The use of job costing as a tool for the pricing and cost control decisions in the printing industry: the case of Société de Presse et d'Editions (SOPECAM)
par Christian Kuiate Sobngwi
University of Buea - Bachelor of Science 2003
As Cameroon progressively comes out of he deep economic depression of the 1980's and 1990's, and as we are heading towards the challenges set by the globalisation of the world's economies, there is a pressing need for Cameroonian companies to adapt themselves to the world's accounting and financial standards so that they will be able to compete with their foreign opponents. One of the ways through which these companies could become very competitive is by adopting recognised business practices as part of their procedures for treating and processing data in order to obtain good information that will improve the decisions made by their managers. In fact, the afore-mentioned business practices are the accounting, finance, management and economic tools, methods and techniques presently used in the business world and that are of great importance to the success of any enterprise. These are made up of quantitative as well as qualitative models that are used to analyse business situations and help in the decision-making processes of the companies concerned.
For this study, we will be dealing with the Managerial and Cost accounting standards and principles. Managerial and cost accounting are with financial accounting the three parts of the broad science of Accountancy. While financial accounting is concerned with «The classification and recording of monetary transaction of an entity in accordance with established concepts, principles, accounting standards, legal requirements and presentation of a view of those of transactions during an accounting period.» Lucey1(*) (1993); Garrison & Noreen2(*) (2003) defines Managerial accounting as «the phase of accounting concerned with providing information to managers for use in planning and controlling operations and in decision making. Finally, cost accounting is defined by Lucey (1993) as « the establishment of budgets, standard costs, and actual costs of operation, processes, activities or products; and the analysis of variances, profitability on the social use of funds.» Cost accounting is usually designed to help managers control manufacturing and production costs and thus can be see as a subset of managerial accounting. Some other differences can be established between these three divisions of accounting; these differences are based on the kind of information produced by those the accounting information system from the data provided by the each of these accounting divisions.
Financial accounting generally provides:
· Figures in totals
· Information meant for external reporting
· The system itself is historic in nature.
Cost accounting on its own has the following characteristics concerning the type of information provided:
· There is a breakdown of figures in the information provided
· The information are usually meant for internal reporting
· These are very current information necessary to evaluate the present situations.
· The system itself is historic in nature.
Managerial or management accounting's features relating to the information requirements could be summarised as providing information useful for future strategic planning. Strategic planning being the process of selecting an organisational goal, determining the policies and programmes necessary to achieve en route the goals and establishing the methods necessary to assure that the policies and strategic programmes are implemented. (Stoner & Wankel3(*): 1986). This is the reason why Horngren4(*) (1981) states that: «It emphasises the preparation of reports of an organisation for its internal users such as presidents, deans and head physicians.» It is by making use of the information provided by the Management Accounting Information System (MAIS), which is an information system that produces output information using inputs and processes needed to satisfy specific management objectives, that the preparation of reports can be achieved. The afore-mentioned processes are the heart of the MAIS and are used to transform the inputs into outputs that satisfy the firm's objectives. These processes are described by the activities such as collecting, measuring, storing, analysing, reporting and managing information. Outputs include special reports, product costs, customer's costs, budgets, performance reports and even personal communication.
Hansen and Mowen5(*) (1997) have identified three main objectives of a MAIS, these are:
1. To provide information for costing out services, products, and other objects of interest to management.
2. To provide information for planning, control and evaluation.
3. To provide information for decision-making.
From these definitions and characteristics, it appears that a company, apart from taking care to the proper recording and classification of its operations through financial accounting, it must give considerable attention to the monitoring of its various costs of operations. There is therefore a pressing need to devise and adopt objective and accurate costing methods and systems that will provide the company with a reliable figure of its products' unit cost. This is generally the job of the Managerial and Cost accounting departments of the company.
Having spent three months last year at the Cameroon News and publishing Corporation as an intern, we had the time to observe and analyse that company accounting procedures and practices and we realised that the managerial accounting department, though in existence, was not yet operational, leaving the company without the required tools necessary for the company management to appreciate the profitability of each of its products and activities. The Cameroon News and Publishing Corporation, usually known under its French acronym SOPECAM, is a State-owned enterprise specialised in printing works and whose main product is the daily newspaper Cameroon Tribune. As we are interested in the method of objectively costing a company's product and since we are really preoccupied by the survival and growth of the SOPECAM, our main focus will therefore be to determine which costing method or technique is better applicable to this company.
From the literature available in the cost accounting, it has been decided to analyse the possibility of using the Job-order costing method in costing SOPECAM's products. This is because the printing industry is among those that can easily use the job costing method as a mean for costing their products Horngren & Foster6(*) (1991).
Horngren7(*) (1999) defines Job costing as a costing system in which the cost of a product or service is obtained by assigning costs to a distinct unit, batch or lot of a product or service. The above definition of job costing makes little difference between job and batch costing; a more concise and specific definition of it is given by the CIMA Terminology8(*), which considers job costing as a costing method applicable where goods and services result from a sequence of continuous or repetitive operations or processes. This is a product costing method and in product costing we are generally interested in determining the unit cost of a product or service. This unit cost can be particularly helpful for various purposes such as the pricing decisions, planning and control decisions or cost control programmes.
For this study, we will be interested in the usefulness of the unit cost evaluation for the pricing decision, even though many other factors are to be considered when setting the price of a product.
* 1 Lucey, T. (1993), Costing, (4th edition), D.P. Publications, London
* 2 Garrison, R. H. & Noreen, W. E., (2003), Managerial Accounting,(10th edition) Mc Graw-Hill, New York
* 3 Stoner, J.A., & Wankel, C.,(1986), Management (3rd edition), Prentice Hall, Englewood Cliffs, New Jersey.
* 4 Horngren, C.T., (1981), Introduction to Management Accounting (5th edition), Prentice-Hall Inc., Englewood Cliffs.
* 5 Hansen, D.R., &Mowen, M.M.,(1997), Management Accounting (4th edition), South-western College Publishing, Cincinnati, Ohio.
* 6 Horngren, C.T. & Foster, G. (1991), Cost Accounting: A Marginal Emphasis (7th edition), prentice-Hall, Englewood Cliffs.
* 7 Horngren, C., Bhimani, A. et al (1999), Management and cost Accounting, European edition, Hemel Hempstead.
* 8 CIMA, (1996), Management Accounting official Terminology, London.