Strategy Design and Business Model Improvement in a MSME Located in District ...M. Ali Pahmi
This study aims to formulate a design for developing a new business model strategy that is expected to improve the competitiveness of the tofu MSME in cileungsi. The methodology being used is benchmarking on both MSME industries area region & formulate improvements in the process and product lines, which are made in a new strategy map and business model, finally validated by the AVAC method.
For more classes visit
www.snaptutorial.com
1-18 Value chain and classification of costs, fast food restaurant. Burger King, a hamburger fast food restaurant, incurs the following costs.
1-20 Planning and control decisions. Conner Company makes and sells brooms and mops. It takes the following actions, not necessarily in the order given. For each action (a–e) state whether it is a planning
Sliding Oil Prices: Predicament or ProspectCognizant
Given the steep plunge in crude oil prices and resulting cash crunch, now is the perfect time for oil and gas companies to revisit their value tree and synchronize business and IT strategies.
Strategy Design and Business Model Improvement in a MSME Located in District ...M. Ali Pahmi
This study aims to formulate a design for developing a new business model strategy that is expected to improve the competitiveness of the tofu MSME in cileungsi. The methodology being used is benchmarking on both MSME industries area region & formulate improvements in the process and product lines, which are made in a new strategy map and business model, finally validated by the AVAC method.
For more classes visit
www.snaptutorial.com
1-18 Value chain and classification of costs, fast food restaurant. Burger King, a hamburger fast food restaurant, incurs the following costs.
1-20 Planning and control decisions. Conner Company makes and sells brooms and mops. It takes the following actions, not necessarily in the order given. For each action (a–e) state whether it is a planning
Sliding Oil Prices: Predicament or ProspectCognizant
Given the steep plunge in crude oil prices and resulting cash crunch, now is the perfect time for oil and gas companies to revisit their value tree and synchronize business and IT strategies.
Engineering design is the process of developing a system, component or process to satisfy the desired
requirements. It is a decision making process, in which the basic mathematics and engineering disciplines are
utilized to convert resources optimally to achieve a predetermined objective. It also includes a variety of
realistic constraints such as reliability, safety, economic factors, ethical and social impacts. This work proposes
a methodology and a procedure for the make-or-buy problem. Companies following this methodology are
guided through a structured sequence comprising identification of factors for the make-or-buy decision, and the
comparison of internal sourcing and external sourcing factors against each other. Multi-attribute decisionmaking
is utilized to present an overall make-or-buy decision recommendation.
Efficiency Evaluation of Thailand Gross Domestic Product Using DEAIJMREMJournal
The goal of this research is to evaluate the efficiency of GDP in Thailand from the past years and provide suggestions for government and policy-makers on ways to manage inputs and improve outputs in the future while enhancing the GDP of Thailand. The paper analyzed the data collected from Office of the National Economic and Social Development of Thailand through a period of 25 years ranging from 1993 to 2017. The results show that the year 2017 was the worst years in terms of efficiency. In order to achieve the research goal, data envelopment analysis (DEA) was used. Theoretically, research has found that evaluation of GDP can be improved by eradicating the negative values of slack movement. In economic terms, the research proposed the promotion of export-led growth, business incubators, and entrepreneurship to boost not only the inputs but also the GPD of the country. In general, the GDP of Thailand is quite efficient. This research can provide strategic advice for Thai Government to improve the Gross Domestic Product thoroughly
Periodic Review Model for Determining Inventory Policy for Aircraft Consumabl...Waqas Tariq
This research is conducted to develop inventory policy of aircraft consumable spare parts which are needed on aircraft maintenance activity . In this research, we used periodic review model to determine the optimal policy of aircraft spare parts inventory. By using the periodic review model, we find optimal period of inventory review and maximum level of inventory. The optimal decision is determined based on the minimum total cost. We have classified consumable spare parts using ABC method to categorize them based on their dollar contribution and demand frequency. Therefore in this research, we focus on managing the inventory level for spare parts on class C. The result from this study shows that the proposed periodic review policy result in lower total inventory cost compared the the company policy. The proposed policy gives an average saving 35.38 %.
Cost volume profitability analysis of shinepukur ceramicsSamia Ibrahim
In this paper using CVP Analysis we have analyzed the product of Shinepukur Ceramics Limited to know whether the company is profitable or not by examining the interrelationships between its costs, revenues, production volume and profits. Also we determined the breakeven point or level of operating activity at which revenues covered the company’s all fixed and variable costs, resulting in zero profit. Knowing about this point is very crucial for the business, because it is the point a company wants to reach as quickly as possible in order to cover all the costs and start making real profits.
The lean manufacturing system is stated the right tool to improve production systems in order to
meet the performance and change demands of today's rapidly evolved technology. The theory of the process is to
eliminate wastes, empower workers, reduce inventories, and ensure to meet customers’ requirements. The
purpose of this study is to construct a lean manufacturing process experimented at Factory 123, Huu Nghi
Company. This process is expected to be applicable to nationwide garment enterprises in Viet Nam.
The main issues are mentioned in this study:
- Assessment of the status (in Content 2)
- Arranging production facilities and warehouses for Factory 123 (in Content 3)
- Implementing 5s for Factory 123 (in Content 4)
- Purchasing policy (inventory) for Huu Nghi Company (in Content 5)
- Deploying a pilot scale group for Factory 123 (in Content 6)
- Lean the manufacturing process applied to Factory 123 (in Content 7)
- Training to help a thinking change in a positive way, aiming to apply this process in an active and continuing
(in Content 8).
Aggregate planning using transportation method a case study in cable industryijmvsc
Aggregate planning is an analytical tool that proposes a strategy to meet demand according to the
capacity constraints. In this paper, aggregate planning strategies are discussed and a special structure of
transportation model is investigated for the aggregate planning purpose of “Bangladesh Cable Shilpa
Ltd, Khulna”. For this transportation problem, all the unit costs, supplies, demands & other values are
taken from a case study. The forecasting demand values are determined using Single Exponential
Smoothing Forecasting technique. Transportation model & the Transportation algorithm is discussed in
this paper. A real life unbalanced transportation problem is discussed and solved to bring the most
efficient technique of reducing transportation and storage cost. Vogel Approximation Method (VAM)
algorithm is also discussed & used to determine the starting solution of the transportation model. Finally,
TORA software is used to find the optimum cost by using transportation method.
Cost Implication of Inventory Management in Organised SystemsDr. Amarjeet Singh
This paper investigates the role of cost implication in
inventory management in order to improve Institutions’
Stores. The study takes a critical look at the costs involved and
the use of economic order quantity as a tool that minimizes the
total inventory costs, the time saved between the manual and
the automated operational system using a Nigerian University
Store, AYZ University (not the real name because of the
ethical issue), as a case study. The study was being guided by
the following objectives; to have stocks available when
required, to maintain accurate stock records and facilities, and
to recommend area improvement of the inventory system at
AYZ University Stores. Findings revealed that the economic
order quantity is seen as a control technique that is attributed
to determine the inventory costs and how it can be minimized.
The data collected from the store were analyzed and the
results obtained shows that the existing system which is
majorly manual based is not effective when it comes to time
management and efficiency. A new automated system,
computerized maintenance store system (CMMS) was
proposed for development and implementation for the AYZ
University Store for her end users of the store and her clients
from within and outside the University system. This would be
greatly improved in terms of both financial and time cost of
inventory management.
Behavioral Aspects of IT Employees towards Problems and Prospects of Activity...Dr. Amarjeet Singh
Activity Based Costing (ABC) is a new variant in cost
management practices emerged in 1980’s, which caters to the
needs of organizations in effective control and monitoring cost
and better management of profitability. The success of ABC
duly depends on articulation of implementation of ABC and
the outcome of Activity Based Cost and Management
(ABCM). Though employees experience a positive outcome, it
is beyond doubt that they can support the ABC rather
resisting the same. The main objective of this paper is to
examine the perception of IT companies’ employees’ towards
implementation of Activity-Based Costing(ABC). A normative
list of benefits concerning the ability of ABC systems to
redirect the behavior of individuals was abstracted from the
interviews opinion and compared to the perceived benefits
gathered from interviews with firm employees. This will
permit IT Companies and provides relevant information that
will enable them to make better decisions with regard to
measure the successful implementation of ABC in IT
Companies.
A Study on Formulation of Costing SystemProjects Kart
A Study on Formulation of Costing System. Modern business needs frequent cost information about business activities to plan accurately for the future, to control business results and to make a proper appraisal of the performance of persons working in the organization. The fulfillment of these goals requires details about the costs incurred and benefits (revenues) obtained which are provided by “cost accounting”.
Financial accounting is developed over the time to record, summarize and present the financial transactions or events, which can be expressed in terms of money. This function was primarily concerned with record-keeping leading to preparation of Profit and Loss Account and Balance Sheet. The information obtained through financial accounts is useful to the shareholders, creditors, financial analysts, labour union, government authorities etc. However, the information generated by financial accountancy for several purposes is not sufficient for decision making in many areas.
Engineering design is the process of developing a system, component or process to satisfy the desired
requirements. It is a decision making process, in which the basic mathematics and engineering disciplines are
utilized to convert resources optimally to achieve a predetermined objective. It also includes a variety of
realistic constraints such as reliability, safety, economic factors, ethical and social impacts. This work proposes
a methodology and a procedure for the make-or-buy problem. Companies following this methodology are
guided through a structured sequence comprising identification of factors for the make-or-buy decision, and the
comparison of internal sourcing and external sourcing factors against each other. Multi-attribute decisionmaking
is utilized to present an overall make-or-buy decision recommendation.
Efficiency Evaluation of Thailand Gross Domestic Product Using DEAIJMREMJournal
The goal of this research is to evaluate the efficiency of GDP in Thailand from the past years and provide suggestions for government and policy-makers on ways to manage inputs and improve outputs in the future while enhancing the GDP of Thailand. The paper analyzed the data collected from Office of the National Economic and Social Development of Thailand through a period of 25 years ranging from 1993 to 2017. The results show that the year 2017 was the worst years in terms of efficiency. In order to achieve the research goal, data envelopment analysis (DEA) was used. Theoretically, research has found that evaluation of GDP can be improved by eradicating the negative values of slack movement. In economic terms, the research proposed the promotion of export-led growth, business incubators, and entrepreneurship to boost not only the inputs but also the GPD of the country. In general, the GDP of Thailand is quite efficient. This research can provide strategic advice for Thai Government to improve the Gross Domestic Product thoroughly
Periodic Review Model for Determining Inventory Policy for Aircraft Consumabl...Waqas Tariq
This research is conducted to develop inventory policy of aircraft consumable spare parts which are needed on aircraft maintenance activity . In this research, we used periodic review model to determine the optimal policy of aircraft spare parts inventory. By using the periodic review model, we find optimal period of inventory review and maximum level of inventory. The optimal decision is determined based on the minimum total cost. We have classified consumable spare parts using ABC method to categorize them based on their dollar contribution and demand frequency. Therefore in this research, we focus on managing the inventory level for spare parts on class C. The result from this study shows that the proposed periodic review policy result in lower total inventory cost compared the the company policy. The proposed policy gives an average saving 35.38 %.
Cost volume profitability analysis of shinepukur ceramicsSamia Ibrahim
In this paper using CVP Analysis we have analyzed the product of Shinepukur Ceramics Limited to know whether the company is profitable or not by examining the interrelationships between its costs, revenues, production volume and profits. Also we determined the breakeven point or level of operating activity at which revenues covered the company’s all fixed and variable costs, resulting in zero profit. Knowing about this point is very crucial for the business, because it is the point a company wants to reach as quickly as possible in order to cover all the costs and start making real profits.
The lean manufacturing system is stated the right tool to improve production systems in order to
meet the performance and change demands of today's rapidly evolved technology. The theory of the process is to
eliminate wastes, empower workers, reduce inventories, and ensure to meet customers’ requirements. The
purpose of this study is to construct a lean manufacturing process experimented at Factory 123, Huu Nghi
Company. This process is expected to be applicable to nationwide garment enterprises in Viet Nam.
The main issues are mentioned in this study:
- Assessment of the status (in Content 2)
- Arranging production facilities and warehouses for Factory 123 (in Content 3)
- Implementing 5s for Factory 123 (in Content 4)
- Purchasing policy (inventory) for Huu Nghi Company (in Content 5)
- Deploying a pilot scale group for Factory 123 (in Content 6)
- Lean the manufacturing process applied to Factory 123 (in Content 7)
- Training to help a thinking change in a positive way, aiming to apply this process in an active and continuing
(in Content 8).
Aggregate planning using transportation method a case study in cable industryijmvsc
Aggregate planning is an analytical tool that proposes a strategy to meet demand according to the
capacity constraints. In this paper, aggregate planning strategies are discussed and a special structure of
transportation model is investigated for the aggregate planning purpose of “Bangladesh Cable Shilpa
Ltd, Khulna”. For this transportation problem, all the unit costs, supplies, demands & other values are
taken from a case study. The forecasting demand values are determined using Single Exponential
Smoothing Forecasting technique. Transportation model & the Transportation algorithm is discussed in
this paper. A real life unbalanced transportation problem is discussed and solved to bring the most
efficient technique of reducing transportation and storage cost. Vogel Approximation Method (VAM)
algorithm is also discussed & used to determine the starting solution of the transportation model. Finally,
TORA software is used to find the optimum cost by using transportation method.
Cost Implication of Inventory Management in Organised SystemsDr. Amarjeet Singh
This paper investigates the role of cost implication in
inventory management in order to improve Institutions’
Stores. The study takes a critical look at the costs involved and
the use of economic order quantity as a tool that minimizes the
total inventory costs, the time saved between the manual and
the automated operational system using a Nigerian University
Store, AYZ University (not the real name because of the
ethical issue), as a case study. The study was being guided by
the following objectives; to have stocks available when
required, to maintain accurate stock records and facilities, and
to recommend area improvement of the inventory system at
AYZ University Stores. Findings revealed that the economic
order quantity is seen as a control technique that is attributed
to determine the inventory costs and how it can be minimized.
The data collected from the store were analyzed and the
results obtained shows that the existing system which is
majorly manual based is not effective when it comes to time
management and efficiency. A new automated system,
computerized maintenance store system (CMMS) was
proposed for development and implementation for the AYZ
University Store for her end users of the store and her clients
from within and outside the University system. This would be
greatly improved in terms of both financial and time cost of
inventory management.
Behavioral Aspects of IT Employees towards Problems and Prospects of Activity...Dr. Amarjeet Singh
Activity Based Costing (ABC) is a new variant in cost
management practices emerged in 1980’s, which caters to the
needs of organizations in effective control and monitoring cost
and better management of profitability. The success of ABC
duly depends on articulation of implementation of ABC and
the outcome of Activity Based Cost and Management
(ABCM). Though employees experience a positive outcome, it
is beyond doubt that they can support the ABC rather
resisting the same. The main objective of this paper is to
examine the perception of IT companies’ employees’ towards
implementation of Activity-Based Costing(ABC). A normative
list of benefits concerning the ability of ABC systems to
redirect the behavior of individuals was abstracted from the
interviews opinion and compared to the perceived benefits
gathered from interviews with firm employees. This will
permit IT Companies and provides relevant information that
will enable them to make better decisions with regard to
measure the successful implementation of ABC in IT
Companies.
A Study on Formulation of Costing SystemProjects Kart
A Study on Formulation of Costing System. Modern business needs frequent cost information about business activities to plan accurately for the future, to control business results and to make a proper appraisal of the performance of persons working in the organization. The fulfillment of these goals requires details about the costs incurred and benefits (revenues) obtained which are provided by “cost accounting”.
Financial accounting is developed over the time to record, summarize and present the financial transactions or events, which can be expressed in terms of money. This function was primarily concerned with record-keeping leading to preparation of Profit and Loss Account and Balance Sheet. The information obtained through financial accounts is useful to the shareholders, creditors, financial analysts, labour union, government authorities etc. However, the information generated by financial accountancy for several purposes is not sufficient for decision making in many areas.
The Role of External Auditing in Reducing Creative Accounting PracticesIJAEMSJORNAL
Concerning the auditor's independence, the ongoing debate in the literature is about how to balance the obligations and requirements faced by the auditor in the course of his audit duties with the related provision in place that authorizes additional non-audit services to be provided to the audited clients. Facing the audit profession today, ethical violations that have reduced the audit results in the aftermath of recent financial scandals, where it has already been proven that the world's leading auditing firms were involved in the financial corruption scandals, are the primary challenges auditors will face. The current study aimed to examine external auditingas a determining factor in influencing creative cost accounting. For this reason, the researchers used three different dimensions of external auditing to enable the study to measure creative cost accounting, first type of external auditing was general standard, second type of external auditing was fieldwork standard, third type of external auditing was reporting standard. The study consists of three independent variables (general standard, fieldwork standard, and reporting standard) and creative cost accounting as dependent variable. The present research applied quantitative research method via adapting questionnaire from academic sources. A random sampling technique was used, where all participants had equal chances of being selected for the sample. The researchers distributed 130 questionnaires, only 125 questionnaires were received and from 125 questionnaires only 117 questionnaires were completed properly. The findings showed that general standard has significant positive influence on creative cost accounting at 5% level. The results show that fieldwork standard has significant positive influence on creative cost accounting at 5% level. The results show that reporting standard has significant positive influence on creative cost accounting at 5% level. Moreover, all beta value is higher than .001. All models have very high adjusted R2 (.711, .671, .736, .644, and .723 respectively) indicating the ability of the models explaining the variation of creative cost accounting due to variation of independent variables is very high. The F-value shows that the explanatory variables are jointly statistically significant in the model and the Durbin-Watson (DW) statistics reveals that there is autocorrelation in the models.
Cost and Management Accounting and Comparative Analysis o Activity Based CostingAnamika Hore
This presentation titled , "Cost and Management Accounting and Comparative Analysis o Activity Based Costing." also Discuss about Traditional costing systems along with Activity Based Costing
The objective of this study is to examine the effect of cost reduction techniques on profitability of manufacturing firms.
To achieve this objective, the study adopted survey design. Data were collected from the primary source. A total of
120 copies of questionnaire were administered out of which only 100were retrieved. The returned copies of
questionnaire were utilized in the data analysis of the study. Simple regression model was established and the
findings of the study indicate that there is a significant relationship between cost reduction techniques and
organizational profitability. The study concludes that the application of cost reduction techniques has improved
organizational profitability. Based on this, the study recommended that company should employ linear programming
(LP) techniques so that there would be timely purchase of raw material and component to meet production and sales
requirement. With the above recommendation, the company can achieve its goal of being ‘Low cost management’
1M A N A G E M E N T A C C O U N T I N G Q U A R T E R L Y W.docxhyacinthshackley2629
1M A N A G E M E N T A C C O U N T I N G Q U A R T E R L Y W I N T E R 2 0 1 0 , V O L . 1 1 , N O . 2
D
espite claims that it is less relevant than
newer accounting methods, standard cost-
ing is far from obsolete, and, in fact, it is
experiencing common use in countries as
diverse as the United Kingdom, Malaysia,
and the United Arab Emirates. With the advent and
wide use of methods such as activity-based costing
(ABC), Just-in-Time (JIT), the balanced scorecard, and
target costing, a number of researchers had predicted
the demise of standard costing and variance analysis on
the grounds that these tools had become disconnected
from actual practices at the industry level where an
intense competitive environment often requires a
higher level of sophistication in costing systems.
For example, Richard Fleischman and Thomas
Tyson claimed that standard costing cannot provide
adequate assistance in the areas of construction strategy
and operational management.1 Don Hansen and
Maryanne Mowen went so far as to describe it as poten-
tially “dysfunctional.”2 These criticisms have largely
contributed to the dismissal of standard costing,
especially for large companies that employ more
sophisticated methods such as ABC and target costing.
Mike Lucas has even raised questions as to whether it
is still appropriate for college accounting programs to
continue teaching this “outdated” topic.3
GLOBAL ACCEPTANCE OF
STANDARD COSTING
While several academics were busy pointing out the
weaknesses of standard costing, others observed that
this accounting tool continues to be widely used
throughout the world. Studies conducted in developed
countries have shown rates among companies as high as
73% in the U.K. and 86% in Japan.4
More specifically, David Lyall and Carol Graham
stated that more than 90% of 231 companies surveyed
in the U.K. apply standard costing for cost control pur-
poses. Furthermore, they found that 63% of the man-
agers using this technique reported being pleased in
Is Standard Costing
Still Relevant?
Evidence from Dubai
REPORTS OF THE DEATH OF STANDARD COSTING ARE GREATLY EXAGGERATED, SAY THE
RESULTS OF OUR STUDY OF COMPANIES BASED IN DUBAI. BECAUSE OF ITS SIMPLICITY,
FLEXIBILITY, AND AFFORDABILITY, STANDARD COSTING REMAINS A FAVORITE COST
ACCOUNTING METHOD AMONG ACCOUNTING AND FINANCE PROFESSIONALS IN BOTH
INDUSTRIAL AND SERVICE SECTORS IN THIS RAPIDLY EXPANDING PART OF THE GLOBE.
B Y A T T I E A M A R I E , P H . D . ; W A L I D C H E F F I , P H . D . ; R O S M Y J E A N
L O U I S , P H . D . ; A N D A N A N T H R A O , P H . D .
Winter
2010
VOL.11 NO.2
Winter
2010
2M A N A G E M E N T A C C O U N T I N G Q U A R T E R L Y W I N T E R 2 0 1 0 , V O L . 1 1 , N O . 2
terms of its decision-making support.5 In another study,
76% of 303 accountants in the U.K. and 73% of 85
finance and accounting specialists in New Zealand use
standard costing.6 The authors also found th.
An introduction to the cryptocurrency investment platform Binance Savings.Any kyc Account
Learn how to use Binance Savings to expand your bitcoin holdings. Discover how to maximize your earnings on one of the most reliable cryptocurrency exchange platforms, as well as how to earn interest on your cryptocurrency holdings and the various savings choices available.
Company Valuation webinar series - Tuesday, 4 June 2024FelixPerez547899
This session provided an update as to the latest valuation data in the UK and then delved into a discussion on the upcoming election and the impacts on valuation. We finished, as always with a Q&A
Personal Brand Statement:
As an Army veteran dedicated to lifelong learning, I bring a disciplined, strategic mindset to my pursuits. I am constantly expanding my knowledge to innovate and lead effectively. My journey is driven by a commitment to excellence, and to make a meaningful impact in the world.
In the Adani-Hindenburg case, what is SEBI investigating.pptxAdani case
Adani SEBI investigation revealed that the latter had sought information from five foreign jurisdictions concerning the holdings of the firm’s foreign portfolio investors (FPIs) in relation to the alleged violations of the MPS Regulations. Nevertheless, the economic interest of the twelve FPIs based in tax haven jurisdictions still needs to be determined. The Adani Group firms classed these FPIs as public shareholders. According to Hindenburg, FPIs were used to get around regulatory standards.
The 10 Most Influential Leaders Guiding Corporate Evolution, 2024.pdfthesiliconleaders
In the recent edition, The 10 Most Influential Leaders Guiding Corporate Evolution, 2024, The Silicon Leaders magazine gladly features Dejan Štancer, President of the Global Chamber of Business Leaders (GCBL), along with other leaders.
Navigating the world of forex trading can be challenging, especially for beginners. To help you make an informed decision, we have comprehensively compared the best forex brokers in India for 2024. This article, reviewed by Top Forex Brokers Review, will cover featured award winners, the best forex brokers, featured offers, the best copy trading platforms, the best forex brokers for beginners, the best MetaTrader brokers, and recently updated reviews. We will focus on FP Markets, Black Bull, EightCap, IC Markets, and Octa.
Recruiting in the Digital Age: A Social Media MasterclassLuanWise
In this masterclass, presented at the Global HR Summit on 5th June 2024, Luan Wise explored the essential features of social media platforms that support talent acquisition, including LinkedIn, Facebook, Instagram, X (formerly Twitter) and TikTok.
buy old yahoo accounts buy yahoo accountsSusan Laney
As a business owner, I understand the importance of having a strong online presence and leveraging various digital platforms to reach and engage with your target audience. One often overlooked yet highly valuable asset in this regard is the humble Yahoo account. While many may perceive Yahoo as a relic of the past, the truth is that these accounts still hold immense potential for businesses of all sizes.
The practicability of traditional method of overhead allocation
1. Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
Vol 3, No 6, 2012
The Practicability of Traditional Method of Overhead Allocation: A
Case of Limited Liability Company in Developing Economy
Joseph Yaw Dwommor
Department of Accounting Education, University Of Education, Winnba, P.O. Box 1277, Kumasi, Ghana Tel: +233
20250830 E-mail: dwommorjoseph@gmail.com
Abstract
Practical capacity method of production overhead allocation is the most accepted and most widely used method of
cost accounting in manufacturing concern. However, traditional cost accounting has been criticized for cost
distortion and lack of relevance during the last 20 years. Notwithstanding the criticisms, some firms in Ghana are
still using the traditional method of overhead allocation. The primary purpose of this descriptive study was to
examine how the company applies traditional method to allocate production overhead cost into the cost of its
finished product. The study did not find much difference between how the company adopts the practical capacity
method of overhead allocation in terms of its concepts and application and what pertains in the existing literature on
the phenomenon, except in some few aspects of its practice. It was also found that the company does not at all times
meet the requirements of IFRS-IAS 2.
Key words: practical capacity, production overheads, allocation variance, overheads allocation rate (OAR)
1. Introduction
The study of overhead allocation in general is important because of the role it plays in total cost determination, cost
accumulation, cost management and in pricing goods or services. The purpose of overhead absorption is to share
out overhead costs between the various cost objects on some appropriate bases. In this way we can attempt to
establish the full cost of every item produced or service offered. In all such cases, the use of appropriate method for
overhead absorption plays a key role. In view of this a number of overheads allocation methods have been
developed: traditional methods (absorption, variable, practical capacity methods, etc), contemporary methods such as
ABC System (Cooper and Kaplan, 1988), Grenzplankostenrechnung abbreviated as GPK (Georg Plaut, 1953);
Throughput method based on the Theory of Constraints (TOC) (Goldratt, 1983) and Resource Consumption
Accounting abbreviated as RCA (van der Merwe & Key, 2002), all in the name of improving the accuracy of
allocation methodology.
Traditional costing techniques, based on the experiences from manufacturing industries, were used for the purposes
of overhead cost allocation during the 20th Century. These are based on simplified procedures using principles of
averages (International Online Conference of Business Management (IOCBM), 2008). Using traditional
methodology (i.e. practical capacity method), production overhead cost of a manufacturing concern can be allocated
to product cost in procedure involving eight-stage process (see Figure 1).
1
2. Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
Vol 3, No 6, 2012
Note: The numbered arrows respectively indicate the stages in overheads allocation procedure: 1 =collection; 2 =
classification; 3a & 3b = direct allocation; 4a & 4b = apportionment with fair base; 5a, 5b & 5c = redistribution of
service centers overhead using a fair base and a method of redistribution; 6 = production cost centers absorbing a
share of service cost centers’ overheads; 7a, 7b & 7c = determining OAR; 8, 9& 10 = applying OARs from
individual production departments to product cost.
Figure 1: synthesized model for practical capacity method of production overhead cost allocation
Source: Adopted from Banker et al., (1995), Coulthurst (2000), Drury, 2001, and Lucey (2002)
Among the various methods of overhead allocation, practical capacity method is the most accepted and most widely
used method of cost accounting in manufacturing concerns (Drury, 2001). In US, for instance, about 80 per cent of
the U. S. companies still use the traditional cost allocation methods (Sharman 2003): and also accepted by the
Internal Revenue Service (IRS) and Securities Exchange Commission (SEC) for calculation of externally reported
financial results (Myers, 2009). However, traditional cost accounting has been criticized for cost distortion and lack
of relevance during the last 20 years, generally bears the characteristic of arbitrary allocation due to the varying
character of a group’s overheads and also tends to be used by small to medium sized enterprises with obsolete and
undeveloped systems for cost management (Cooper & Kaplan, 1988; IOCBM, 2008). Besides, the traditional
techniques work best in an environment reliant on effective budgeting. The developed economies are less volatile so
operating budgets of corporate entity are more likely to be considerably stable. It does not, therefore, give much
cause for concern if firms in the advanced economies are still using the traditional method. On the contrary,
2
3. Research Journal of Finance and Accounting www.iiste.org
ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online)
Vol 3, No 6, 2012
developing economies like Ghana is volatile and the macro-economic conditions are unstable; often renders
corporate budgeting and financial planning a mere paper work. The crux of the matter is that notwithstanding the
criticism against the traditional method and the fact that more accurate alternative methods are now available, some
firms in the developing economies are still using the traditional method of overhead allocation, in particular the
practical capacity method. This paper therefore seeks to evaluate with empirical evidence the application of
traditional method of production overhead absorption by using the practical operations of a manufacturing firm in
Ghana (located in Kumasi) for the evaluation exercises. The firm is a private limited liability company which
engages in manufacturing and exporting animal feed and supplements with the aim of providing dependable source
of the nutrient needs of poultry and live stock on commercial basis in support of industries in Ghana and Africa.
The objectives of this paper are: (1) to examine how the company applies traditional method in allocating production
overhead cost into the cost of its finished product; and (2) to determine whether or not the method, as applied by the
company, meets the external financial reporting requirement as stated in International Financial Reporting Standard
(IFRS-IAS2) and Ghana National Accounting Standard (GNAS 8). The study provides more empirical evidence for
management accountants, business managers as well as accounting students to gain more improved understanding of
the concept of overhead allocation and also appreciate the practical application of the theory behind the traditional
methodology of overheads allocation. The management of the company is also afforded the opportunity to reconsider
its overhead allocation method in the light of the tenants of the external reporting requirement of GNAS (8) and
IFRS-IAS (2).
2.0 Methodology
This section presents the research methodology utilized in the current study. It covers issues such as design of the
study, population, sample and sampling technique, source of data and instrument used for data collection. Finally,
techniques to analyze data are provided.
2.1 Design of the study
This sub-study of a larger study used descriptive design to examine the practicability of traditional method of
overheads allocation in a real life context. A single case study strategy was adopted for this study. The choice of the
case study method was also informed by the views of: (1) Yin (1994) who explained that a single case is used where
it represents a critical case or, alternatively, an extreme or unique case; and (2) Saunders, Lewis and Thornhill
(2007) that case study method becomes particularly useful where one needs to understand some particular problem
or situation in great-depth, and where one can identify cases rich in information.
2.2 Population, Sample and Sampling Technique
The population of the study was made up of the staff in Accounting, Production and Production Service Departments
of the company. Out of a total of 25 staff members, a sample of five (5) respondents representing 20% were sampled
for the study using purposive sampling technique. The company’s records on the job responsibilities of the staff were
used to select respondents who could provide relevant data for the study. They included the Chief Financial
Controller, Cost and Management Accountant, Senior Accounts Clerk and two production managers of the company.
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2.3 Source of Data and Instrument Used
Two sets of interview guides were used to obtain primary data on the accounting procedures of the company relating
to the allocation of its production overheads. Besides, secondary data on annual and quarterly production data
including overhead cost incurred, overhead absorbed and cost drivers of the company’s major factory-related
activities were obtained from production statements of company spanned over nine years (2000 to 2008): This period
was characterized by intermittent outbreaks of bird flu and swine flu and could afford the researcher the opportunity
to consider allocation of production overhead cost under different business climates.
2.4 Data Analysis
Statistical devices such as regression analysis and simple tables were used as analytical tool for the study. Firstly, the
primary data obtained through interview regarding how production overheads are allocated in the company were
analyzed in line with existing literature. Secondly, the data obtained on annual production overhead cost and cost
drivers were analyzed by first determining the differences between the overheads absorbed and the overhead incurred.
Thereafter, a multiple-regression model (model 1) was formed to find out whether or not the allocation bases used by
the company have a strong cause-and-effect relationship with production overhead cost of the company: Model 1:
POC = α + MHH+ PPLH + DLH+ PPU +SULH+ QULH+ RECL +MACH+ Ԑt. t = 1…36. POC = production
overhead cost as dependent variable; and the following cost drivers as independent variables Material; Handling
Hours (MHH); Pure Production’ hours (PPLH); Direct Labor Hours (DLH); physical production units (PPU);
Production Setups (SULH); Labor Hours for quality control (QULH); Reclaiming Labor Hours ( RECL); and
Machine Hours (MACH)
3.0 Results and Discussion
This section provided the results of analyzing data from interview and financial statements of the company in a
number of aspects. In this section, the traditional method adopted by the firm and how it applies the method are
discussed under the following subheadings: overhead absorption method used by the company, analysis of overheads
among cost centers, determining overhead absorption rates (OAR), and applications of OAR. In addition, this section
includes report of the results of regression analysis of production overhead cost and the cost drivers. Finally, how the
company applies its overheads allocation method was examined in the light of the requirements of Accounting
Standards (GNAS (8)/IFRS (IAS 2).
3.1 Overhead Absorption Method Used by the Company
This sub-section discusses the results of the interview on the particular traditional method of overheads allocation
and how it is adopted by the firm. In response to the question on the overheads allocation method used, the cost and
management accountant said “The Company uses traditional method, precisely practical capacity method, in
allocating its production overheads’. Although practical capacity method of allocation method has been criticized by
many researchers as being ineffective in allocating overheads to unit price of a product or service (Kraal, 2006),
other studies have emphasized that no particular method can give absolute accuracy, but carefully complied and used
in appropriate circumstances, one or more of these should provide acceptable results; and also by refining what may
otherwise be an arbitrary process accountants can provide useful information that will help management in cost
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control and profitability analysis as (Coulthurst, 2000; Drury & Tayles, 2000). From this discussion it is obvious that
the traditional method of overhead allocation is not only used by companies in developed economies but is also by
companies in developing economies like Ghana as well, and may be still useful in its purpose to manufacturing
concerns.
According to the Production Manager, the company has three main production departments: mash and concentrates,
aqua feeds and custom feed, and also four support departments: the Maintenance, Laboratory, Canteen and the Stores
Departments which provide services to the two production departments. On the issue concerning the stages involved
in the allocation process, the Senior Accounts Clerk said “the allocation process starts with gathering overheads
items, classifying overheads items, analysis of overhead costs, determining overheads recovery rates and ends with
application of overheads recovery rates. According to Drury and Talyes (1994) and Shah et al (2011) overheads
allocation process with respect to the application of practical capacity method involves the analysis of overhead costs
among the cost centers, predetermination of overheads recovery rates and finally, the application of OAR to allocate
overheads to finished product on the basis of the actual volume of allocation base consumed. It is very clear that
the company goes through the same the process of overhead cost allocation in applying this method, as found in the
existing literature. However, it differs in how it analyzes the overheads among the cost centers and how it applies the
overheads of service cost centers
3.2. Analysis of Overheads among cost centers
This sub-section discusses the results of the interview on analysis of overheads of primary cost centers and the
allocation bases for service cost centers. The Senior Accounts Clerk said ‘in this company all the production
overheads at both the production and the service cost centers are combined and apportioned directly among only the
production departments. As a result the company does not maintain separate overhead rates service cost centers.
The study revealed that the company apportions production overheads at the various cost centers directly among the
production cost centers without the consideration of the service cost centers. These findings are inconsistent with
recommendations in most cost and management books (e.g. Drury, 2001; Lucey 2002) and the findings of similar
studies (Coulthurst, 2000) which emphasized the need for separate analysis of production overheads – thus allocating
special cost and apportioning common cost using fair bases - among the production and the service cost centers
before absorbing the overheads service cost centers into production cost centers. This finding of the study suggests
that management may find it difficult to effectively analyze and control cost; identify inefficient manger for the
necessary disciplinary action or efficient manger for the necessary recognition and motivation terms of cost
management. Further, any efficiencies or inefficiencies of the use of resources in the service department are passed
on to the production department; this generally have the effect of making service department less careful about its
costs. The study again revealed that the company does not maintain separate absorption rates for its support. This
practice is parallel with the findings of other studies which have advocated that a more accurate approach is to
establish separate support department overheads rate based on factors that cause the costs of service departments to
be incurred. Besides, inaccurate production cost will be reported if service departments’ costs are unrelated to the
absorption base (Drury & Tayles, 1994; Myers, 2009; Anthony, Hawkins & Merchant, 2011).
3.3.0 Determining Overhead Absorption Rates (OAR)
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The respondents were asked to indicate the how the overheads absorption rate (OAR) is determined. The results are
presented and discussed as in sub-sections 3.3.1 and 3.3.2
3.3.1 Overheads Absorption Rate (OAR): Overhead cost and Activity Level and the Allocation Base used
According to the Cost and Management Accountant the firm maintains three sets of recovery rates: Monthly
After-the-Fact Overheads Rate (MAOR1), Monthly Predetermined Recovery Rates (MPRR2), and Predetermined
Annual Fixed Overheads Rate (PAFOR). Basically OAR is determined as the quotient of total overheads (budgeted
or actual) as the numerator and the volume of resources consumed or budgeted as the denominator. The company
adopts material cost % as the allocation base, and it is determined based on different capacity levels for different
purposes: (1) the practical capacity (for actual allocation rates for allocation purposes); (2) budgeted capacity ( to
calculate predetermined OAR for both allocation and cost analysis and control purposes) and maximum capacity (for
resources that use technical capacity eg warehouse ). Drury (2001) identified four different denominator activity
levels that can be used: theoretical maximum capacity, practical capacity, normal (average, long-run) activity, and
budgeted activity. He added that these denominator levels are frequently applied in manufacturing operations where
capacity can be technically and very precisely measured. Among the four, Cooper and Kaplan (1988) argued that the
denominator volume must always be the practical capacity of the activity being supplied, rather than anticipated
volume on the ground that this represents the unit cost of the capacity required to perform the activity. This study
revealed that the company shares the same view with Cooper and Kaplan. The company uses the annual budgeted
volume and budgeted overheads as the capacity to compute annual overheads rate for control purposes. It does not
use it to absorb production overheads to product, instead it uses monthly overhead rate based on the actual activity
level and the actual overhead incurred. Nevertheless, this method is rejected in textbooks on the ground that it leads
to fluctuating overhead rates from period to period if seasonal variations in activity occur. Due to this fact, the
capacity usage of these overhead activities could dramatically fluctuate, and capacity limitations or wastage of these
activities may potentially create a problem for management. From the discussions, it very obvious that the firm may
have some challenges in applying these capacities in calculating its allocation rates.
On why the firm uses direct material cost percentage as a basis for their overhead absorption, the Financial
Controller of the firm said this “material cost constitutes the largest proportion of production overhead cost and also
more predictable and controllable because it can be ascertained with reliability and substantial accuracy given the
unique characteristics of each job.”. To confirm this, data on the major elements of product cost for the year ended
31st December, 2008 were gathered, and these are presented diagrammatically in table 1
Table 1 Composition of Product Cost
Major element of product cost Amount (GHs) Percentage
Raw material 935,108.75 46
Direct wages 468,900.87 23
Production overheads 647,659.60 31
Source: Production statement of the company for 2008
However, Drury and Tayles (1994) indicate that material cost % is only appropriate: (1) when it forms the major part
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of total cost, and (2) where overheads tend to relate to material cost through material handling. Although material
cost forms the major part of total cost of production of the company (see table 1), the same cannot be said of the
overheads cost in relation to material handling. The regression analysis indicates that individually the impact of
material handling hours on production overhead cost is not statistically significant (see Table 6). On this basis, the
choice of material cost % by the company is not fully supported by literature as an appropriate base for absorbing
production overheads. Nevertheless the researcher believes that the situational or contingent factors that exist in a
particular business environment may dictate to a large extent which method or approach to apply.
3.3.2 Calculation of Overhead Recovery Rate
According to Cost and Management Accountant, MAOR1, MPRR2, PAFOR are calculated as follows: (1) MORR1 is
obtained as monthly actual overheads incurred / monthly actual capacity used; (2) MORR2 is obtained as monthly
budgeted overheads incurred / monthly budgeted capacity; and (3)
PAFOR = ,
Where: PAFOR = the estimated production overheads absorption rate, N = represents the total number of time
periods (i.e. 48 months), i = 1st month to 48th month, POC = monthly production overhead cost estimated by means
of least squared method, and DCM = monthly direct material cost. However, PAFOR is subject to annual review due
to changes in macro-economic factors such as inflation, interest rate and foreign exchange rate. According to the
Cost and Management Accountant, this approach is adopted for the calculation of predetermined rate so that it will
minimize allocation variance that may occur due to seasonal variations or instability in macro-economic conditions.
This practice is also in a right direction because many researchers have found that seasonal variations and changes in
macro-economic variables such as interest rates, inflation, exchange rates and others often cause variance between
actual resources consumed and budgeted resources for business operations (Drury & Tayles, 2000; Tatikonda, 2003).
3.4 Applications of Overhead Absorption Rates (OAR)
The respondents were asked to indicate how the overheads absorption rate (OAR) is applied to allocate overhead to
unit cost of the company’s products. This question was further divided into a number of sub-questions to cover issues
such as the types of absorption Rates used by the company to apply its overhead into unit cost determination,
occurrence of over-/ under-allocation of overhead, and how it absorbs both the fixed and variable production
overheads. The results are presented and discussed in the sub-sections 3.4.1 and 3.4.2.
3.4.1Type of Overheads Allocation Rates used by the Firm
According to the cost and management account, the company maintains two sets of departmental rates in allocating
production overheads from the two production cost centers: (1) annual overheads rate and (2) the after-the-fact
monthly overhead rates. This result is consistent with the view held by Lucy (2002) who states that the far more
accurate way of allocating overhead cost is possibly using departmental rates. It was also revealed that the company
uses the single rate method of cost allocation. With this method, cost in each cost pool is not classified into a
variable-cost pool and a fixed-cost pool, with each pool using a different cost-allocation base but rather allocates
costs in each cost pool to cost objects using the same rate per unit of the single allocation base. According Myers
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(2009), organizations that do not maintain separate overhead rates (dual rates - one for fixed cost pool and the other
for variable cost pool) for the individual departments are more unlikely to use full product cost for decision making
instead of marginal cost. This finding therefore suggests that division managers may not be provided with
information about cost behavior. However, knowing how fixed costs and variable costs behave differently is useful in
decision making.
3.4.2 Overheads allocation variance
The production statement of the company indicates that it experiences over-/under-application of overheads. Thus the
difference in amount between overheads incurred and overheads absorbed, especially when they at variance (see
Table 2).
Table 2 Comparison between Incurred and Absorbed Production Overheads for 9 years
Year AOI AOA *O/*U %
2000 134159.38 127098.36 -7061.02 5.6
2001 167308.05 151923.53 -15384.57 9.2
2002 209905.76 209263.03 -642.77 0.31
2003 216149.22 200709.99 -15439.23 7.14
2004 369705.76 385918.98 16213.18 0.42
2005 373357.8 388029.36 14671.564 39
2006 342421.12 340223.8 -2197.360 64
2007 462682.4 404025 -58657.412 15
2008 545278.46 554255.14 8976.681 65
Notes * O = Over-absorbed (positive), * U = Under-absorbed (negative), AOI = Actual Overheads Incurred, AOA =
Actual Overheads Absorbed
Source: Production Statement of the company for nine years (2000 - 2008)
As shown in Table 2, production overheads absorbed exceeded the overhead incurred in 2004, 2005 and 2008
resulting in over-absorption of production overhead by ¢16213.18, ¢14671.56 and ¢8976.5 representing 0.42%,
4.39%, and 1.65% of the actual overhead incurred respectively with the highest occurring in 2005. This means that
the company overcharged overheads to unit cost of its product, implying that customers were charged with higher
selling price in those years. In the remaining six years (2000, 2001, 2002, 2003, 2006, and 2007) the actual overhead
absorbed was less than the actual overhead incurred by -¢7061.02, -¢15384.57, ¢642.77, -¢5439.23, -¢197.36 and
-¢58657.4 representing 5.62%, 9.20%, 0.31%, 7.14 %, 0.64% and 12.15% of the actual overhead incurred
respectively. This means that the company undercharged overheads to unit cost of its product, and again implying
that customers were charged with lesser selling price in those years.
The cost and management accountant indicated that at times allocation variance results as a strategy to remain price
competitive. He explained that when the company is competing on price, it tends to under absorb overheads
especially the fixed component or shift some of the cost to a more cost-conducive period of operation. However, he
remarked that the company exercises a great caution such that the amount of the under-applied overhead does not
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adversely affect the service to customers or product quality. To this effect the company uses seasonally adjusted data
for the determination of their predetermined annual overheads absorption rate so as to reduce the effect of the
allocation variance on price competiveness and profitability of the firm. This study therefore reveals that overhead
variance does not occur solely because a predetermined OAR is used to absorb cost into work in progress, but also
certain strategic policy of a firm can equally cause it
3.5 Regression Analysis of Production Overhead Cost and the Cost Drivers
A multiple-regression analysis was performed by means of Microsoft Excel application software to determine the
cause - and - effect relation between production overhead and the cost drivers of the major factory-related activities
of the firm in order to identify and select the base(s) that has strong correlation with production overhead cost (see
Table 3)
Table 3 Results of Regression of Production Overheads on Cost Drivers
Parameter estimates Regression Strength of equation
Std.
Coeff. Error t Stat P-value F Df Sig. R2 Adj R2
Intercept 38946 65194 0.60 0.56 5.211 8 0.0005* 0.607 0.491
MHH 21.83 46.34 0.47 0.64
PPLH -2.06 1.76 1.17 0.25
DLH 80.89 56.51 1.43 0.16
PPU 12.63 11.46 1.10 0.28
SULH 35.91 9.95 3.61 0.001
QULH -347.98 141.3 -2.46 0.02
RECLH 106.01 54.77 1.94 0.06
MACH 87.45 39.72 2.20 0.04
Note: *p<0.05, n=36, MHH = Material Handling Hours; PPL= Pure Production hours; DLH = Direct Labor Hours;
PPU = physical production units; SULH = Production Setups labour hours; QULH = quality control labour hours;
RECL = Reclaiming labour Hours; and MACH = Machine Hours.
Source: production statement for 2008 (Excel output)
From the results of the Excel output, as indicated in Table 3, the overall fit of the model indicates a significant value
of 0.000531 implying that all the eight independent variables in the models are collectively significant (F =
5.211116). The overall explanatory power of the model as represented by R² (0.99) and adjusted R² (0.95) is strong
at α = 0.05. Collectively, the eight independent variables explain 60.69 % (R²) and 49% (adjusted R²) of the
variations in dependent variable (production overhead cost). In other words 49% change in the dependent variable
(POC) could be collectively caused by the eight explanatory variables (cost drivers). Besides, the model reveals
some distinctive results about the individual impact of the cost drivers on POC: individually the impact of five out of
the eight cost drivers – thus MHH with β = 21.83 at p = 0.641; PPLH with β = -2.060 at p = 0.251; DLH with β =
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80.89 at p = 0.164; PPU with β = 12.63 at p = 0.280; and RECLH with β = 106.009 at P = 0.06 on POC are not
statistically significant; whereas the remaining three cost drivers SULH with β = 35.9 at p = 0.00012; QULH
with β = -347.98 at p = 0.0204; and MACH with β = 87.452 at p = 0.036 individually have statically significant
impact on the POC. Thus out of the eight independent variables; only three had a significant relationship with
production overhead cost. Of these three, set-up labor hours and machine hours had positive relationship with
production overhead whilst quality control had an inverse relationship with production overhead. However, these
relationships are significantly higher in case of SULH with p-value 0.0012 followed by QULH with p-value 0.021
and lastly MACH with p-value 0.036. While the coefficients for these variables are significantly different from zero,
the coefficients for the remaining four cost drivers PPU, PPLH, RECLH, DLH and MHH, though some are positive
but individually are not significantly different from zero at the 5% level.
Consistent with the findings of previous studies, machine hour, especially in automated environment (Drury &
Tayles, 1994) and set-up labor hours (Banker et al 1995) have significant relationship with production overhead cost.
Conversely, the negative relationship between the quality control hours found in this study is not consistent with the
findings of Vergauwen and Kerchhoffs (2003). Of the variables such as direct labor hours, material handling,
reclaiming labor hours, and physical production units which showed no significant relationship with the production
overhead cost, this study also supports the literature's assertion that for most cost allocation models (i.e. those based
on direct labor, direct materials, or machine hours) the driving force behind most overhead costs is not unit output or
direct labor.
3.6 The application of Overheads Allocation Method and Accounting Standards (GNAS (8)/IFRS (IAS 2)
International Financial Reporting Standard (IFRS -IAS2) stipulates that for the purpose of inventory valuation and
their reporting in the balance sheet, factory overheads must be fully absorbed with prime cost to arrive at the actual
cost of the product. However, this study revealed that the firm does not always comply with this standard, especially
when strategically it under-applies production overheads to remain price competitive. In the view of Develin (1999),
this practice is recommendable. However, he cautioned that managers must take care not to cut cost that adds value
to the organization. It was also observed that though the company is not listed and has not yet adopted IFRS for its
financial reporting, it complies with the Ghana National Accounting Standards (GNAS 8) which requires that
overhead allocation variance be treated as a period cost because it is not part of the product cost. In other words the
amount of overhead under-/over-absorbed is charged to the profit and loss account for the period.
4.0 Conclusion and Implications
Based on result of the study the researcher did not find much difference between how the company adopt the
method in terms of the concepts and application and what pertains in the existing literature except in some few
aspects of its practice. For instance, the production overheads at primary cost centers are not separately analyzed
among production and service cost centers. Instead they are combined and apportioned directly among only the
production departments. Additionally, material cost adopted by the company does not have strong cause-and-effect
relationship with production overheads; and finally the company, when facing price competition, strategically
under-applies overheads, and this does not allow full absorption of production overheads as required by IFRS-IAS 2.
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Management should therefore ensure that overheads of the service cost centers are analyzed separately before
allocating them either directly to product cost using separate OARs or redistributed among the production
departments so that respective products from these departments can be fairly priced to allow effective and detailed
profit and cost analysis to ensure proper cost control and management and accountability. Furthermore, the
company needs more than just one allocation base to effectively allocate production overheads to product. In this
regard Activity-Based Cost (ABC) method is the best recommendation if its adoption and application is financially
convenient and practically feasible for the company. Better still the company can adopt multiple bases in allocating
its production overhead cost if it cannot afford the use of ABC method. Finally, the company can reduce its profit
margin so as to enable the accounts department ensure full absorption of production overheads whereas it continues
to maintain its loyal customers when the firm is engaged in price competition.
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