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The Use of Management Accounting Information in Decision Making of Manufacturing Industries

The Use of Management Accounting Information in Decision Making of Manufacturing Industries

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DEDICATION

This research material, titled “The Use of Management Accounting Information in Decision Making of Manufacturing Industries” is dedicated to God for His boundless grace and guidance. It is also a tribute to all computer enthusiasts whose contributions made my research journey smoother and enriched my documentation process, making the experience truly fulfilling.



ACKNOWLEDGEMENT

I am profoundly grateful to everyone who contributed to the successful completion of this project. I am especially grateful to my Supervisor (Name), the Head of Department (Name), and the Lecturers in the Department of Accounting and Finance for their invaluable guidance and support. I also acknowledge the contributions of authors and scholars whose works on The Use of Management Accounting Information in Decision Making of Manufacturing Industries provided essential insights. Special thanks go to my study area (and any funding organizations, if applicable) for their financial assistance. I am equally thankful to stakeholders, including mentors, teachers, and colleagues, for their encouragement and support. Finally, I deeply appreciate my family and friends for their patience and unwavering support throughout this journey. Your contributions have been instrumental in making this research a reality.



TABLE OF CONTENTS

PRELIMINARY PAGES

CHAPTER ONE

INTRODUCTION

  • 1.1 Introduction
  • 1.2 Background of Study
  • 1.3 Statement of Problems
  • 1.4 Aim and Objectives of Study
  • 1.5 Research Questions
  • 1.6 Research Hypothesis
  • 1.7 Significance of Study
  • 1.8 Scope of Study
  • 1.9 Limitations of the Study
  • 1.10 Definition of Terms

CHAPTER TWO

LITERATURE REVIEW

  • 2.1 Introduction
  • 2.2 Conceptual Review of Management Accounting Information
  • 2.3 Theoretical Framework
  • 2.3.1 Management Need for Information
  • 2.3.2 Major Features of Management Accounting
  • 2.3.3 Decision Making and Management Accounting
  • 2.3.4 Types of Decision Making
  • 2.3.5 Importance of Management Decision Making
  • 2.3.6 Objectives of Decision Making Process
  • 2.3.7 Steps in Decision Making
  • 2.3.8 Accounting Information and Management in Decision Making
  • 2.3.9 Techniques in Decision Making
  • 2.3.10 Functions of the Management Accounting
  • 2.3.11 Problems of the Use of Accounting
  • 2.4 Empirical Studies

CHAPTER THREE

RESEARCH METHODOLOGY

  • 3.1 Introduction
  • 3.2 Research Design
  • 3.3 Population of Study
  • 3.4 Sampling and Sampling Technique
  • 3.5 Validation of Research Instrument
  • 3.6 Method of Data Collection
  • 3.7 Method of Data Analysis
  • 3.8 Questionnaire Administration
  • 3.9 Ethical Consideration
  • 3.10 Statistical Analysis

CHAPTER FOUR

DATA ANALYSIS, RESULT AND DISCUSSION

  • 4.1 Introduction
  • 4.2 Presentation and Analysis of Data
  • 4.3 Re-statement of Research Questions
  • 4.4 Test of Hypotheses
  • 4.5 Discussion of Findings

CHAPTER FIVE

SUMMARY, CONCLUSION, AND RECOMMENDATION

  • 5.1 Introduction
  • 5.2 Summary of Findings
  • 5.3 Conclusion
  • 5.4 Recommendation
  • 5.5 Suggestion for Further Study

REFERENCES

APPENDIX A - “QUESTIONNAIRE”


ABSTRACT

Efforts have been made by organizations to rectify the problems found in this firms pertaining to decision-making. Some decisions have altered the requirements of the firms objectives and goals. This research study sought to appraise the use of management accounting to information in decision making of mainly the manufacturing industries.

A hypothesis showing that management null hypothesis showing that management accounting information is not effective and efficient in business decision making while the alternative hypothesis said management accounting information is relevant for effective and efficient decision making. Some research findings were made showing how needful management accounting information is. In order to analyze and present the data instrument like personal interview and questionnaire were highlighted.

The research dispatched forty questionnaires of which twenty five where returned and use. Hypothesis was tested using chi-square method. It was proved that management receive insufficient accounting information of which improvement is required in view of the above that can only be useful and effective if it is timely and relevant. Management should endeavor to employ more qualified accountants.


The Use of Management Accounting Information in Decision Making of Manufacturing Industries (A Case Study of Dauphin Nigeria Limited, Lagos)

CHAPTER ONE

1.1 Introduction

Management Accounting: A branch of accounting focused on providing financial and non-financial information to managers for the purpose of decision-making, planning, and controlling organizational activities (Drury, 2018). In manufacturing industries, management accounting information includes cost analysis, budgeting, performance measurement, and financial forecasting. These elements help managers understand cost structures, control expenses, and make informed decisions about pricing, production levels, and investment opportunities (Drury, 2018). Management accounting plays a pivotal role in decision-making within manufacturing industries by providing critical financial and operational information that influences strategic and operational choices. The integration of management accounting information enables managers to analyze costs, forecast financial performance, and optimize resource allocation, which are essential for maintaining competitiveness and achieving operational efficiency.

As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitation of the study and Definition of terms.

1.2 Background of Study

from the beginning in 1992 Dauphin Nigeria limited has establish into a successful manufacturing concerned, special thanks to Sir Chima Emeyeonu, who had the incited to foresee the potential of a vast market for locally produced leader products such as ladies hand bags, all kind of suitcases, leader sandals, both in Nigeria and sub region.

Over the years, the company has diversified and expanded its operation to include the production of gum adhesive polythene and synthetic products. It is also involves in a hotel business. The company has some factories in Lagos. However the manufacturing of its products are carried out. The company has its administrative head office situated at no 83 Hire, Road Surulere, Lagos State. The company also has over two hundred employees in its manufacturing sites in addition to about twenty staffs at its head office. Dauphin Nigeria Limited is a very typical example of a modern manufacturing concern, hence is selected as a case study of this research.

Historically, the role of management accounting has evolved from basic cost accounting to a comprehensive system that supports strategic management. Traditional cost accounting methods were primarily concerned with determining the cost of production and setting prices. However, as manufacturing processes and market environments became more complex, the need for more sophisticated management accounting practices emerged (Kaplan & Atkinson, 1998). This evolution has led to the development of various management accounting tools and techniques such as activity-based costing, balanced scorecards, and just-in-time inventory systems, all designed to enhance decision-making capabilities (Drury, 2018).

The manufacturing industry, characterized by high fixed costs, complex production processes, and significant investments in technology and labor, requires accurate and detailed financial information to make informed decisions. Management accounting provides critical insights into cost behaviors, efficiency measures, and financial performance, enabling managers to optimize resource allocation, control costs, and improve profitability. The ability to analyze and interpret management accounting information is essential for strategic planning, operational control, and performance evaluation (Horngren, Sundem, & Stratton, 2014).

In the contemporary manufacturing environment, where globalization and technological advancements exert additional pressures, the importance of management accounting information has only increased. Managers need to make rapid decisions in response to market changes, supply chain disruptions, and competitive pressures. Accurate and timely management accounting information facilitates these decisions by providing a clear picture of financial health, operational efficiency, and strategic opportunities (Bruggeman, 2020). Therefore, in Nigeria where the research was carried out, the activities that was conducted is to examine the use of management accounting information in decision making of manufacturing industries.

1.3 Statement of Problems

Investigation revealed that the use of management accounting information in decision-making within manufacturing industries faces several challenges that impede its effectiveness. One significant problem is the complexity and variability of manufacturing processes, which makes accurate cost allocation and performance measurement difficult. Traditional cost accounting methods often fail to capture the intricacies of modern manufacturing operations, leading to potential inaccuracies in cost data and misinformed decision-making (Kaplan & Cooper, 1988).

Another problem is the integration of management accounting systems with other enterprise systems. Many manufacturing firms struggle to harmonize their accounting systems with production, inventory, and supply chain management systems. This lack of integration can result in data inconsistencies and hinder the ability to provide timely and relevant information to managers (Romney & Steinbart, 2018). Furthermore, the fast-paced nature of manufacturing requires real-time data processing and analysis, which many legacy accounting systems are not equipped to handle.

The quality and reliability of management accounting information are also affected by the human factor. Inaccurate data entry, lack of proper training, and resistance to change among staff can undermine the effectiveness of management accounting practices (Drury, 2018). Ensuring that personnel are adequately trained and that data management practices are robust is crucial for maintaining the integrity of financial information. It is against the backdrop that this study seeks to address these problems by examining how effective and efficient management apply accounting information in making organization decision.

1.4 Aim and Objectives of Study

The aim of the study is to examine the Use of Management Accounting Information in Decision Making of Manufacturing Industries. In achieving this aim, the following specific objectives were laid out as follows:

  1. To evaluate the impact of management accounting information on the financial performance, operational efficiency, and strategic planning of manufacturing firms;
  2. To identify the key management accounting tools and techniques that are most effective in supporting managerial decisions in manufacturing settings;
  3. To assess the challenges and limitations faced by manufacturing firms in implementing and using management accounting information;
  4. To analyze how management accounting information is currently utilized in manufacturing industries for decision-making purposes; and
  5. To propose best practices and recommendations for enhancing the use of management accounting information in manufacturing industries, with a focus on improving accuracy, relevance, and integration with other enterprise systems

1.5 Research Questions

The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:

  • How is management accounting information currently utilized in the decision-making processes of manufacturing industries?
  • What are the key management accounting tools and techniques that support effective managerial decision-making in manufacturing settings?
  • What challenges and limitations do manufacturing firms face in implementing and using management accounting information?
  • How does the use of management accounting information impact the financial performance, operational efficiency, and strategic planning of manufacturing firms?
  • What best practices can be recommended to enhance the accuracy, relevance, and integration of management accounting information with other enterprise systems in manufacturing industries?

1.6 Research Hypothesis

In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.

Hypothesis One

  • H0: Manufacturing firms that effectively integrate management accounting information with other enterprise systems do not experience higher operational efficiency and financial performance
  • H1: Manufacturing firms that effectively integrate management accounting information with other enterprise systems experience higher operational efficiency and financial performance

Hypothesis Two

  • H0: Challenges in implementing and using management accounting information negatively impact its effectiveness in supporting managerial decisions
  • H1: Challenges in implementing and using management accounting information positively impact its effectiveness in supporting managerial decisions

Hypothesis Three

  • H0: The quality and accuracy of management accounting information are negatively correlated with the strategic success of manufacturing firms
  • H1: The quality and accuracy of management accounting information are positively correlated with the strategic success of manufacturing firms

1.7 Significance of Study

For manufacturing industries, the significance of using management accounting information in decision-making varies based on different stakeholders:

  1. Management benefits from enhanced decision-making capabilities, allowing for more accurate forecasting, budgeting, and resource allocation, which leads to improved operational efficiency and strategic planning.
  2. Employees experience a more structured and transparent working environment, with clearer performance metrics and objectives. This can lead to increased job satisfaction, motivation, and productivity.
  3. Investors and shareholders gain from more reliable and detailed financial information, which can result in better investment decisions and increased confidence in the company's financial health and future prospects.
  4. Customers benefit indirectly through the manufacturing industry's ability to optimize costs, improve product quality, and enhance service delivery, ultimately leading to better products and services.
  5. Regulatory bodies and industry analysts receive more accurate and consistent financial reports, aiding in regulatory compliance and enabling more precise industry analysis and benchmarking.

1.8 Scope of Study

The scope of the research is focused on the Use of Management Accounting Information in Decision Making of Manufacturing Industries. The research study is centered on Dauphin Nigeria Limited, Lagos. Alternative was concentrated to only the relevant management accounting information that were useful for efficient and effective decision making.

1.9 Limitations of the Study

This work is by means exclusive but useful attempts to penetrate the core of the issue have many difficulties in the researcher accounting data for this research. These problems invariable formed the basis for limitation of the study.

Firstly, time constraint affected a comprehension review of related literature on the subject matter of the study. Gathering of materials, text books, journals etc for the review of literature was time consuming. The researcher being a student has other course to cover and thus had to apportion her time to meet. Secondly, the proximity of related literature materials also posed a problem. The researcher was impeded by necessary text books, magazines and journals for literature review.

Furthermore, the respondents also offered their to the study, human beings have never been easy to deal with especially when human behaviours are unpredictable some data and questionnaires were bounty refused by the respondents.

Financially, the researcher was wholly sponsored by the researcher, which was based on the little money saved. All those limitations, limited the validity of the findings and conclusions, the research would have been more retained without these constraints.

1.10 Definition of Terms

In order to facilitate the understanding of this study, it is important to define some of the terms uses in the study.

Financial Accounting:

Financial accounting is concerned with the recording of transactions for a business enterprise or other economic units and the periodic preparation of various reports from such records.

Information:

These can be said to be facts needed or received by a person, or group of persons which is or will be useful to them.

Management Accounting:

A branch of accounting focused on providing financial and non-financial information to managers for the purpose of decision-making, planning, and controlling organizational activities (Drury, 2018).

Decision-Making:

It is the process of selecting the best course of action among multiple alternatives to achieve a desired outcome, often involving the analysis and evaluation of relevant information (Simon, 1960).

Cost Accounting:

It is a subset of management accounting that involves recording, classifying, and allocating costs associated with the production of goods or services, with the aim of determining and controlling costs (Horngren, Sundem, & Stratton, 2014).

Budgeting:

The process of creating a financial plan that estimates future revenue and expenses, used by organizations to plan and control financial resources (Bruggeman, 2020).

Activity-Based Costing (ABC):

A costing methodology that assigns costs to products and services based on the activities and resources that go into producing them, providing more accurate cost information (Kaplan & Cooper, 1988).

Balanced Scorecard:

It is a strategic management tool that integrates financial and non-financial performance measures to provide a comprehensive view of organizational performance (Kaplan & Norton, 1992).

Variance Analysis:

It is the process of comparing actual financial performance with budgeted or standard costs to identify and analyze deviations, used for performance evaluation and control (Drury, 2018).

Strategic Planning:

It refers to the process of defining an organization's strategy, setting goals, and determining the resources and actions required to achieve those goals (Mintzberg, Ahlstrand, & Lampel, 1998).

Operational Efficiency:

The ability of an organization to deliver products or services in the most cost-effective manner without compromising quality, often measured by the ratio of outputs to inputs (Slack, Chambers, & Johnston, 2010).

…

CHAPTER TWO

2.0 Literature Review

2.1 Introduction

This chapter focuses on the review of related literature. A literature review includes the current knowledge as well as theoretical and methodological contributions to a particular topic. It documents the state of the art with respect to the topic you are writing. It surveys the literature in the topic selected. In this research work the literature review includes the conceputal review, theoretical framework, the review of related literature …

CHAPTER FIVE

5.0 Summary, Conclusion And Recommendation

5.1 Introduction

This research is geared towards ascertaining whether manufacturing industries do keep appropriate books of account, have qualified accounting personnel and account departments in their establishment, make use of management accounting information in making sound decision in their organization.

Finally, to see if management reports in their organization for decision is prepared regularly and on time.

5.2 Summary

The method adopted for the investigation was through the use of questionnaires and direct interview of managers and accountants. They believe that management does not make adequate use of management information for decision making was proved wrong. The research revealed that the cost accountant do provide all accounting information need and this at times affect the quantity of data to be processed.

Also the research revealed that managers apply these information effective in making decision for the business. The effectiveness was supported by fact received from managers and accountants on how its application has affected the company positively. It was also inferred from the various ways the company measured the effectiveness of the application of management accounting information that are adequately used for decision-making.

5.3 Conclusion

After due consideration of the analyzed data, the researcher was able to conclude the following:

  1. Most of the manufacturing industries do not keep proper books of account in their establishment.
  2. Management accounting role in decision effectiveness of the organization.
  3. Both managers and accountants makes effective decisions in the organization.
  4. Management accounting has played vital role to sectors like planning and evaluating in the organization.
  5. Most accounting information in industries is really favorable and obtainable.
  6. Lack of managerial expertise and unqualified establishing management accountant for decision making organization.

5.4 Recommendations

The following recommendations are made on the basis of the research findings.

Information can only be useful and effective if it is relevant and timely. The management however enjoys cost reduction by getting reports processed annually. There are some inherent disadvantages, for example, information are not available as urgently as possible. The management should therefore try to install more computer system which will help to quicken the job of the management accounting.

Also, the installation of computers eliminates error and mistakes, which are common with manual operations delay in making decision because of lack of information prepared at the appropriate time be eliminated.

Management should endeavor to employ qualified accountants. Although, the organization has qualified accountants they are not enough to make the job easier and quicker for them. A situation where few accountants have a lot of work to do will lead to mistakes, thereby providing inadequate information to the decision maker.

Apart from employing qualified accountants to handle the processing of management accounting should conduct in service training for them from time to time. This will go a long way in helping the cost accountant in supplying accurate information for management use.

Management accountant should be made to interpret every bit of information supplied to management, this will save the management the trouble of going to the accountant to have a critical review of the information need cost accountant only managers should base this on the particular problem. This is because different problems demand different accounting information for decision to be made on them.

Finally, further research is recommended into the relationship between the financial and account information and their application to business decision making.

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