Abeba Full Research

ACKNOWLEDGMENT
First & foremost, We would like to thank the almighty Good letting our
staying in life to this day and enable me to accomplish this study. Next our
gratitude goes to my advisor, Mr. Firaol (MBA), for his essential guidelines
and unwavering patient assistance in doing the paper. We have benefited
greatly and have retained the knowledge of accounting and research that our
supervisor readily shared with our. We also want to thank our family whose
immerse support has helped we a great deal in moral and financial support.
Lastly, We pleased to express my sincere thanks to everyone who has
contributed for the accomplishment of this study.
1|Page
Acronomy
 Dm – direct material
 Dm – factory over head
 Dm – indirect material
 Dm – insurance
 MDP – machinery depreciation
 ODP – operational depreciation
 SB – salary and benefit
 SP – spare part
 BH – brew house
 BT – bottling
 FL – filtration
 FR – fermentation
 DF – drought filling
2|Page
ACKNOWLEDGMENT......................................................................................................................1
ABSTRACT.......................................................................................................................................5
CHAPTER ONE.............................................................................................................................6
INTRODUCTION..........................................................................................................................6
1.1 Background of the Study......................................................................................................6
1.2 Statement of the Problem......................................................................................................7
1.3 research questions.................................................................................................................8
1.4 Objective of the Study..........................................................................................................8
1.4.1General Objective...........................................................................................................8
1.4.2Specific Objectives.........................................................................................................9
1.5 Significance of The Study...............................................................................................9
1.6 Scope of the Study................................................................................................................9
1.7 Limitation of the Study.........................................................................................................9
1.8 Organization of the Study.....................................................................................................9
CHAPTER TWO..........................................................................................................................10
LITERATURE REVIEW.............................................................................................................10
2.1 Theoretical overview of costing..........................................................................................10
2.1.1Definition......................................................................................................................10
2.2 Application of costing.........................................................................................................11
2.3 Objective of cost accounting...............................................................................................11
2.4 Cost classification...............................................................................................................12
2.4.1 Functional costs...........................................................................................................13
2.4.2. Product costs...............................................................................................................13
2.4.3 Activity level cost........................................................................................................16
2.4.4 Controllable cost..........................................................................................................16
2.4.5 Relevant costs..............................................................................................................16
2.5 Cost flow in manufacturing company.................................................................................17
2.6 Adopting product costing system to technological changes................................................17
2.7 Purpose of product costs.....................................................................................................18
2.7.1 Use in financial accounting..........................................................................................18
2.7.2 Use managerial accounting..........................................................................................18
2.7.3 Use in reporting to interested organization..................................................................18
3|Page
2.8 Product costing system.......................................................................................................19
2.8.1 Types of product costing system..................................................................................19
CHAPTER THREE......................................................................................................................24
RESEARCH METHODOLOGY..................................................................................................24
3.1. Study Area Description......................................................................................................24
3.2 Research Design.................................................................................................................24
3.3 Research Approach.............................................................................................................24
3.4. Data type............................................................................................................................25
3.5. Source of data collection....................................................................................................25
3.6. Method of data collection..................................................................................................25
3.7. Target Population, and Sample Size..................................................................................26
3.8 Method of Data Analysis....................................................................................................26
3.9 Validity of the Data.......................................................................................................26
3.10 Ethical consideration.........................................................................................................27
CHAPTER FOUR.............................................................................................................................28
DATA PRESENTATION, ANALYSIS AND INTERPRETATION.............................................................28
4.1. INTRODUCTION..................................................................................................................28
4.2. GENERAL CHARACHTERSTICS OF THE RESPONDANTS.......................................................29
4.2.2. GENDER.......................................................................................................................29
4.2.4. EDUCATIONAL STATUS................................................................................................30
4.3.1. Cost Accounting Practice.............................................................................................31
CHAPTER FIVE...............................................................................................................................46
SUMMARY, CONCLUSIONS AND RECOMENDATION.....................................................................46
5.1. SUMMARY OF FINDINGS....................................................................................................47
5.2. CONCLUSIONS....................................................................................................................48
5.3. RECOMENDATION..............................................................................................................49
Referance..................................................................................................................................50
APPENDEX....................................................................................................................................52
4|Page
ABSTRACT
The study was aimed to assess the product cost practice of Meta Brewery S.C. The
researchers used a descriptive research design. The sample size of the study consists of
18 employees of the company, using self- administered questionnaire & interviews with
selected accountants of the finance department & other department staffs. The study
relied on primary data. The data received were analyzed by using descriptive statistical
method of analysis and statement type of presentation, in which table and percentage was
the major tools of presentation. The major findings of the study are as follows: The most
important area where the const information is used for budget determination, investment
plan & performance evaluation, the company’s cost department hasn’t adequate staff
members. The most widely used product costing method is process costing & the
technique used is Activity-Based costing method; the most widely used overhead
allocation is unit produced. The finding indicates that the company use budgetary control
& quality cost control as cost reduction & control tool. The study recommends that the
company should understand the importance of employees’ involvement & responsibility
for the productivity & effectiveness of the company. It also recommends that the company
should prepare & use accenting manual & policy and in time of need give cost
information for external users.
Key Words: Product Cost, Cost Accounting Information, cost reduction & control tool &
techniques, costing system.
5|Page
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study

The world of business is changing dramatically. These changes are mainly due to best
business decisions that are related to costs. success in any business from the smallest one
to the largest require the use of cost according principals and practices since cost
accounting provides key data to manager for planning and controlling as well as for
costing products, services and customers (Ronald w. Hilton, 2013)
Cost accounting is an accounting system that provides financial and non financial cost
related information. Product costing is the cost of direct labor, direct materials, and
manufacturing overhead that are used to create a product. And the purposes are for
preparing financial statement, setting price and for control purpose (Horngren C.T,
2003).Thus cost accounting provides information for both management and financial
accounting.
Technological advancement and growing need of mankind has been the prime cause for
today’s dynamic business environment. So the need for consistent recording in business
enterprises arose (firgomark.L, 1986). Cost accounting especially for manufacturing
companies is the key factor for achieving the desired profit since cost of raw materials is
the major expense.
A product costing and system accumulates the costs incurred in a production process and
assigns those costs to the organizations final products. The primary principle of cost
practice do not simply happen, they are the result of management decisions. Better
management information on product costing are helps the manager to make key decision
about product design delivery mechanism and pricing. To goes an enterprise effectively,
identify strategic opportunities and maintain a competitive advantage, cost practice
focuses on anticipating the impacts of alternative decisions.
6|Page
Now a day there is a need of costing in every business or non business operations. In non
business operations costing is practiced on every human activity. On the other hand,
manufacturing industries like Meta brewery factory is one of the company which needs
aware of the importance of the quality and timelines of products that sold to their external
customers. Largely costing is used for the purpose of cost control to make the factories
operations effective by using their performance. This costing practice is significant step
to improve the performance of Meta brewery factory.
1.2 Statement of the Problem

As it is stated in the background section, product costing is the cost of direct labor, direct
materials, and manufacturing overhead that are used to create a product. And the
purposes are for preparing financial statement, setting price and for control purpose. Even
if product costing has the above listed benefits for firms, the company under this study
has a problem to entertain such benefits from its costing department. Cost accounting is an
accounting system that provides financial and non financial cost related information. Managers
require information which is relevant, accurate and readily available to formulate and
operationalize functional strategies and to make decisions on product costing and preparation of
financial reports. Product costing is the cost of direct labor, direct materials, and manufacturing
overhead that are used to create a product.
And the purposes are for preparing financial statement, setting price and for control purpose
(Horngren C.T, 2003).Thus cost accounting provides information for both management and
financial accounting.
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).
Assessment of job order costing and application (Mengistu,2010) and Cost estimation practice
methods and processes in road construction (Samuel,2017) mainly focused on reduction and
control of manufacturing costs, financial accounting, information technology adoption and credit
accessibility for manufacturing companies in contrary limited emphasis given to cost accounting
7|Page
and its practice. However, in Ethiopia cost management practice in manufacturing companies was
not yet widely examined.
Even though most of the above studies conducted are mainly discussing studies that are related to
the different elements and aspects of product cost practices. Some studies also covered cost
systems and techniques and others are also related to cost management practices, but there are no
in-depth specific study has been conducted covering substantial aspects on the cost management
practices related to Ethiopian manufacturing companies on the best knowledge of the researcher;
specially in Meta brewery s.c. previously.
Therefore given the significant economic importance of Meta brewery S.C. and the gap in the
literature, the researcher believed that studying product cost practice studies similar to the
developed countries will be useful to encourage the development of improved cost management
practices. Based on this information the researcher had been initiated to asses & examine the
company’s cost practice system for the purpose of identifying the causes of the company’s
managerial problem & proposing the possible solution of overcoming such causes.
1.3 research questions

1. How is the company costing staff organized?
2. How is the company determining the production cost of its products?
3. How much the company’s product costing system effective and
1.4 Objective of the Study
1.4.1General Objective
The general objective of this study is to assess the product costing practice in Meta
brewery factory.
1.4.2Specific Objectives
1. To examine whether the company has well organized costing staff
2. To examine the company’s system of product cost determination
3. To evaluate whether the company’s product costing system is effective and convenient
8|Page
1.5 Significance of The Study
This study wants to assess the product costing practice and also identify factors that
create problems on the practices and importance of costing and at the end it suggested
remedial measure to solve this problem.The study will also contribute the following
benefits, It will help the managers to use as a clue for revising or changing the existing
plan and methods they used on the basis of suggested solutions or recommendations, It
will provide a starting ground to other researches, It will give a value to business
organization at all.
1.6 Scope of the Study

To identify and investigate every problems of product costing practice require extensive
research more time sufficient information and energy. Because of this the study is
focused on Meta brewery factory. Specially on the costing department of the factory.
Product costing also covers classifications, cost flow assumptions, Purpose of product
costs as well as costing system in Meta brewery factory.
1.7 Limitation of the Study

In course of data collection some respondents may not be willing to give sincel
information that need for the study. The reason may be due to the confident of the
information. The researcher may be faced the shortage of relevant secondary data in the
study. In addition to this the study may be limited by our group co-ordination, lack of
experience in research and late starting of our paper.
1.8 Organization of the Study

The paper was consists of five chapters, the first chapter provides background of the
study, statement of the Problem, Objective of the study, significance of the study, scope
of the study, limitation of the study and methodology. The second chapter consists of
theoretical over view of cost and conceptual frameworks. The third chapter consists of
research methodology. The third fourth consists of analysis and interpretation. Finally,
the last chapter states the conclusion of data and relevant recommendations.
9|Page
CHAPTER TWO
LITERATURE REVIEW
2.1 Theoretical overview of costing
cost and management accounting control information was consider to be great

importance in supporting large transaction, production and distribution of enterprises
during the 1950 period in the United state.
H. Thomas Tohone describes the cost accounting system of H.Y man will a New England
textile which established around 1855. The system enables manager to monitor the
efficiency of millions of different raw materials conversion in to Variety of finished
goods.
Cost accounting identifies, measure report and analysis the various elements of direct and
indirect cost associate with manufacturing and marketing goods and services. Cost
accounting also measures products quality, productivity, employee moral and customer
satisfaction (Gayle Rayburn, 1978)
2.1.1Definition
The scope of the term cost is extremely broad and general. It is therefore, easy to define
or explain this term without leaving any doubt concerning its meaning, cost accountants,
economists and other develop the concept of cost accounting to their needs. These
concept should therefore be studied in relation to its purpose and use. Some of definitions
of “cost” are reproduced below;
1. “Cost is a resource sacrificed or forgone to achieve a specific objective.” (Horngren,

c.t)
2. “A cost is the value of economic resources used as a result of producing or doing, the
thing coasted.” (W.M Harger)
3. Cost is the amount of expenditure actual or national incurred on or attributable to a
given thing.” (J.C.M.A. London)
10 | P a g e
4. “Cost is the price paid for something.” (oxford dictionary)
cost also may be defined in two ways; first as a noun, “the amount of expenditure / actual
or notional incurred on attributable to a specified thing or activity.” According to the
institute or cost and management accounts (ICMA, 1974). Secondly, it may be defined as
a verb “To ascertain the cost of specified thing or activity.” We not that, in both cases,
cost imply two features, price and quantity. At the most basic level a cost may be defined
as the sacrifice made usually measure by the source given up to achieve a particular
purpose (Ronald W. Hilton, 1999)
2.2 Application of costing
Cost accounting is generally considered as being applicable only to manufacture

concerns. This is not so. Its application is in fact much wider. All types of activities,
manufacturing and non manufacturing in which monetary value is involved should
consider the use of cost accounting. Whole sale and retail business, banking and
insurance companies, hotels, hospitals, school, collage, universities and cinema houses.
All many employ cost accounting techniques to operate efficiency. It is only a matter of
recognition by the management of applicability of these concepts and techniques in their
own fields of Endeavour (M.N. Arora, 1994)
2.3 Objective of cost accounting
The main objectives of cost accounting are as follows
1. Ascertainment of cost- this is the primary objective of cost accounting. For cost
ascertainment different techniques and system of costing are used under different
circumstances.
2. Control of cost – cost control aims at improving effectiveness and efficiency by
controlling and reducing cost. This objective is becoming increasingly important
because of growing compaction.
3. Guide the business policy – cost accounting aims at serving the need of management
in conducting the business with at cost efficiency cost data provide guide lines for
11 | P a g e
various managerial decision like make or buy, selling below cost, utilization ideal
plant capacity, introduction of a new production, etc.
4. Determination of living price- cost accounting provides cost information on the basic
of which selling price of products or services may be mixed. In periods of
depreciations cost accounting guide in deciding, the extent to which the selling prices
may be reduced to met situation.
In order to realize these objectives, the data provided by cost accounting may have to be
re-classified, recognized and supplemental by other relevant business data from outside
the formal cost accounting system. (B. comand. Thardrass, 1978)
2.4 Cost classification
The first step in controlling costs in any business is achieving a good understanding of
many types of cost incurred. It is important to stress that the objective of all cost
classification is to analyze the same monetary value in alternative ways. There are five
main cost classifications. These are:
I. Functional costs
II. Product costs
III. Activity costs
IV. Controllable costs
V. Relevant cost
2.4.1 Functional costs
Cost may be classified according to the functions of the organization with in which they
are associated. In effect, this means that costs are identified with major segments of
business that have specific activities. Development costs are those incurred after
management has decided to adopt the new product or process. The classification of costs
into broad functional categories provides management with an overall view of major
segments of the business in order to assess their relevant impact on total enterprise costs.
12 | P a g e
2.4.2. Product costs
The major concern of manufacturing business is to have information about product costs.
The cost of a particular product is also important with respect to assessing the relative
profitability of different products, and making decisions accordingly.
2.4.2.1Direct and indirect costs
The problem of product costing is how to trace identify costs according to products. For
this purpose, costs are classified in terms of their relationship with the product costs that
are traceable only to the product are called direct costs. Costs that are not immediately
traceable to the product are called indirect costs. Direct costs comprise;
A. Direct material cost, which are the materials that going to the product.
B. Direct labor cost, which are the wage costs of worker engaged in the making of
the product.
C. Direct expense, which are expense other than direct material and direct labor cost,
such as hire of tools or equipment for particular job.
2.4.2.2 Production costs
The purpose of product costing is to determine production costs. The following points
should be noted;
A. For the purpose of profit determination product costing is concerned with

determining production costs of products.
B. Production cost comprises directly costs and production overhead/ factory
indirect/ cost only.
C. In case of a one production firm, it is evident that all production costs are direct
costs.
2.4.2.3 Direct material cost
As raw materials are needed for the production process, they are transferred from the
ware house to the production department. A raw material that is consumed the
13 | P a g e
manufacturing process, is physically incorporated in the finished products and can be
traced to product confidentially. Before material is enters in to production process, it is
called raw material. After it enters, it is direct material/Ronald W. Hilton, 1999)
The term materials cost may be used to refer to the cost of the following;
A. Raw material used in making products;

B. Components used in assembling products;
C. Consumable materials such as small tools, cleaning materials, paint and
other items to small to assign separately as costs;
D. Stationary and office supplies;
E. Finished products available for immediate resale, such as stocks held by
retailers.
2.4.2.4 Direct labor cost
Includes the compensation of all manufacturing labor that can be traced to the cost object
in an economically feasible way (Charies T.Homgreen, 1994)
Labor cost may be defined as all those payments which are made for the purpose of
securing the services of employees. Expenditure of labor is important element in the total
cost of most products. (R. Side botham, 1994)
The assignment of direct labor cost to job is based on time tickets filled out by
employees. The time ticket is the source of document used in the cost accounting
department as the basis for adding direct labor cost to work in process inventory and to
the job cost sheet for the various job in process. In some factories, the computerized time-
clock system may be used. The cost of salaries, wages and fringe benefits for personnel
who works directly on the manufactured products is classified as direct labor cost.
(Ronald. W. Hilton, 1999)
2.4.2.5 Manufacturing overhead cost
Manufacturing overhead cost is a heterogeneous pool of indirect production cost such as

indirect material, indirect labor, utility cost, and depreciation. These costs often bear no
14 | P a g e
obvious relationship to individual job or units of product, but they must be incurred for
production to take place. Therefore, it is necessary to assign manufacturing overhead cost
to production job is called overhead application. (Ronald W. Hilton, 1999)
2.4.2.6 Prime cost and production overhead cost
The term prime cost refers to the total of direct cost in the form of direct material, direct
labor and direct expense. Where the firm produces more than one product, production
overhead costs have to be allocated to the different product to arrive at their production
costs. Production overhead costs which are allocated in this way are known as absorbed
overhead:
2.4.2.7 Conversion costs
Conversion cost express the totality of cost that a firm has to incur in converting raw
materials in to the finished product. It includes all costs other than direct material cost.
2.4.2.8 Period cost
Period costs are costs other than the production costs that have been identified as product
cost. Period costs are not included in production costs. Consequently, they are not
included in the cost of stock and of the cost of goods sold. Instead they are charged as
expense in the profit and loss account.
2.4.3 Activity level cost
The direct/ indirect cost classification assumes that cost will remain constant irrespective
of the level of activity. It is known, however, that some costs change as activity level of
change.
The purpose of classifying costs in to fixed cost and variable cost is to provide
management with information of the behavior of cost at different activity level.
A. Fixed costs: are defined as those cost which in aggregate remain

constant through different activity levels.
15 | P a g e
B. Variable costs are defined as those costs which in aggregate vary as
different activity levels.
2.4.4 Controllable cost
Responsibility for cost extends only to cost over which individual managers are able to
exercise control. Hence it is the managerial level that determines the extent of cost
responsibility. It includes:
A. Controllable cost: are defined in terms of managers position in the hierarchy.
B. Non-controllable cost: would include cost incurred on processing the product prior to
transfer to his departments, as well as costing resulting from the action of his superiors.
Non controllable costs also include costs influenced by external factors, such as market
price for raw materials and wage rate.
2.4.5 Relevant costs
Relevant costs are those costs that will be affected by management decision and different
cost concepts are needed for different type of decisions;
A. Stock valuation, for which a distraction is required between direct and indirect
costs;
B. Profit planning, requiring knowledge of cost behavior through activity level
changes and hence that fixed costs and variable cost be distinguished.
C. Cost control, based on the notation of pre determined level of cost efficiency
related in the concept of budgeted and standard cost and system of performance
evaluation requiring distinguished between controllable and uncontrollable co
2.5 Cost flow in manufacturing company
Direct material, direct labor and manufacturing overhead are the three types of
production costs incurred by manufactures. These costs are product costs because they
are store in inventory until the time period when the manufactures products are sold.
16 | P a g e
Manufacturers have product costing system to keep track of the flow of these costs from
the time production begins until finished products are sold. As direct material is
consumed in production, its cost is added to work in process inventory. Similarly the cost
of direct labor and manufacturing overhead are accumulated in work in process. When
products are finished, there costs are transferred from work in process inventory to
finished goods inventory. The costs then are stored in finished goods until the time period
when the products are sold. At that time, the product costs are transferred from finished
goods to cost of goods sold, Which is in expense of the period when the sales is made.
Manufacturers generally prepare a schedule of cost of goods manufactured and a
schedule of cost of goods sold to summarize the flow of manufacturing cost during an
accounting period. These schedules are intended for internal use by management and are
generally not made available to the public. (Ronald W. Hilton, 1999)
2.6 Adopting product costing system to technological changes
Managerial accountants should continuously monitor the cost and benefit of the
information they produced. In this age or rapidly changing production technologies and
manufacturing practices, it is vital to reassess frequently the need for the data generated
by traditional product costing system.
As manufacturing process are automated through the use of robots and other computer
controlled machines, direct labor cost decline in importance and manufacturing overhead
increase. As JIT( just in time) production and inventory management systems are
installed the amount of work in process inventory declines substantially when these and
other changes occur in the production environment, the product costing system should be
adopted to fit the new situation.( Ronald W.Hilton, 1999)
2.7 Purpose of product costs
A product costing system accumulates the cost incurred in production process and assign
cost to the organization final product. Product costs are needed for a verity of purpose in
both financial accounting and managerial accounting.
17 | P a g e
2.7.1 Use in financial accounting
In financial accounting, product costs is needed to value inventory on the balance sheet
and to compute cost of goods sold expense on the income statement. Under generally
accepted accounting principles, inventory is valued at its cost until it is sold. Then the
cost of inventory becomes and expense of the period in which it is sold.
2.7.2 Use managerial accounting
In managerial accounting product costs are needed for panning, for cost control, and to
provide managers with data for decision making. Decision about product prices the mix
of products to be produced, and the quantities of output to be manufactured are among
those for which product cost information is needed.
2.7.3 Use in reporting to interested organization
In addition to financial statements preparation and internal decision making there is an

ever growing need for product cost information in relationship between firms and various
outside organizations. Public utilities such as electric and gas companies record products
to justify rate increase that must be approved by state regulatory agencies
Hospitals keep track of the cost of medical procedures that are reimbursed by insurance
companies or by the federal government under the Medicare program. Manufacturing
firms often sign cost plus contracts with the government where the contract price depends
on the cost of manufacturing the product.
2.8 Product costing system
The method of production employed by the firm determines the cost accounting system
required for product costing. Costing system aim to report cost numbers that reflect the
way in which particular cost object. Such as products, service and customers use the
resource of an organization.
18 | P a g e
2.8.1 Types of product costing system
Companies frequently adopt one of the two basic costing systems to assign cost to
products or services. These costs are:
I. Job costing
II. Process costing system
Many companies have costing systems that are neither pure job costing nor pure process
costing. Rather, they have hybrid costing systems that combine elements of both costing
and process costing. For now, we introduce the two systems. (charies T. Horngreen C.T,
1994)
2.8.1.1 Job-order costing system
In this system the cost of a product or service is obtained by assigning costs to a distinct,
identifiable products or services. A job is a task for which resources are expanded in
bringing a distinct, identifiable product and service to market.
Job costing assigns production cost to individual units. It is the appropriate method of
product costing when production is neither continuous nor stereotyped. And where each
job requires different manufacturing specifications. It should be used whenever it is
possible physically to distinguish each unit or group of unit from all other units
throughout the production process, for example custom printing. (M..W.E,
Glautier,underdown, 1988)
Factory job costing is concerned with those undertaking, mostly of a general engineering
kind, which may undertake job of the “one-off” type or orders for a batch of similar
components. Costs are therefore generally recorded against each individual jobs or order,
and this requires careful routing and scheduling, since there is no predetermined flow line
or the work to follow.
19 | P a g e
2.8.1.2 Process costing system
In this system, the cost of a product or service is obtained by assigning cost to masses of
similar units and then computing unit costs on average basis. Process costing is a method
of costing used to ascertain the cost of the product at each process ,operations or stage of
manufacturer, where processed are carried on having one or more of the following
features;
Where the product is produced in one single process
A. Where the product of one process become the material of another process or
operation.
B. Where there is simultaneous production at one or more process of different
products with or without by product.
C. Where, during one or more process or operation of a series, the product or
materials, are not distinguishable from one another, as far instance, when finished
products differ finally only in shop or form.
the system provides for showing the cost of the main products and of any by products,
and thus is very difficult from job costing, where orders may be combined for common
process production to a certain state, and then be coasted for subsequent operations by
job cost method .in most cases process costing requires fewer forms, and less details, then
are needed for job costs, but a closer analysis of operation is needed./L.W.J awler and
J.L.brown, 1978)
Process costing is a method of product costing that assigns manufacturing costs units
under conditions of continuous production .it is used by manufacturing concerns that
mass produce standardize products. A special feature of such business is that they
produce in anticipation of receiving order from customers .hence production is stoked
until sold .two point are clear ,first the need for job or batch identification disappears for
know we are concerned with a departmentalized cost ,identifiable with a particular
process ,for an entire processing operation; second production data is needed, if
confident ,reasonably accurate cost are to be obtained .this will need to be express in
20 | P a g e
appropriate unit of measurement for the direct material and labor inputs to the
process .the output immerging from the process , the byproducts the scrap and waste and
so forth.
2.9 EMPIRICAL LITERATURE REVIEW
Previously different researchers were worked on the title of “Assessment of Product Cost
Practice”; most of these papers were focused on manufacturing industry. The researchers
assessed different organizations cost accounting practice and made conclusion according
to their observation.
Some of them are; Girum ketema and his teammate were worked on the title of the
“assessment of cost accounting practice in kality food Share Company” in 2014; the
objective of the paper was to assess and examine the product costing system of the
company under study to identify the real causes of why the main research problem is
occurring. Based on the objectives of researchers to conclude The current product costing
system, cost center allocation, and cost allocation base are found at good level with the
existence of some problem, also kality food s.c. use proper controlling mechanism for
handling and keeping of cost related transactions.
Alemu Feleke were worked on same title in national alcohol & liquor factory in 2019, the
objective of the study is to asses cost accounting practices in control and reducing in
manufacturing cost. The researcher was gathered the data through a combination of both
unstructured interviews with the department head and questionnaire addressed to the
employees of the organization. The data received were analyzed by using narration and
descriptive statistics. Finally he concludes that the company does not give chance for
employees to participate in budget preparation and standard setting, it does not use target
costing as cost control and reduction tools and techniques and reporting without relating
of actual and planned information. Lack of assign costs to particular cost objects and each
cost object has not separate measurement of cost, use only traditional costing method and
giving cost information for external users.
21 | P a g e
An analysis conducted by (Samaha K. and Abdallah S., 2011), entitled A comparative
analysis of ABC and traditional costing system: The case of Egyptian metal industries
company compares ABC results with traditional accounting (volume based) ones in an
Egyptian metal industry company; In fact traditional accounting can lead to price
distortion. In particular, the study highlights that volume based methods underestimate
low volume products and overestimate high volume products while ABC, tracing
overhead consumption, lead to more precise results.
Kubrom Negash also worked on the same title in des general trading plc in 2019, the
objective of the study is to assess and examine the cost accounting practices utilized by
Des General Trading PLC in Ethiopia. This study adopted a descriptive survey design.
The researcher were used both self-administered questionnaire and structured interviews
with selected accountants of the finance departments and other department staffs. The
major findings of the study are; the most widely
Anand et al (2004) in their study of cost management practices in India studied the
responses furnished by 53 CFOs in Indian corporations. The objective of their study was
to capture the development in cost management practices such as accounting for
overheads, applications of budgetary control and standard costing in corporate India.
The survey questionnaire also aimed to verify any significant difference in management
motivation for the implementation and use of standard costing as a control tool between
activities based cost management (ABCM) user firms and firms using traditional costing
systems. The study established that the firms are successful in capturing accurate cost and
profit information from their ABC cost systems for value chain and supply chain
analysis. The results suggest that the firms have better insight for benchmarking and
budgeting with ABC cost system yet the consistency in their priority of budget goals is
lacking unlike the firms who are using traditional costing systems.
Even though most of the above studies conducted are mainly discussing studies that are
related to the different elements and aspects of cost accounting systems. Some studies
also covered cost systems and techniques and others are also related to cost management
practices, but there are no in-depth specific study has been conducted covering
22 | P a g e
substantial aspects on the cost management practices related to Ethiopian manufacturing
companies on the best knowledge of the researcher; specially in Ok Meta Brewery s.c.
previously. The scanning of literatures give an indication that there exists a gap in the
existing study and a study is needed that include product cost practice accounting system
of Ethiopian manufacturing companies. Thus the main objectives of this paper is
examining and evaluating product cost practice of Meta Brewery S.C. The paper also
tries to reconcile the different opinions of these studies, contribute some points to the
existing knowledge and also will contributes its own share to fill this gap.
23 | P a g e
CHAPTER THREE
RESEARCH METHODOLOGY
3.1. Study Area Description
The research area will Oromia region Special Zone, at Sebeta town, the factors which
assess the product costing practice in Meta brewery factory. Which is 25 km far from
Finfine at West. It is the largest town and the administrative center of Special zone.
3.2 Research Design
The general objective of this research is to assess the factors which have assess the
product costing practice in Meta brewery factory. Therefore, so as to meet this objective
properly, both primary data and secondary data are using. During the secondary study,
deep information about the product cost practice gathering from key information. On top
of that, primary data are gathering from employees to supplement the primary data
through questioner.
3.3 Research Approach

Descriptive research design involves both quantitative and qualitative data. Quantitative
approach involves numerical data subjected quantitative analysis whereas qualitative
approach involves data in textual form that concerned with subjective valuation of
attitude, thoughts and behavior (Kothari, 2004).
According to Schweitzer (2009) quantitative approach was used for its appropriateness to
the determination of developing research questions and it is suitable for the type of
numerical data required in the study. In this study both qualitative and quantitative data
were used. In analyzing case study descriptive research, both qualitative and quantitative
research approach is needed (Yin, 2003). That is to get the benefits of a mixed methods
24 | P a g e
approach, and to mitigate the bias in adopting only either quantitative or qualitative
approach, the current research combines both quantitative & qualitative research
approaches.
3.4. Data type
The researcher tried to study about the product costing practice in Meta brewery factory.
The data gathering for study is both primary and secondary data. In this study, primary
and secondary data sources will be used to collecting adequate information.
a) The primary data sources are collect through questioners and interviews using simple
random and purposive sampling techniques.
b) Secondary data sources such as management information system related books and
review articles conduct internationally, journals, annual reports of the factory and
different internet web sites are used by large as references to avoid the inadequacies
of information.
3.5. Source of data collection
The researchers using the primary data and secondary data sources but more focus on
primary data because obtaining enough information in great depth, avoid on
interpretation of the answer for the question. And also, avoid refusal to give the right
information as well as it is flexible. The primary data source of this study including the
employees and the relating departments. Besides of primary data source, secondary data
source and also including in this study.
3.6. Method of data collection
The data are obtaining from two types of source. These are primary and secondary data
source. The researcher using the primary data collection technique in order to get first-
hand information from the respondents. And the primary data will be collecting by
preparing a questionnaire. The questionnaire types which the researcher using is structure
questionnaire. This type of questionnaire is using to in value close ending questions and
25 | P a g e
open ending questions. And also the researcher widely used direct observation and un
structure interview method in order to get reliable information because flexibility of
questions to questioning and the researcher is allows too much freedom. The researcher
in addition using the secondary data collecting from the consecutive last five years (2013-
2018) financial statement of the industry.
3.7. Target Population, and Sample Size
The study target population focused on employees of the organization who are working
in cost accounting department & other financial departments. Therefore the total
employees of the organization working in department of product cost accounting, finance
& management are 18 and the population for this study that helped to get accurate data
was the whole employees. To accomplish the study, the researcher has used a census data
collection. This was preferred because it provided the possibility of examining the entire
population and acquiring accurate data.
3.8 Method of Data Analysis
The data will be collecting from sample respondents are analyzing using the primary data
that appropriate data that gathering from questionnaires.
3.9 Validity of the Data
Validity is concern with whether the findings are really about what they appear to be
about. Validity defined as the extent to which data collection method or methods
accurately measure. What they are intend to measure (Sounders et. al., 2003). Numbers of
different steps are. Taken to ensure the validity of the study, Data are collect from the
reliable sources, from respondent who has experiences in using the service of the bank.
Survey question are made based on literature review and frame of reference to ensure
result validity. The participant’s shall be brief early in advance by the researcher on the
need and importance of the study and permission sought for their participation in order to
have their full support.
26 | P a g e
3.10 Ethical consideration
As formal proposal that conducted following scientific research methodologies, the

studies, data gathering techniques, analysis, interpretation and any conclusions made
accordingly are based up on there a findings of the study using appropriate methodology.
Except logical drawings no single sentence stated in the study out of the real findings
made in the study including personal opinion and any feeling of the student researcher
even though the student researcher is employee of the organization. The voluntary
participation of the respondents communicated kind and that secrecy and unanimity of
the responses maintained for this assurance given for the respondents
27 | P a g e
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND INTERPRETATION

4.1. INTRODUCTION
The focus of this chapter is on the presentation, analysis and interpretation of the data
collected from primary and secondary data sources. The topic of this study is an
assessment of product cost practice in the case of Meta Brewery s.c. Thus, following the
student researchers raised four research questions. In order to successfully look answer
for these research questions the student researchers have designed both open-ended &
closeended questioner and interview question as tools for data collection. The data
collected from questioner was presented by using tables and percentage followed by its
analysis and the data collected from interview were presented by statement type
presentation. The 18 copies of questioner were distributed to 18 respondents. Out of the
total 18 questionnaires 18 were fully responded and returned, thus achieving 100 percent
response rate.
On the first part of this chapter the respondent's general characteristics such as sex,
education level, work experience and position in the organization were viewed in detail
and on the second part of this chapter the research problem was analyzed based on the
questioners presented and interpretation is given for each and every respondents.
Moreover, the result of the data collected from secondary sources was analyzed to
support and elaborate the facts.
4.2. GENERAL CHARACHTERSTICS OF THE RESPONDANTS
4.2.1. AGE Table 1 Respondents Age
28 | P a g e
Age No. respondent Percent
Below 25
26-35 10 56
36-45 6 33
Above 45 2 11
Total 18 100
Source: own survey, 2021
From the above table we can see that 10(56%) of the respondents are within the age of
26-35 years, 6(33%) is within the age 36-45 and the remaining 2(11%) of respondents are
above 45 years. In this regard no respondent were the age categories below 25 years.
Thus, based on this one can infer that most of the respondents are middle aged. This
enhances the reliability of the data collected and the productivity of the organization.
4.2.2. GENDER
Table 2 Respondents Sex Distribution
Gender No. respondent Percent
Male 12 67
Female 6 33
Total 18 100
From the above table we can see that 12(67%) of the population is male and 6(33%) of
the respondents are female. This shows that the majority of the respondents are male.
29 | P a g e
This does not mean that the research is targeted at only men, but rather it reveals the
proportion of male and female respondents in the study.
4.2.3. POSITION IN THE ORGANIZATION
Response on department shows 50% of the respondents are in the cost accounting
division, the rest 50% are distributed in the other departments; which is 35% Finance,
10% from Top management & the rest 5% from other department. This implies that the
respondents working position is not concentrated to a specific post this will positively
assist the quality of data collected.
4.2.4. EDUCATIONAL STATUS
Table 3 Respondents Educational statuses
Educational status No. respondent Percent
Certificate
Diploma
Degree 11 61
Master and above 7 39
Total 18 100
From the above table we can see that 11(25%) of the populations are 1st degree holder
and 7(39%) of the populations are 2nd degree and above holder. This implies that almost
all of employees are in a very good academic status which contributes a lot to the cost
accounting system of the company. In addition the educational level we considered was
30 | P a g e
diversified which will help us collect reliable data. Thus, this will enhance our data
validity.
4.2.5. WORK EXPERIENCE
Table 4 Respondents Work Experience
Work experiences No. respondent Percent
Below 5 year 6 33
5-10 8 45
10-15 4 22
Above 15
Total 18 100
From the above table we can see that 12(67%) of the populations are well experienced
and this shows that they can understand the subject matter and are capable to contribute
important information for the case under study. In addition to this, respondents respond
effectively to the questionnaire provided.
4.3.1. Cost Accounting Practice
Cost Accounting may be defined as “Accounting for costs classification and analysis of
expenditure as will enable the total cost of any particular unit of production to be
ascertained with reasonable degree of accuracy and at the same time to disclose exactly
how such total cost is constituted”. Thus Cost Accounting is classifying, recording an
appropriate allocation of expenditure for the determination of the costs of products or
31 | P a g e
services, and for the presentation of suitably arranged data for the purpose of control and
guidance of management.
Also, Cost Accounting is the process of accounting for cost which begins with recording
of income and expenditure and ends with the preparation of statistical data. It establishes
budgets and standard costs and actual cost of operations, processes, departments or
products and the analysis of variances, profitability and social use of funds. Thus Cost
Accounting is a quantitative method that collects, classifies, summarizes and interprets
information for product costing, operation planning and control and decision making.
Like any other system of accounting, Cost Accountancy is not an exact science but an art
which has developed through theories and accounting practices based on reasoning and
commonsense. Many of the theories cannot be proved nor can they be disproved. They
grownup in course of time to become conventions and accepted principles of Cost
Accounting. These principles are by no means static, they are changing from day to day
and what is correct today may not hold true in the circumstances tomorrow.
Table 5 Cost Accounting Department
No Item Alternative No. response Percent
1 Does the company have a Yes 18 100

separate cost accounting
No
department?
2 If yes, what purpose do Determining

you want the department profit
to serve?
Providing MIS
For operational 3 17
decision making
32 | P a g e
Preparation of
budget
Product/service
costing
Controlling cost 15 83
3 If your answer is yes for Yes 7 39

question “1” does it has
No 11 61
adequate staff members?
4 If the department has Yes 7 39

adequate staff members
No 11 61
in number, are they
efficient?
No Item Alternative No61. response Percent
5 Are the cost accounting Yes 14 78

staff members
No 4 22
professionally qualified in
accounting?
6 Do you think the Yes 4 22

organization is benefiting
No 14 78
from the cost accounting
function?
33 | P a g e
7 How frequently cost Semi-annually

accounting reports are
Monthly 18 100
written?
Annually
Daily
8 Do you think the costing Yes 13 72

department is properly
No 5 28
discharging its
responsibility?
9 Do you think that cost Yes 18 100

accounting can make
No
significant contributions
to the survival & growth
of an organization?
From the above table we can see that 18(100%) of the respondents agree that the
company has a separate cost accounting department & believes that this department can
make significant contribution to their company. The data collected also states that
15(83%) of the respondents agreed that the company use this department to control cost
& 6(33%) agreed that the department help the company during operational decision
making. Even though the company has separate cost accounting section 11(61%) of the
respondents said that the department hasn’t adequate staff members but most of the
respondents believes that the current members are professionally qualified in accounting
34 | P a g e
& they are fairly efficient in their work & 13(72%) of the respondents also believe the
employees satisfy responsibilities and skills heeded for the costing department & they
properly discharge their responsibility. According to the study all of the respondent states
that the department provides cost accounting report every month to general manager.
14(78%) which is the majority of the respondents agreed the organization is not
benefiting from the cost accounting function. As it was mentioned above the department
isn’t well organized in human resource & most of the works are covered by all employees
of the finance department; for this reason the company isn’t benefiting.
As per our literature review, cost accounting can help management by analyzing
statistical data, establishing costing methods and procedures that control cost,
ascertaining company costs and profit, and selecting from two or more alternatives that
might increase or decrease revenue or cost respectively.” The objective of any
organization is represented by the increase of revenue & the decrease of costs”. (jinga,
dumitru, dumitrana & vulpoi, 2010, p, 243). Also costing staff members must have
sufficient knowledge and skill i.e. he/she is responsible to provide the right information
about cost and budget at the right time for management to help them for their decision
making practically for planning and controlling. Cost accountant has the duty to provide
information whether costs is placed for the required purpose or not; to follow up tax for
payments; prepare corporate budget of the company and many other responsibilities.
According to the interview made whether the company has separate cost accounting
department or not, the interviewee said that “the company has separate cost accounting
department & we use the department to control our cost & for product/service costing”. I
also asked in what frequency do you prepare cost accounting report & for whom, the
interview replied that we prepare on monthly bases & provide this report to general
manager. The other question raised was in what ways the co. classifies cost then, the
interviewee replied that like other manufacturing companies we classify cost generally as
direct & indirect cost.
35 | P a g e
Section II
Table 6 Cost Accounting Practice
Alternatives Strongly Agree Strongly Disagree Neutra

Agree Disagree
N % N % N % N % N %
1 The company assign costs to particular 6 33 9 50 3 17

cost object & each cost object has
separate measurement of cost.
2 Employees are participate in budget 2 11 1 67 4 22

preparation and standard costing 2
3 The accounting system of the company 10 55 5 28 3 17

clearly defines the responsibility &
obligation of each department in order
to measure their performance
4 The accounting system is helpful to 12 67 4 22 2 11

regularly report variances of budget &
actual cost to measure management
performance as a control device
5 The accounting system is used as a 16 89 2 11

control device

36 | P a g e
As can be seen in item 1 of table 6, the respondents were asked express their level of
agreement regarding the question that asked whether the company assign cost to
particular cost object & each cost object has separate measurement of cost or not, 6(33%)
of the respondents have strongly agreed, 9(50%) have agreed & 3(17%) have neutral to
the statement. Thus the company does assign costs to particular cost objects & each cost
object has separate measurement cost. . This is supported by Lanen, Andorsen and Maher
(2010) who stated that the production costs are assigned specifically to units of
production and recognized as an expense when product is sold. As such, product costs
follow the product through inventory and are recorded as an asset in the inventory
system.
As can be observed in item 2 of table 6, the respondents were asked express their level of
agreement regarding the question that asked whether employees are participate in budget
preparation & standard costing, 2(11%) of the respondents have agreed, 12(67%) of the
respondents have strongly disagreed & 4(22%) were not sure to the statement. From this
one can deduce that employees didn’t participate in the company’s budget preparation &
standard costing. As per my literature review the situation is in contrary with the study
done by Brownell & Huang & Zhang (2013) stated that budgetary participation affects
performance directly & negatively.
As it is indicated in item 3 of table 6, the respondents were asked express their level of
agreement regarding the question that asked does the accounting system of the company
clearly defines the responsibilities and obligation of each department in order to measure
their performance, 10(55%) of the respondents have strongly agreed, 5(28%) of the
respondents have agreed & 3(17%) of the respondents have disagreed to the statement.
Consequently, one can deduce that the accounting system of the company is significantly
defines the responsibilities and obligations of each department in order to measure their
performance.
This is in line with the study conducted by Hanini (2013) who showed the importance
and significance of the relationship between implementing responsibility accounting, the
company’s profitability and operational efficiency.
37 | P a g e
As it is indicated in item 4 of table 6, the respondents were asked to express their level of
agreement regarding the question that asked whether the accounting system is helpful to
regularly report variances of budget & actual cost to measure management performance
as control device, 16(89%) of the respondents have agreed to the statement. From this
one can deduce that the company’s accounting system is helpful to regularly report
variances of budget & actual cost to measure management performance as control device.
As one can see in item 5 of table 6, the respondents were asked express their level of
agreement regarding the question that asked whether the accounting system is used as a
control device, 16(89%) of the respondents have strongly agreed & 2(11%) of the
respondents have agreed to the statement. This implies that the company use accounting
system as a control device.
4.3.2. Use of Cost Information
Manufacturing organizations assign costs to products for two purposes: First, for internal
profit measurement and external financial accounting requirements in order to allocate
the manufacturing costs incurred during a period between cost of goods sold and
inventories. Second, it uses to provide useful information for managerial decision making
requirements. In order to meet financial accounting requirements, it may not be necessary
to accurately trace costs to individual products (Drury and Tayles, 2005). With
knowledge of the fixed costs and variable costs, the manager should use this information,
along with the financial statements, to aid in the decision making process. The traditional
income statement is primarily used for external reporting. The value approach or the
contribution margin income statement is more useful for internal decision making
(Lanen, Anderson, and Maher, 2010)
Table 7 Use of Cost Information
N Purpose of cost information Strongly Agree Stron Disagree Neutra

o Agree gly l
Disag
ree
38 | P a g e
N % N % N % N % N %
1 Budget implementation & allocation 18 100
2 Fixing the price of their product 18 100
3 Accepting or rejecting any project
4 Future product & investment plan by 13 72 5 28

providing necessary information by
cost control & maximize
5 Performance evaluation of each activity 18 100

in particular & the organization as a
whole
6 Supply cost information for external 4 22 11 61 3 17

users such as government, investors,
creditors, etc.
Item Alternative No. of respondent Percen

t
7 Do you think that the cost accounting Yes 13 72

records maintained by your
No 5 28
organization adequate for your purpose
As can be seen in item 1 & 5 of table 7, the respondents were asked express their level of
agreement regarding the question that asked whether company use cost information for
budget determination and allocation & performance evaluation of each activity in
particulars and the organization as a whole, 18( 100%) of the respondents have strongly
agreed to the statement.
39 | P a g e
As it is indicated in item 2 & 6 of table 7, the respondents were asked to express their
level of agreement regarding the question that asked whether the company use cost
information for fixing the price of their product & supply cost information for external
users, most of the respondents have disagreed to the statement.
agreement regarding the question that asked whether the company use cost information
for accepting or rejecting any project, 18(100%) of the respondents have strongly agreed
to the statement. This implies the company uses cost information for accepting or
rejecting any project.
agreement regarding the question that asked whether the company use cost information
for future product & investment plan by providing necessary information by cost control
and maximize profit, 13(72%) of the respondents have strongly agreed & 5(28%) of the
respondents have agreed to the statement.
In general, based on the above evidences the company uses cost information for budget
determination & allocation, accepting or rejecting projects, future product and investment
plan and performance evaluation. However, the company doesn’t supply cost information
for external users also doesn’t use cost information for fixing the price of their product.
As can be seen in item 7 of table 7, the respondents were asked express their level of
agreement regarding the question that asked whether company’s cost accounting records
are adequate for their purpose, 13( 72%) of the respondents have agreed that company’s
cost accounting records are adequate for their purpose.
According to the interview made, the interviewee replied that the company use cost
information for budget determination & allocation, accepting or rejecting projects, future
product and investment plan and performance evaluation. Generally the use of cost
information is only for internal purpose not for external.
4.3.3. Cost Control & Reduction
40 | P a g e
Both Cost Reduction and Cost Control are efficient tools of management but their
concepts and procedure are widely different.
Agara (2005) opines that cost control is a process whereby targets are set against which
the daily incidence of cost is compared to ensure that cost targets are not unduly
exceeded. In the process of manufacturing companies, the concern of cost control
management is essential in order to effectively utilize the material resources. In addition
to this, cost control includes the management measures implemented to ensure that cost
continues in accordance with the management plan. 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
financially impropriety of the company. The term cost control is used widely and no
uniform definition exists (Horngren et, al2012). They further explained that cost control
is used to define the activities of manager in short-run and long-run planning and
management of costs. They further proceed that planning and cost control is often
inseparably related with revenue and profit planning.
Cost reduction is a continuous process of critically examining various elements of cost in

each aspects of business operation and improving policy and procedure manuals, work
instructions, workflow diagrams operation management, and improving efficiency or
optimal utilization resources. Also, Cost reduction may be defined as the real and
permanent reduction in the unit costs of goods manufactured or services rendered without
impairing their suitability for the use intended. As will be seen from the definition, the
reduction in costs should be real and permanent. Reductions due to windfalls, fortuities
receipts, changes in government policy like reduction in taxes or duties, or due to
temporary measures taken for tiding over the financial difficulties do not strictly come
under the purview of cost reduction.
1 Which cost reduction & Standard cost

cost control tools & control
41 | P a g e
techniques your company Budgetary 7 39
uses in its Product cost control
practice?
Quality cost 11 6
control
Target costing
2 Does the company Yes 14 78

efficiently use cost
No 4 22
reduction & control
techniques to measure
performance?
3 The cost accounting Yes 10 56

practice of cost reduction
No 8 44
& control tools &
techniques applied in this
organization reduces the
cost of products without
affecting the quality of
the products?
4 Does the company Yes 14 78

utilized cost reduction &
No 4 22
control tools &
techniques policy to attain
42 | P a g e
its maximal target?
From the above table we can see that 11(61%) of the respondents agree that the company
use quality cost control as its cost reduction & cost control tools, also 7(39%) the
respondents agree that budgetary control is the other company’s cost reduction & control
tool. This implies that budgetary control and quality cost control are cost reduction and
cost control tools and techniques which are applied in the company whereas standard cost
control & target costing are not applicable.
As per my literature review quality cost control reduces the cost of inspection, decreases
defects, increase productivity & enhance market share (Stan and Klein, 2012). Budgetary
control contributes to the profitability of a firm and can reduce costs. They also
discovered that budgetary control help manufacturing companies can reduce costs and
maintain high quality products (Adebayo et.al. 2014)
As can be seen in the above table, the respondents were asked express their level of
agreement regarding the question that does the company efficiently use cost reduction &
control techniques to measure performance, 14(78%) of the respondents have agreed to
the statement. Thus the company efficiently used cost reduction & control techniques to
measure performance.
When the respondents asked whether company’s cost reduction & cost control tools &
techniques reduces the cost of products without affecting the quality of the products,
10(56%) of the respondents have agreed & 8(44%) of the respondents haven’t agreed to
the statement. This implies that company’s cost reduction & control tools & techniques
reduces its products cost without affecting the quality of the products.
The respondents were also asked whether the company has utilized cost reduction &
control tools & techniques policy to attain its maximal target, 14(78%) of the respondents
haven agreed & 4(22%) of the respondents haven’t agreed to the statement. Thus the
43 | P a g e
company has utilized cost reduction & control tools & techniques policy to attain its
maximal target.
According to the interview response for the question which type of cost reduction & cost
control techniques the company uses? The company use budgetary control and quality
cost control as cost reduction and cost control tools and techniques. Whereas standard
cost control & target costing are not applicable.
4.3.4. Costing System
There are two basic type of costing system: Job order costing system & process costing
system. Job-order costing is method of ascertaining cost in those industries in which
goods are manufactured or services rendered against specific order from customers. A job
order cost system manufacturing accumulates costs of material, labour and manufacturing
overhead expense by specific orders, jobs, batches or lots. In this system the cost object is
a unit or multiple unit of a distinct product or service called a job. Job order costing
system are widely used in construction, furniture, printing and similar industries where
the costs of a specific job depend on the particular order specification (Willamsan, 2009).
Process costing: This costing system is used for manufacturing process which produces a
single product or single mix of products continuously for an extended period of time. In
this system the cost of product or service is obtained by using broad averages to assign
cost to mass of similar units produced for general sale and not any specific customers.
Average cost over large number of nearly identical produce companies that use process
costing system are cement factory, petroleum refineries, flour companies, beer factories,
textile factories and beverage companies.
Techniques that management can utilize to develop a better cost accounting system to
compete in the global market include standard costing, target costing, ABC and the just in
time approach ( Hansen, 2009).
An ABC system is a cost accounting system that uses both unit and non-unit based cost
drivers to assign costs to cost objects by first tracing costs to activities and then tracing
costs from activities to products (Hasenn, 2009). In ABC accounting, the system attempts
44 | P a g e
to reveal costs through direct tracing instead of allocation. This creates a more accurate
pictures of the total costs associated with a product.
But, traditional cost systems do not reliably calculate total product costs. The system
utilizes only a few drivers to allocate overhead costs, and most of the costs are placed in
the same generic cost pool.
45 | P a g e
CHAPTER FIVE
SUMMARY, CONCLUSIONS AND RECOMENDATION
The topic of this study is an assessment of Product cost practice in the case of Meta
Brewery S.C. The objective of this study is to assess Product cost practice of ok Meta
Brewery s.c. Thus, following the student researcher raised four research questions. It has
primarily asked that what is the current cost accounting practice adopted in the company,
secondly it has asked for what purpose does the company use cost information, thirdly it
has asked Is the company’s cost accounting information prepared help manager to be
effective in their decision making, Moreover it was also asked how is company’s product
costing method effective & convenient. In order to successfully look answer for these
research questions the student researcher has designed both open-ended & close-ended
questioner & interview question as tools for data collection. The data collected from
employee of the company was collected using questioner and the data collected from top
management was collected using interview The 18 copies of questioner were distributed
to 18 respondents and all of them have filled out the questionnaire. The findings are
analyzed, interpreted and summarized in chapter four. Based on the presentation, analysis
and interpretation made the major findings of the study are summarized as follows:
5.1. SUMMARY OF FINDINGS
According to the research result, most of the respondents are male & middle aged. Also
most of the respondents have first degree & above and they are well experienced.
Regarding to cost accounting department, most of respondents agreed that the company
have separate cost accounting department. On the other hand, even if the company has
separate cost accounting department majority of the respondents agree that the company
hasn’t adequate staff members. But, they agree that these staff members are
46 | P a g e
professionally qualified in accounting & they are fairly efficient in their work. Majority
of the respondent agree that cost department write report monthly to the general manager.
Regarding to Product cost practice, most of the respondents agree that the company
assign cost to particular cost object & each cost object has separate measurement cost, the
accounting system of the company clearly defines the responsibility & obligation of each
department in order to measure their performance, the accounting system is helpful to
regularly report variances of budget & actual cost to measure management performance
as a control device, the accounting system is used as a control device. Besides most of the
respondents aren’t agree that employees are participate in budget preparation & standard
costing.
From the use of cost information, majority of the respondents agree that the company use
cost information for budget determination & allocation, accepting or rejecting projects,
future product & investment plan & performance evolution. But the company doesn’t
supply cost information for external users.
About cost reduction & control, majority of the respondents agree that the company use
cost reduction & control tools & techniques efficiently, to attain its maximal target the
company utilized cost reduction & control tools & techniques. The company use quality
cost control & budgeting control as cost reduction & control tools & techniques rather
than target costing & standard cost control.
Regarding to costing system, most respondents agree that the company apply Activity-
Based costing method & use process costing system. Majority of the respondents agree
that the current costing system is proper according to its setting & enables the department
to assign fair production cost. On the other hand the company use production as base for
the allocation of MOHC, also use proper predetermine rate for allocating MOHC
5.2. CONCLUSIONS
Having seen the major finding of this study the following conclusions have been made in
line with the research items.
47 | P a g e
✓ The company has separate cost accounting department & professionally qualified &
efficient employees. However the department hasn’t adequate staff members. On the
other hand the department provides accounting report monthly to the general manager.
✓ The Company assign cost to particular cost object & each cost object has separate
measurement cost. But, employees aren’t participating in budget preparation & standard
costing.
✓ Based on the study of the product cost practice of the company element of product
costs are classified as direct material; direct labor & manufacturing over head.
Manufacturing overhead costs are allocated to products on production bases.
✓ the company use cost information for budget determination & allocation, accepting or
rejecting projects, future product & investment plan and performance evaluation. But the
company doesn’t supply cost information for external users.
✓ The Company uses budgetary control & quality cost control as cost reduction &
control tools and techniques rather than target costing. It effectively use & utilized these
tools & techniques to reduce the cost of products without affecting the quality of the
products.
✓ The Company use modern techniques of costing system like ABC costing method &
give priority to process costing techniques as a costing technique.
5.3. RECOMENDATION
Having identified the summary of findings and conclusions made earlier, the following
recommendation were suggested.
➢ Employees are the most important asset in any organization, thus the cost department
should have adequate staff members in order to produce the necessary accounting
information for user. Additionally the company should train its employees to efficiently
utilize & increase their knowledge & performance.
48 | P a g e
➢ Budget preparation & standard setting in the company is limited to top management &
department managers. However all employees should participate & be aware of how
much and why standard cost, cost budget & its objectives for the productivity &
effectiveness of the company.
➢ The company is using budgetary control & quality cost control as cost reduction &
control toll, in addition to these it will be helpful for the company to use target costing as
a means to reduce its product cost to get accurate & recent market information in order to
manage cost relative to the prices the market allows & to achieve sufficient margin over
its costs.
➢ The company is using cost information for budget determination & allocation,
accepting or rejecting projects, investment plan & performance evaluation, it should also
supply cost information for external user.
➢ The Company should prepare & use accounting manual and policy which is
intentionally designed for cost accounting
49 | P a g e
Referance
ARORA M.N; a text book of cost accounting, 1988, 7th edition, Vikas publishing house put
l.t.d
ARORA M.U; cost accounting principle and practice, 2004, 8 th edition, Vikas publishing
house put l.t.d
DON. R. Hanson, MARYANNE M. Mayan; cost management, 4 th edition, Oklahoma state

University
Garrison and Noreen; managerial accounting, 2003, 10th edition, published by Mc Graw-
hill/Irwin.
Horn green, Datar, foster; cost accounting a managerial emphasis, 2003, 11 th edition,
Prentiss, hal of India private limited
John J.W Neuner and Samuel Frumer; cost accounting principle and practice, 1967, 7 th
edition, printed in USA
W. Hilton Ronald, W. Washer Michael, H. selfo franc; cost management strategies of

business decision, 2000 university of Colorado at Bowden, the University
of Melbourne.
Akeem, L. (2017). Effect of Cost Control & Cost Reduction Techniques in Organizational
Performance. International business & management 14)3, pp. 19-26
Cunagin, C. & Stancil, JL. (1992). Cost accounting: a history of innovation. The
Upsilonian by the Cumberland College Department of History and
Political Science.
Horngren,C. Datar, S., & Rajan,M. (2012). Cost Accounting: A managerial Emphasis
(14th Ed.). Pearson Education, Inc., New Jersey: Pearson /Prentice Hall.
50 | P a g e
Hassan, M. N. (2009, May 10). Cost audit and management accounting designed to foster
corporate governance in Bangladesh. In A. Rahman (Chair), Cost auditAn
effective tool of corporate governance. Seminar conducted at the meeting
of the Institute of Cost and Management Accountants of Bangladesh,
Dhaka, Bangladesh.
Jalaee, H. (2012). Advantages of Target Costing in Organization. International Journal

of Research in Management, 2(1) 10-18.
Kinney, M, R. & Railborn, C, A. (201 1). Cost Accounting: Foundations and Evolutions
(8th Ed.). Cengage Learning.
Samrawit Y. (2010), Assessment of Product Costing and Pricing System: The case of
Ethiopian plastic share company.
Thukaram Rao, ME. (2012). Cost Accounting (3rd ed.) New Delhi: New Age
International Publishers
Vanderbeck, e. j. (2010). Principles of Cost Accounting (15th Ed.). cengage learning
51 | P a g e
APPENDEX
RIFT VALLEY UNIVERSITY
FACULTY OF BUSINESS AND SOCIAL SCIENCE
DEPARTMENT OF ACCOUNTING QUESTIONNAIRE
Dear respondent
This questionnaire is designed and prepared by BA degree students of Rift Valley

University in order to collect data for the research entitled “ASSESSMENT OF
PRODUCT COST PRACTICE IN THE CASE OF META BREWERY FACTORY
S.C.” to be prepared in partial fulfillment of BA degree in Accounting & Finance. Your
genuine response for the following question is extremely important for the successful
completion of this paper. We assure you that the information obtained from this
questioner will keep confidential and will not transfer to other parties for any other
purpose. Therefore, you kindly requested genuinely to fill these questionnaires.
‘We would like to thank you in advance for your cooperation and scarification of your
time.’
The Objective of the Study
The general objective of this study is to examine the Product cost practice of Meta
brewery S.C
A. Personal information
1. SEX
Male
Female
2. AGE
52 | P a g e
Below 25 years
36-45 years
26-35 years
above 45 years
3. In what position are you working in your company?
4. Educational status
Certificate
Diploma
1st degree
2nd nd degree & above
5. Work experience
Below 5years
5-10 years
10-15 years
above 15years
53 | P a g e

Abeba Full Research

Uploaded by

Copyright:

Available Formats

Abeba Full Research

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Abeba Full Research

Uploaded by

Copyright:

Available Formats

ACKNOWLEDGMENT

1.1 Background of the Study

1.2 Statement of the Problem

1.3 research questions

2. How is the company determining the production cost of its products?

3. How much the company’s product costing system effective and

1.4 Objective of the Study

2. To examine the company’s system of product cost determination

1.6 Scope of the Study

1.7 Limitation of the Study

1.8 Organization of the Study

2.1 Theoretical overview of costing

cost and management accounting control information was consider to be great

1. “Cost is a resource sacrificed or forgone to achieve a specific objective.” (Horngren,

2.2 Application of costing

Cost accounting is generally considered as being applicable only to manufacture

2.3 Objective of cost accounting

The main objectives of cost accounting are as follows

2.4 Cost classification

2.4.1 Functional costs

2.4.2.1Direct and indirect costs

2.4.2.2 Production costs

A. For the purpose of profit determination product costing is concerned with

2.4.2.3 Direct material cost

A. Raw material used in making products;

2.4.2.4 Direct labor cost

2.4.2.5 Manufacturing overhead cost

Manufacturing overhead cost is a heterogeneous pool of indirect production cost such as

2.4.2.6 Prime cost and production overhead cost

2.4.2.7 Conversion costs

2.4.2.8 Period cost

2.4.3 Activity level cost

A. Fixed costs: are defined as those cost which in aggregate remain

2.4.4 Controllable cost

A. Controllable cost: are defined in terms of managers position in the hierarchy.

2.4.5 Relevant costs

2.5 Cost flow in manufacturing company

2.6 Adopting product costing system to technological changes

2.7 Purpose of product costs

2.7.2 Use managerial accounting

2.7.3 Use in reporting to interested organization

In addition to financial statements preparation and internal decision making there is an

2.8 Product costing system

2.8.1.1 Job-order costing system

Where the product is produced in one single process

2.9 EMPIRICAL LITERATURE REVIEW

3.1. Study Area Description

3.2 Research Design

3.3 Research Approach

3.4. Data type

3.5. Source of data collection

3.6. Method of data collection

3.7. Target Population, and Sample Size

3.8 Method of Data Analysis

3.9 Validity of the Data

As formal proposal that conducted following scientific research methodologies, the

DATA PRESENTATION, ANALYSIS AND INTERPRETATION

4.2. GENERAL CHARACHTERSTICS OF THE RESPONDANTS

4.2.1. AGE Table 1 Respondents Age

Source: own survey, 2021