficial. With the better understanding in cost accounting system to

be implemented in Digital T-shirt Printing services of AMARE Apparel

Business they can make their product more Affordable at the same time

better quality. Establishing a reliable system to estimate those costs

can be somewhat challenging though. Unquestionably, cost-estimating

digital printing will increase in relevance in the years ahead, as

margins tighten and cost knowledge becomes increasingly more critical.

With significant profit potential, many companies focus

their attention solely on marketing efforts and creating complex

pricing models, with little attention given to estimating job costs

prior to production. Do digital printing companies know, or even care

about, their production costs on a job-by-job basis? If so, how do

digital printing companies estimate individual job costs in

preparation for a price quotation?

PURPOSE OF THE STUDY

 The purpose of this study is to document and analyze current

cost-estimating practices for commercial digital printing. This

research evaluates the relationship of traditional cost-estimating

practices to alternate methods. How most of the printing companies

compute their price list and what can Cost accounting system do to

improve it.

This study answers the questions:

1) What methods are currently used to estimate digital printing?

2) What is the relationship between estimating and pricing digital

printing?

3) To what extent, if at all, do digital printers use full absorption,

all-inclusive hourly rates for estimating?

METHODOLOGY

We conducted a discussion type interview to some of the

printing services here in Roxas. The process involved a discussion of

the topic during which responses to the questions are developed.

Interview questions used in the interview are prepared prior but

whenever possible some additional questions are follow-up and promptly

asked to discover some additional information.

RESEARCH FINDINGS

The interview followed a structured set of questions but

were tailored during the interview in the form of discussion. We give

them a small introduction about our research and ask for their time

and friendly cooperation. Interviews averaged 5 to 10 minutes in

length to avoid delay in their production and is focused on the

following areas:

 Pricing Matrix/List and their contribution to overhead.

 BHRs or Budgeted Hourly Rates
 Cost-estimating using BHRs
 Estimating specific operations.

PRICING MATRIX / LIST AND THEIR CONTRIBUTION TO OVERHEAD.

The first questions during the interview were;

1. Do you use Published pricing matrix or you compute it privately?

2. Do the price and the number of your machines affect your pricing

matrix?

3. Do you know how much of the printing job contributes to general

overhead?

In some cases, the lists were public but in most cases the

lists were private, used for internal pricing only, and not shared

with customers. Lists are predominantly used for standardized, low-

complexity work. Sometimes publishing pricing matrix gives them an

advantage when it comes to advertising but some don’t just post their

pricing because at most probable cases, they usually add charges based

on the difficulty and the length of the production it last.

Few printers, whether digital or conventional, can honestly

answer yes to this question. To date, profit margins for digital

printing have been high enough to ignore cost calculations and

contributions-to-overhead. Many expressed enough profit to not be

concerned with contribution on a job-by-job basis.

More than half of the respondents did not know exactly how

each job contributes to General overhead. Eighty percent of the

participating companies lacked a comprehensive costing model. Most

participants knew that their work was profitable, but not how each job

contributes to overhead.

COST ESTIMATING USING BHRs

The following questions were used as follow up in the Interview;

1. Have you established an hourly cost rate or BHR for your

digital press(es)?

2. What percentage of your jobs involves a custom cost-estimate?

These questions focused on whether conventional cost-

estimating is used for digital printing. Since several of the

participants had a background in commercial printing, cost rates were

largely full-absorption BHRs. When asked if hourly rates had been

established for digital presses, all respondents but two had

established budgeted hourly rates for all presses. Both of the

participants who did not have rates for their digital presses

expressed interest in developing these rates in the near future.

When asked what percentage of their digital print work

required a detailed cost-estimate, the responses varied significantly.

Some companies produced estimates for nearly all their work while

others rarely or mostly none produced a cost-estimate.

DEFINITION OF TERMS

 BHRs – Budgeted Hourly Rates

 Full Absorption - meaning that indirect business costs are

absorbed through production rates.

 Estimates- roughly calculate or judge the value, number, quantity, or

extent of.

 Cost Estimates- A cost estimate is the approximation of the cost of a

program, project, or operation. The cost estimate is the product of the

cost estimating process. The cost estimate has a single total value and

may have identifiable component values.

 Press(es)- the number of printing production.

GOOD DAY!
We are 4th year Accountancy student at John Paul College, and we
are conducting research about the roles of Cost Accounting System in
the pricing decision of Digital T-shirt Printing business in Roxas,
Oriental Mindoro, this research will seek to determine the impact of
appropriate cost accounting practices in the business. Any information
obtained in connection with this study that can be inked to you will
be kept strictly confidential.

THANK YOU!
______________________________________________________________________

Direction: Please provide the following information either by filling

in the data or by putting check (/) that corresponds to your response.

Business Name:
Type of Business:
Number of years in business:

Part 1. Cost Accounting Practice.

A. 1.Level of knowledge in Cost Accounting

o High
o Medium
o Low
2. Practice of Cost Accounting in Production.
o Always
o Seldom
o Never
3. Familiarity in Cost Accounting Concepts
o High
o Average
o Low

B. Cost Accounting System

1. Manual
o Yes
o No
If yes, what factor mostly affect your Pricing Matrix
computation?
o Difficulty of production
o Base on Hours of production
o Manpower

2. Computerized
o Yes
o No
If yes, did the salary of the staff designated to use your
software, Affect your pricing?
o Mostly
o Partial
o No
3. None
o Yes
o No
If yes, Do you have future plans on using Cost accounting
system?
o Yes
o No
o Maybe

C. Who records the business transactions?

1. Owner/Manager
o Yes
o No
 2. Cashier
o Yes
o No
3. Anyone with access
o Yes
o No

D. Implementation of cost accounting and accounting policies

QUESTIONS ALWAYS OFTEN SOMETIMES RARELY NEVER
1.Apply Cost Accounting in
business.
2.Record daily sales using
software.
3.Record daily sales using
hardware.
4.Ensuring un-interrupted supply of
material and spares for production.
5.Avoiding excessive locking up of
funds/capital in stocks of
materials and stores.
6. Use techniques like value
analysis standardization etc. to
control material cost.
7.The budget is easily accessible
both in soft & hard copies.
8. Software usage has improved
control & monitoring of cost
information.
8. The written business accounting
policy and procedural manuals
regularly applied.

Part 2. Factors in Cost Accounting System

FACTORS YES MAYBE NO
1. Lack of knowledge in proper use of cost accounting
system
2.Lack of time or too much time consuming
3.Cost Accounting system is not necessary.
4. Human fraud possibilities
5. Loss of interest in improving the business

Part 3. Effects of Cost Accounting to business performance and growth.

EFFECTS YES MAYBE NO

1.Does the proper use of cost accounting is important
in your business?
2.Does the proper use of cost accounting ensure the
good flow of your business?
3.Does proper use of cost accounting result for
better decision making?
4.Does proper use of cost accounting maintain the
safety of your business?
5.Does proper use of cost accounting enhance the
capability of the business to grow more?
6.Can you control the cost of your production without
affecting the quantity of the item, using coat
accounting system?

Did your business improved in any way using Cost

accounting system?

___________________________
Signature over printed name