Cost Accounting Information – Its Effectiveness in Price Determination

 Effectiveness of Cost Accounting Information in Price Determination: A Study of Nigeria Bottling Limited, 9th Mile Corner Enugu State

  Cost Accounting Information – Accounting serves as language of business, language refers to as a means of communication. Accounting deals with recording, measuring and reporting the income and expenditure of an organization to two separate groups of people i.e. the managers and owners. The basis of accounting which focus on recording making is known as book keeping is mainly concern with the analysis classification and recording of financial data relating to business operation in a significant and orderly manner.

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The outcome of modern accounting has yield an insight consideration both the accounting role and manager role in an organization. As manager anticipate knowing how accounts measure the performance and often relied on the information of accounting data for guiding their decision making in an organization. The development of accounting permits the separate of some views such as financial accounting, auditing, taxation, cost accounting and management accounting.

As a result of the dimension in the business world, cost accounting has grown with such importance. For the fact that money has replaces barter economy at a point of exchange, people, organization and government have been focus principally with cost that is quantifying economic value in monetary  terms, analysis and control of cost. And so the evolution and foundation of cost accounting originated following the grown or expansion need to ascertain measures to determine the local cost of goods, manufactured. The era of invention was date back as at industrial revolution when manufacture/production of material concern started spaying up to replace the merchandizing (goods bought and sold) trade therefore the basic need of calculating is not only the quantity of goods produced, but the cost of produce (monetary value) so as to be able to know at what value of goods could be exchanged.

Cost and management accounting are a part or philosophy of accountancy discipline which was developed to meet up with the grown in engineering production, sales ad finance therefore it touches all sectors of economic. These systematic of accounting have broadened the boundaries of accounting profession and made it more useful to modern business enterprises. The geometric growth of accounting especially cost accounting over the years is attributed to growing complexity of modern production methods, a seemingly limitless range of research and technology development break through, as a result of information explosion that is owned to break taking advancement in communicable research, a desire to constantly changed company product or service to the taste of consumer.

Following the dimension in the business world today, the job of accounting has moved to focus from financial transaction to a more challenging task of selling , control, to create the most efficient technique of collection interpretation analysis and transformation of cost into useful information’s which is made up by management for various division making.

The application of accounting  and costing, principle, methods and approaches in the ascertainment of the total cost that go into production so as to ensure cost saving or cost compliance and measurement of income. This is aid to cost and management accounting, is saddle with the duty to set up control system that makes for coordination of all the facts of an organization, thereby ensuring proper direct and effective control.

The cost accounting will drawn information proved by the financial accounting system, but he will need to obtain much more detail of the internal working of the business. He will use data monetary forms of hour worked quantity of material, used, idle time, product manufacturer, machine running hours.

His duties or job is to principally concern with prediction of standard cost and finding the actual cost of product operation and department’s often, comparing this with an estimate or ideal cost or standard cost.

The essential need for effective and efficient information has integrated, may discipline together and has also make accounting to widen the scope of their work. The financial raw data processed have to be communicated to the users through a communication medium. This bring in the idea of management information system, management information system is a system or process that provides and communicate information which will enable managers and administrators properly takes decision in an organization.

The complexities of decision arise as to whether to buy new equipment, which will make new products or save cost whether to accept works at cutthroat prices. This often require actual cost analysis and studies effectiveness has assisted management in controlling the cost of raw materials, determine the recorder level of stock of materials after considering the minimum stock levels the carrying cost and ordering cost.

Cost accounting (commonly termed as costing) may be seen as establishment of budget, standard cost and actual cost of operating, process activities or products and the analysis of variance, profitability or the social use of fund. The cost account gathers from production managers, the cost at every stages of production, process them and apply them in order to achieve minimization, which lead to efficiency. The cost and management accountant therefore should have indebt knowledge of cost in every aspect of the organization which he works. The cost accountant usually in-charge of any budget committees set up in the organization and in same case the chairman of many committee and investment teams, hence, it is the experience about the operation at standards and the information, which he obtained from analysis of the cost that form a basis for decision making.

However, with the concept that development cost and management accounting, the job of accountant has increased from that of a financial historical to that of financial analyst who provides management with needed information of future decision for comparison and efficient measurement without an efficient and effective process of cost accounting, it is uncertainty whether any business of any organization size can survive in the intensively competitive condition of today.

Pricing decision is one of the most crucial decision which every enterprise establishment should pay great attention to despite how intelligently the product distribution and communication mixes are conceived. Abnormal pricing of a product may remove the effect of all other decisions. This implies that price should not be too low to avoid the product being regarded by potential buyer (customer) as an inferior one (goods) but in-spite of the importance of pricing decision, the skills and analysis, which are often used in practice, do not approach, the professional oriental used in the management of advertising and sale promotion thus one of the reason, is that price decision access all areas of business operations and are not centered in any of the functional divisions of the firms organization.

This research work will demonstrate the indifference toward vital decision by various managements. The research geared its attentions to the cost structure especially as it effect manufacturing industries Nigeria Bottling Limited (NBL), which constitute a major determinant of the price of product of the firm, which vary with the outcome, the type of service or commodity. And it must be decisively to the satisfaction of consumer, in punch of analysis described customer/consumer of a specific product as a king, because its patronage to such commodity could be identifying as undergone production process.


This study inscribed as “Effectiveness of cost accounting information in price determination” focus on the application of accounting and costing principle method and approaches in the ascertainment of the total cost of production by identifying and analyzing the cost elements that go into production so as to ensure adequate cost saving and cost compliance and measurement of income.

The statement of problem are inaccurate data, a prejudice (bias) and misleading accounting information have made the management of many manufacturing firm to sell their product below the unit cost.

The need to maintain the quantity of products or service so that customer’s as a king or loyalty will be guaranteed and continuous profit insure in the process will be justified in a relevant manner. Management of such establishment has the problem of taking adequate care of its accounting cost of production in order operate effectively efficiently and profitability in optimum level, since cost is the basis or essential for price determination management has the problem of take a effective measure in deciding whether to use very high quality materials, with high cost, very low quality materials with low cost average material with average cost, inefficiency of the management to adopt vital competent/skill in taking decision on cost of product and avoiding the forces of demand and supply its constrain.


       The research on effectiveness of cost accounting information in price determination was chosen to address the solution of the mentioned problems, the study has the following objectives:

1.    The study will present to the management the best analysis classification and decision regarding cost accounting information.

2.    The study will also focus on the price method to be used will equally be suggested so that the end of all, there will be a accurate and adequate effectiveness of cost accounting information for efficient application of cost in price determination.

3.    It will investigate the effectiveness of cost accounting information in price determination enhances efficiency and effective of competition with an industry.


       The following hypotheses was formulated by the research carryout at Nigeria Bottling Limited (NBL)

1.    Ho: Effectiveness of cost accounting information in price determination is not necessary to determining the price of Nigeria Bottling products or services.

Hi: Effectiveness of cost accounting information in price determination is necessary to determining the price of Nigeria Bottling products or services.

Hi: Effectiveness of cost accounting information in price determination is necessary to determining the price of Nigeria Bottling products or services.

2.    Ho: Effectiveness of cost accounting information is price determination has not enhanced efficient management in formulation of other managerial policies.

Hi: Effectiveness of cost accounting information in price determination has enhanced efficient management in formulation of other managerial policies.

3.    Ho: The extent of competition with an industry has not affect the price of the products in Nigeria Bottling Limited Enugu State.

       Hi: The extent of competition with and industry has affected the price of the products or services Nigeria Bottling Limited Enugu State.


       This research work is intended to be of crucial benefit to processing industry as whole and to Nigeria Bottling Limited in particular. It is an avenue of enhancing the profitability of these firms. This work has the following important.

1.    Effectiveness of cost accounting information in price determination can be used as a basis for the performance evolution of plans policies and efficiency of manufacturing firms.

2.    With the aid of adequate determination of profit realized, the firms can undertake efficient budgetary planning of their expected profit.

3.    The work will help manufacturing industry, Nigeria Bottling Limited as the case study in the employment of efficient pricing policy.

4.    The effectiveness of cost accounting information in price determination will enable Nigeria Bottling Limited as the case study to properly.

5.    The research work look at the effectiveness of cost accounting information in price determination treated by this work for cost control through standard costing and responsibility accounting.

6.    The work will increase the material available on the topic.

7.    Since the effectiveness of cost accounting information in price determination in Nigeria Bottling Limited as the case study, Efficiency can be maximized in an optimum level, which is the greatest weapon or instrument as firm can use against its opponents in a free market economy.

8.    With adequate operating, profit can be ascertained through this research, government generate its fund through taxation as well as exercises it economic control in the form of fiscal policy.

9.    The research of cost accounting information has greatly improvement in the efficiency of the firm operating.

10.  Finally, when the cost accounting information are effectively and efficiency established adequate the society can now benefit through employment scheme and social responsibility of business enterprises.


       The scope of this work is restricted to the cost accounting information as it affects Nigeria Bottling Industries and its satisfaction in determining the price of their product. The study covered the performance of the Nigeria Bottling Industry except opportunity cost. Opportunity cost is the sacrificed made in place of another and it’s also known as the forgone alternative and it is not recognized in accounting.

The challenges that the researcher encounters as result of carryout this work inadequate finance, it was the major problem as there was not enough money for in depth study and other financial engagement with regard to the research work. There was a constraint of getting enough books for the research; most of the recommended libraries visited to sources for material for the study were stuck with inadequate and absolute textbook especially at Enugu, ABSU and EBSU State Library.

Finally the department of sales unit as in respect to the case study of Nigeria Bottling Limited inability to disclosure adequate information to the researcher.


1.    COST ACCOUNTING: (Its common termed, costing) is define as the application of accounting and costing principle, method and approaches in the ascertainment of the total cost of production by identifying and analyzing the element of cost that go into productive so a to ensure cost saving and cost compliance and measurement of income. It could also be seen as the establishment of budget, standard cost and actual cost of operations, processes and activities of variance, profitability or the social use of fund.

2.    ACCOUNTING: It is the method/application of book keeping techniques using professional experience and skill in preparing information regarding to business transaction.

3.    BOOK KEEPING: Is defined as the basis of accounting using the aspect of analysis, classifications and recording of financial transaction in book of account.

4.    MANAGEMENT ACCOUNTING: It defined as the application of professional information on accounting and designed a statistic techniques to the particular purpose of providing and interpreting cost, pricing alternative, profit information put together to assist management in its functions of promoting maximum efficiency and effectively.

5.    PRODUCT: Fundamental any thing that can be offered to a market as exchange for attention, acquisition consumption including physical objective services personalities, place organization and ideas.

6.    COST: A sacrifice or forgone measured in monetary terms cost can be the detail of what it take for the production of goods and services.

7.    PRICE: Exchange, transaction or monetary value of a product or services.

8.    INFORMATION: This is the result of the processed data or knowledge value for specific use like manager using information golden from accounting system to make decision for the efficiency of the organization.


       This work will not distinguish between foreign cost information and its local component, because costs are globally or universally refer to as measure of value. The research must achieve the extent at which effectiveness of cost accounting information in price determination is a key factor in analyzing alternative method of solving a problem. Reason is that various alternatives usually have specific cost and benefits that can be measure and used, as an input in deciding which alternative is suitable.

There are many cost methods that Nigeria Bottling Limited (NBL) adopts in the actualization of the unit price of its product or services.

Absorption costing: It refer to as product cost because, it is accounting technique which deal with determining the unit cost of production bases on the total cost incurred, without distinguishing between the fixed cost and variable component.

This accounting technique treated fixed cost essentially.

Also marginal costing or direct costing is an accounting techniques used in planning and control which bases its analysis of cost volume and profit (CVP) relationship and a determination of marginal cost by a process of differentiating between fixed and variable cost. According to Lucey (1996) defined standards costing “as an estimated or a pre-determined total cost of product per unit for an organization. It could also be seen as an integral part of management accounting control technique which will also include budgeting system and responsibility accounting statement. Standard costing technique may either be viewed from the perspective of marginal costing technique, variance analysis will be determined on the total relevant cost of product excluding fixed overhead. It emanated from the idea of cost element and corrected technique specification and the qualification of material, labour and other cost to the price and or wage rates expected to apply during the period in which the standard cost intend to be used, its main purpose are to provide bases for control through variance accounting for the valuation of stock and working progress and fixed selling prices.

In practice, it is possible to identify four different type of standards as follows:

1.    IDEAL STANDARD: This may be described as an established standard specifically designed on the basis of the maximum productivity capacity of the organization i.e. standard established without providing adequately for any negative factor that may inhibit the attainment of the standard. For example, labour, standard established without provision of lateness absenteeism, industrial action, annual leave, maternity leave etc also referred to as unattainable standard, ideal standard are specifically designed to demonstrative workers because they are not achievable in native.

2.    ATAINABLE STANDARD: Also referred to as normal or cyclical standard, these are the established standard specifically premised on what is considered practicable within the organization, practical standard is established with adequate provision for negative factor that may affect the attainment of the established standard for example, in establishing production standard, adequate provision is given it idea time or loss of production due to machine breakdown, loss of power, lack of low material industrial dispute, repairs and maintenance.

3.    BASE STANDARD: This will represent an old established standard designed principally to satisfy a given objective, base standard are not subject to frequent alteration therefore outdated in nature. This system is deficient because it bases it determination of standard on condition that may have change ever since.

4.    CURRENT STANDARD: This will be described as an established standard specifically based on the prevailing work condition within the organization or the industry at large. Current standard are however subject to frequent changes in order to reflect the current position within the organization. A reasonable allowance is made for such normal lapses in the production process as occasional machine breakdown, loss of hours as a result of sickness and in health and normal waste in the utilization of materials.


a.    They create a realistic target, if motivates staff and operative to achieve better standard laid down.

b.    It creates an atmosphere of cost-consciousness amongst all levels motivating staff workers to see if there is better way of performing a particular task.

c.    It provides basis of control for buying usage and efficient work levels.

d.    They provide availability of relevant information at a fairly low cost.

e.    It provides a yardstick for the evaluation of actual costs.


a.    Establishment of unattainable standard.

b.    Persistent increase in the level of inflation.

c.    It is expensive and time consuming to install and keep up to data standard.

d.    Difficulty may be experience in determining which variance, “material” and “those that are” not material.

The model of standard cost of product standard cost per unit:

Standard Labour                         X

Standard Material Cost                 X

Standard Variance Overhead Cost  X

Standard Fixed Overhead Cost             X

Standard Cost Per Unit                 XX

Add Standard Profit Margin           X

Standard Selling Price                  XX


1.    PROCESS COSTING: Lucey (1996) sees process costing as a costing method where manufacturing activities are continuous and the units of output are substantially uniform.

Oler and Brown (1978) defined process costing as a “procedure of costing used to ascertain the cost of the product as each process operation or stages manufacture” it show the cost of the main product and by product.

Garrison (1985) in his views states that process costing is employed in those situations where manufacturing leads to single product that is produced for a long period.

2.    JOB ORDER COSTING: It is a form of specific order costing in which costs are attributed to individual job, its requirement for the purpose of job costing are built to ascertain the total cost of a job, the profit or loss on each job and to provide a valuation work in progress. It is used in those manufacturing situation where many different products, job or batches of production are being produced each period.

3.    OPERATING COST: Is the basis costing method applicable where standardize goods or service result from a sequence of repetitive and more or less continuous operation or processes to which cost are changed before being averaged over the unit produced during the period. Job order costing process costing and batch costing are basis costing method, but they are mainly directed towards collecting and assembling cost data to convert such data into meaningful management information absorption or marginal as early treated above will be employed.


In area of human endeavour or activities, we try to make the best use of the justified means of the resources available to us. The main purpose is to obtain the greatest output from a given input and measurement of the out put will explain how efficiently the input has been employed. Effectiveness of cost accounting information is needed for planning controlling and decision making. The following are the purpose or need for effectiveness of cost accounting information in price determination.

1.    Cost accounting is used for formulation of pricing policy.

2.    The information derived from effectiveness of cost accounting can be used for cost control through standard costing and responsibility accounting.

3.    Cost accounting is used for analysis of alternative decision option.

4.    Cost accounting information is needed for the purpose of establishment of budgetary planning process of expected profit.

5.    Cost accounting information is needed for ascertainment of cost and for measurement of profit.

6.    The cost items is used for performance evaluation of plans and policies.

7.    It is through effectiveness of cost accounting information in price determination that management can apply management by exception principle to correct those areas that are not going according to plan. Effectiveness of cost accounting information in price determination is the important in which the decision of management revolved.

The effectiveness of costing information is the instrument that entice the management go where there is absence of effectiveness of costing information, because management cannot do any things without adequate information on effectiveness of cost accounting.


In carrying out such a review process one should be guide by the following attributes of good management information necessary in any manufacturing industry.

1.    RELEVANCE: Good information should be relevant for the intended purpose i.e. unnecessary detail should be eliminated and only activities within the responsibility of the recipient should be included.

2.    ACCURACY: It should be able to confirm sufficient volume of information to accurately give a full and clear description of the subject matter but should be devoid of inaccuracies for it to be review upon by the management white making decision.

3.    UNDERSTANDABLE: Good information should be readily understand and useable by the manager of such industry.

4.    TIMELY: Good information should be able to produce at a relevant time to be useful for manager to make use of.

5.    PRESENTATION OF INFORMATION: The information should have a consistent ordering and layout so that recipient may easily trace main feature.


       There are certain assumptions that must be considered, if cost often remains the same and completely under control, and the organization activities and operation remained the same from period to period. There would be need in studying the effect of cost behavour.

COST BEHAVOUR: Is defined as the mutual relationship that exists between the occurrence of a given cost and little change in the related level of activities. It is always time respond less proportionately to changes in level of activities. It is essential to give clear study of cost behavour in an organization as these is an avenue through which all prediction on how cost will react, or respond to change level of activities within the established organization can attaining its objective.

Since decision of management involves classifying al cost associated with each alternative course of action which are cost behavour procedure found in most establish organization are as follow:

i.     Variable cost

ii.    Fixed cost

iii.    Semi-variable cost

1.    VARIABLE COST: A variable cost is a cost that re marginal or change in proportion to the level of activity undertaken, for instance, they are directly related to volume of activity, they increase when the volume of activity level increase and decreases. When the activity level decrease the variable cost behavour vary in linear straight line, showing that the degree of changes is equal to proportion accord to it.

2.    FIXED COST: Fixed cost are constant in nature, they represent those cost that remain the same to any changes in activity level. It is that part of cost in production which must be incurred whether or not production takes placed such cost curve are seen to the parallel to the volume axis i.e. rent, advertising salary, depreciation of machine, royalty, because it remain constant over the decision range.

3.    SEMI-VARIABLE COST: In costing semi-variable cost refer to mixed based cost, as half is variable and half fixed. It demonstrate that those cost that has both the feature of a fixed and a variable cost such that when the production in Nigeria Bottling Limited (NBL) is zero cost it may not be zero as production changes. So cost begin to shift in equal proportion.


a.    Volume of activity

b.    Cost control

c.    Nature of cost

d.    Marginal policy and decision

1.    VOLUME OF ACTIVITIES: It is understood that some cost do not vary with volume of activity. This is result of the total cost of goods produced and sold to rise and fail with increase and decrease in the rate of activity. The unit to be produced increased material, labour supplies also increase the decrease is the case with the decrease in unit.

2.    COST CONTROL: The approaches/method of cost control which the management of an organization put in place has essential effect on cost behavior.

3.    NATURE OF COST: The few costs at this aspect vary proportionately with volume or remain constant in amount because of their nature. Under this ideal conditions some cost can be made to vary directly with activity their number is for fewer that accounting system might be adopt.

4.    MARGINAL POLICIES AND DECISION: Cost behavior is often assumed to be determining by external and non controlling factor. Management policies and decision permit almost all phase of cost behavior in form of capacity organization structure wages payment and others.


       The responsibility of management is to determine which pricing technique that best suit in checking or calculating its product or services. The pricing techniques that management adopts are as discussed below:

1.    MARK-UP PRICING: Whole seller and retailer often use this technique percentage mark up (profit) and profit margin to determine the cost of the goods to his business premises.

2.    TARGET RETURN PRICING: It is gathered that Nigeria Bottling Industry uses this techniques to determine price of its product based on a specified rate of return to be attain on the capital used in producing and distributing a product and services area period of time. The expected return on investment needs relatively accurate for casting and costing method in determination of extent of output and market expenditure.

To determine the selling price of product usage the target return techniques, use of the following formular.

PR   =     DVC +  +

Where PR = Selling price when the target return formular is used.

DVC = direct unit variable cost

X     = Standard unit volume

F     = Fixed cost

V     = profit rate desired

K     = capital (total operating assist employed)

3.    BREAK EVEN ANALYSIS: This is the most noticeable approach to pricing. A break even point is that quantity of output at which the sales revenue equal to the total cost assuming a certain selling price. Break even point cost equal revenue, which there is either profit or loss.

DEP =    =

Where BEP = break even point in units.

FC   =     Fixed cost

SP   =     Unit selling price

AVC =     Average variable cost

UCM =     Unit contribution margin

4.    DEMAND ORIENTED PRICING: It is the pricing technique use of by management in determines the level of consumer behavior or how consumer are be influence through their price mechanism. The demand oriented pricing must be base on variation, in respect of value of price, price quality relationship lost leader pricing and number pricing and price lining.

Pricing technique is not an easily task as the survival of any product in the market depend on the pricing approached adopted by the management of such industry.

5.    COMPETITION ORIENTED PRICING: Price which is the approaches to guide the of industry base on it product as the major competitor management can resort to it. In the case where this technique is use at point where by product is not too much differentiative from other available product in the market.

This method can also be called contract pricing in which a form is required to quote its price under uncertain cost and price condition with a view of achieving the contract to supply.


       Thus the various techniques to pricing have been adequately explained above, it is important to list the bases qualities on effective pricing method should be exhibit. These basic qualities are as follows:

i.     To ascertain total revenue and total cost, cost must be evaluate at different price level with varying assumption.

ii.    The qualitative and non qualitative information must be taken into consideration.

iii.    There should be explicit objective and price must be tailored to help achieve those objectives.

iv.    The total demand situation must be analysis.

v.    The true (actual) cost of the decision must be known.


Basically cost are expenses, overhead that are incidental to production, Administration, selling and distribution etc. the classification of cost in Nigeria Bottling Limited involves the grouping of cost in their nature, features or characteristic for effective analysis of the total cost. Cost could be grouped in so many ways but for easy and conveniences, we classify cost as follows.

1.    AS ELEMENT OF PRODUCT: Cost are classified as product cost for instance principal component of any product which include:

a.    Material cost

b.    Labour cost

c.    Over head cost

A.    Material Cost: These represent raw material, the input to be changed in any production process, they could be the raw material input, semi-finished goods and the finished goods, they are primary substances in production unit, material cost can forcibly be classify into two form:

i.     Direct Material Cost: cost of material are directly traceable to a particular job unit, process or department. i.e. cost of chemical, cost of Liquid, used in the industry cost of coloured use NBL.

ii.    Indirect Material Cost: This is the kind of cost of material which is not directly traceable to a particular job unit process various unit in the organization, these include the cost of lubricating oil, cost of material used in clearing offices in the organization.

B.    Labour Cost: Labour cost represent all human effort engaged in production process, it involves various materials and physical effort skilled semi-skilled or unskilled used in production unit. Labour Cost is classified as follow:

I      Direct Labour Cost: This is that kind of labour cost which involves directly identify to specific job unit, process or department. The job of machine operator in a breweries industry, the job of machine operator in mechanical sector of the breweries industry is all direct labour cost.

ii.    Indirect Labour Cost: Labour cost represent those cost that cannot be identify or traced to a specific job unit process or department. Use the cost of administrative manager are all part of this is direct cost in Breweries industry, the cost of job done by a foreman or supervisor of Breweries industry are all indirect labour cost.

c.    Overhead: These means expenses, it includes all the indirect material cost, indirect labour cost and all other relevant cost which are not attributed directly but could be incidental use to the production unit. Overhead cost could be fixed or variable.

2.    PRICE COST AND CONVERSION COST: This is classified in terms of their relationship to production. For price cost to effectively analysis in the cost of production, it must be able to present before production process can take place for example, they are basically necessary in the production, it includes the direct materials and direct labour for conversion cost as the mean enhancing or suggest are those cost needed to change the raw material, input into finished production for consumer utility. It consist those cost of direct labour and factory overhead used in production unit of Nigeria Bottling Limited (NBL)

3.    Line and staff functional cost: The cost are been grouped according to its organization structure of the form. That is the functional department such as financial cost, marketing cost, production cost, Administration cost, personal cost are the general outline of cost that incurred in the line and staff department of an organization.

4.    ACCOUNTING PERIOD COST: This means the process of classify cost group into production and period cost, the making concept is taking into consideration as those cost that are grouped relating to the period which they benefit for income measurement. For production cost to be possible, it means those cost that can be traced with the production unit, department, for example element of production. This consist those cost which put together, it can be quantified as the production such that the goods are sold i.e. supposing no closing stock, it becomes cost of goods sold. The element of production includes cost of material, labour cost, and factory overhead and adjusted for work in progress. For period cost, it involves all cost that benefit one of more accounting periods assuming cost benefit only one accounting for them are change more than one accounting period they are seen as capital expenditure and recognized as assets. They are only changed off as expenses only when they have benefit any accounting period through the process of depreciation.


       The concept of manufacturing industries refer to the activities that give rise to the production of new product out of the main raw material into secondary product i.e. litre, gallon, barrel, bottle, crate to produce a new product called Breweries, Bar cablet carton to produce new product called soap, using sugar, cocoa, eggs and milk to produce a new product called to ovaltime.

Manufacturing including are group of firm or people who produce similar commodities.


i.     Level of Market Demand: All action to be taken on the price for any products being by rating the demand for the product and on what consumers are willing to pay. The reaction of consumer is considered at this juncture, as the higher the level of demand, the more quantity sold and high profit made at the same times but it was has adverse effect if the reverse is he case.

Ii     Competition within Market: The higher concentrating in the competition among firm in the specific industry, the higher their pricing polices will be. Assuming there is perfect competition within the market in which anyone can buy or sell and no single buyer or seller can have an appreciable influence on prices. Price will be built at the point of intersection between supply and demand for goods and services (equilibrium).

Monopolistic and oligopoly competition in which on firm dominate in the industry, or in which the number of firms in an industries is so small that each must consider how the other firm will react if it changes prices or output level. All goes in to serve as a controlling factor on firm toward price determination.

iii.    Customer Types and Market Segment: The types of market segment which a particular product in target on goes into influence the pricing of the product, if the market segment of any firm is composed to customer who place more emphasis on product available, quality and after sales services such segment may not place too much importance on the price of the product because other firm may not sanctify their desire.

Iv.   Effect of Channel of Distribution: The price of product is been impacted by the nature of channel selected for the distribution of product base on the product moves from the wholesaler to retailer and finally to the consumer, certain marketing will be put into the channel intercession for the services, they will render alone channel. These will be exceptive of allowances increase in the price of the product where discounts are offered.

v.    Consumer Behaviour and Perception: The reaction or altitude of consumer toward the price fixed to a particular product differs. Firm should not conclude that consumer act similar to all price situation. If consumer behavior and perception are the same, what then is the need for market segmentation? What will be associate high quality to a high priced product, some do equally low price to low quality products.

Vi.   Research and Development Cost: newly introduced product, they assuming not  have introducing price initial. As the manufacturer of such new product usually utilizes skin the cream pricing policy in order to be able to recover the heavy investment in research and development incurred toward the making of new product before competitions enter the market with their own brands. The price will be fluctuating from the initiate high price will later be lowered when other competing brand funds their way into the market.

Vii.   MACRO ECONOMIC TREND: Management is influences by the macro economic and fiscal policy and event of their price setting for instance, changes in cost basic raw materials, government, price control policy rate of inflation unemployment or labour cost usually influence general price of products in the market and firm pricing policy.

viii.  TARGET SHARE OF THE MARKET: The accumulated share of market, the organization want to achieve usually influence the price to be set for its products for firm that wants to drastically change. Its share of the market, the company can decide to decrease its price reasonable to competitive price. Companies are warned that trying to reduce their product price in order to increase their sale, care should be taken to market sure that inventory increase its demand as the follow price reduction.


       In view of Opia (2004) States that each stage of quality of material closed into system is known before the next stage. The true cost is only considered base on the various determined qualities Share used in each stage of production unit.

COST OF FINISHED GOODS: The summation of various inputs materials cost of finished goods are he responsibility of the management. Although the factory costs only include fixed cost add to variable cost of production.

PRICING METHOD: As at time of acquisition of material to the date of issue or exchange any given material, a number of things may have happened.

When pricing material issue i.e. if charging out materials actual purchase price or the current material price should be used.

This situation at course has led to a number of method of stock valuation of cost per unit or pricing stores issued.

The method are:

a.    FIFO-First – in- first out

b.    LIFO–Last–in–first out

c.    Weighted average

d.    Simple average

e.    Standard price

A.    First – in – first – out (FIFO): This methods is the major popular used in pricing store material first taken into the stores, this method of issued are values at the price of the oldest batch in stock until all unit of the batch have been issued when the price of the next oldest is used.

B.    Last – in – first– out: Under this method issued are charged out at the price of the most recent batch received and continue to be charged until a new batch is received. This implies that the last issues received are charged and first to production.

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  1. Ebenezer says:

    Pls I need “the statement of the problem“ on the topic= The role of cost accounting in effective management of organization.

  2. What are the contributions of cost accounting to the development of an economy?

  3. can I please view the beginning of the chapter three. of cost accounting information in product price determination

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