Impact Of Cost Accounting Information On Price Determination

Impact Of Cost Accounting Information On Price Determination  Case study of some Nigerian manufacturing companies



This research study was conducted to determine the impact of cost accounting information on price determination in some manufacturing companies in Nigeria. The objectives of the study were to determine the components of manufacturing cost information and also to identify the lapses therein. Literature review on the topic was aimed at cost determination, cost control concept, cost performance evaluation, direct and indirect cost and fixed/variable cost. Data collected were analysed using frequency table and chi-square. The result of data analysed showed that cost accounting information contribute a lot on price determination of products.




The studies of modern cost accounting yield an insight into both the accountant and management roles in an organization.  Management in most cases wants to know how performance is measured and often depend on accounting information for guiding their decisions. Decision making in this context is defined as making purposeful choosing from among a set of alternative cause of action in light of some objectives.

Cost accounting has a main purpose of accumulating cost of an organizational products and services. Managers of manufacturing companies can use product cost information as a guide in setting selling prices and for inventory valuation and profit determination. According to Adeniyi (2000:10), cost control/reduction involves the predetermination of cost and comparison of predetermination budgeted or standard cost with the actual cost.

Standard cost which is closely linked with the budgeted is predetermined per unit cost, usually analyzed into elements: Direct Material, Direct Labour and Factory overhead. Standard cost is an effective aid to control, due to the link with budget plans and decision making, because it represents anticipated cost, that is, a cost which will exist in the future and is likely to be affected by decisions made by the management.

Carroll (1953), Cost control information always refers to as the control of expenditures within predetermined levels, which entails the minimization of resources so as to achieve a given objective. These controls should be continuous activity aimed at improving efficiency and quality by ensuring that the right resources are provided and efficiently used. It is on this basis of this cost accounting information functions, that, this research is embarked upon to ascertain to what extent some Nigerian Manufacturing Companies “Nigerian Breweries plc, Aqua-Rapha Nig. Ltd, and Anammco Nig. Ltd.” have used this cost accounting information in the determination of its product prices.

Attempts will also be made in the course of this study to ascertain whether in practical situations, those techniques in literature review are operational in some Nigerian manufacturing companies. The major point is that the focus of a modern cost accounting information system is on helping manages to deal with both the immediate and the distant futures.


The private sectors driven economic trend in Nigeria, calls for serious cost accounting information consciousness among manufacturing companies. In light of this, manufacturing companies in Nigeria faced with the task of not only profit maximization, but a quest for survival amidst competition, legal, government, economic and environmental constraints.

Moreover, external factors such as inconsistency in fiscal policies do not lend themselves to be manipulated by manufacturing companies in Nigeria. Example is deregulation etc, have left Nigerian Manufacturing Companies with low capacity utilization with its attendant high cost of fixed overhead per unit production, high cost (fluctuations) of foreign exchange which causes high cost of raw materials and plants and machinery.

The effects of high cost of local quality products are that the consumers boycott these quality products to cheaper one on high quantity but low quality. These limits the scope of market for these manufacturing industries and in the unlikely prospect of export, the final consequences is rationalization of work force.

Furthermore, nonchalant attitude of many managers or lack of professional cost accountants to cost accounting information, has affected the profitability of many Nigeria manufacturing companies, especially government owned companies. Relevant, reasonable and unreasonable costs are incurred and charged to profits of the companies. This affects the growth of the companies, and also affects their qualities/quantities which are the greatest intents of the consumers. Other problems are:

(a)    To highlight on management inadequate concern over proper pricing guide through cost information.

(b)    To take necessary condition for a costing system.

(c)    To evaluate the present state of the application of the cost accounting information in the determination of prices.

(d)    To appropriate basis of preparation of the cost.

(e)    To determine problems affecting the effective application of the cost information in prices determination.

(f)     To react to the application.

(g)    To recommend a more effective and efficient way of applying cost information.



There is need for management in manufacturing industries to re-appraise its methods, techniques, procedures adopted and attitude towards cost information.

This has become necessary given the inflationary trend in the economy and the resultant passing of manufacturing cost of products. Whether incurred recklessly or otherwise to the consumers.

The underlying objectives also compelled the researcher:

  1. To identify the standard components of manufacturing cost information.
  2. To examine and compare the cost accounting information system used by Nigerian manufacturing companies, like Nigerian Brewery Plc, Aqua-Rapha Nig. Ltd and Anammco Nig. Ltd.
  3. To identify lapses in cost accounting information system and price determination of products and remedial solutions.
  4. To determine an appropriate condition and environment for proper comparison and analysis of costs.



(i)     The cost accounting information on price determination techniques assists in price control.


(ii)    The cost information on price determination techniques do not assist in price control.



It is expected that findings from this study will help manufacturing companies in Nigeria to see areas of shortfall and remedial solutions. Managers of such firms will benefits from the study as they will be made more on cost information system and price determinations of products.



It is hoped that by improving the profitability of these firms this study will benefit the economy as a whole.

Following the completion of this work, and the result made available to them, the processors will be in a position to re-examine their cost accounting information and price determination techniques and update them so as to enjoy these benefits available to firms with good cost accounting and price determination techniques.

With adequate application of good cost accounting information and price determination techniques, the firms will expand and consumers will enjoy value for quality products.

Finally, the company’s expansion will improve economy of employment opportunities and this study will help to highlight the problems of manufacturing companies.


This study restricted to the cost accounting information as it affects some Nigerian manufacturing companies and it’s utilization in price determination of products.

This research is divided into five chapters. The first chapter is the introductory aspect of the study. Second chapter deals on an overview of cost accounting information and its application in the determination of products prices in some Nigerian manufacturing companies. In this overview from allocation for planning and controlling of costs to the establishment of standard system for price determination has been treated in detail.

Furthermore, budgetary control and variance have only be defined and related cost control as they affect it. Chapter three discuss the methodology used in this project research. Chapter four deals with the presentation and analysis of data observations while the final chapter five deals on recommendations, findings and conclusion of this research study.


The following three factors posed problems to the research and they are:

  1. Environmental Factors: This research needs facts and figures as inputs, however, the manufacturing companies are skeptical in releasing information on sensitive areas of its production, cost accounting information and price determination techniques.
  2. Finance: Inadequate finance affects data collection, frequent visits to the companies and other relevant source of information.

iii.    Time limit: As a part-time student the researcher had time constraint due to employment schedules, academic work and series of appointment with the managements of some of manufacturing companies under review.


  • Cost Accounting: Horngren (1990); This is the process of identifying, analyzing, computing and reporting cost information to the management. Cost accounting information provided data for:-
    • Planning and controlling routine operations
    • Non-routine decisions, policy making and long range planning for inventory valuation and income determination.
  • Budgeted Cost: This is an information system through which cost can be estimated and controlled. Management most often base its price policy on budget cost or estimated price through observed trends in economic activities.
  • Indirect costs: These are element of cost that are associated with or caused by two or more cost objectives jointly, but that are not directly traceable to each of them individually. Its nature is that cost that is not possible or at least not feasible, to measure directly how much of the cost is attributable to a single cost objective.
  • Cost Analysis: This is the process of classifying and estimating the total amount of expenditure to be incurred in the course of manufacturing a product or rendering a service.
  • Cost Control: This is the control of expenditure within predetermined levels. It is concerned with understanding how and why costs change setting of performance standard and monitoring of actual results against these standards.
  • Standard Costing: This is the process of estimating the total cost of production per unit. It represents an estimate or pre-determined total cost of products per unit for an organization standard costing help to build budgets, obtains product price and save book-keeping costs, Brown (1975).
  • Variance Analysis: This is the difference between the standard cost of production and the actual cost of production. Its process of classification into sub-variances is term variance analysis.
  • Budgetary Control: This is a system of accounting in which cost and revenue are analyzed in accordance with areas of personal responsibilities so that the performance of the budget holders can be monitored.
  • Cost Reduction: This is reduction in unit cost of goods and services without in pairing suitability for the use intended.

Efficiency: The efficiency of management affects the cost if its products. Efficiency can result from proper control of the enterprises activities and adequate work supervision.

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