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JOURNAL OF RESEARCH IN NATIONAL DEVELOPMENT VOLUME 6 NO 2, DECEMBER, 2008

MANAGEMENT ACCOUNTING TECHNIQUES AND MANUFACTURING COMPANIES IN NIGERIA

Aize Lawrence Imeokparia
Department of Financial Studies, Redeemer’s University, Redemption City

 

Abstract
The study is based on a survey of some  Nigerian  large-medium size manufacturing companies. It is aimed at contributing to the research on the features of strategic management accounting and factors affecting its implementation and  use in Nigeria.
The instruments used in testing the data gathered were descriptive statistics and Pearson correlation between the strategic management accounting techniques and the variables influencing their usage. The results show significant use of strategic management accounting techniques by Nigeria manufacturing companies.

Keywords:   Strategy, Management Accounting, Life cycle costing. Strategic costing, strategic pricing


Introduction
Strategy is a concept of the firm’s business which provides a unifying theme for all of its activities. Strategic management accounting information can be seen as the application of professional knowledge and skills in the field of costing and cost analysis for solid managerial decision making and problem solving.

Simmond (1986) argues that management accounting should be more out looking and should help the firm evaluate its competitive position relative to the rest of the industry by collecting data on cost and price, sales, volume, and market. The role of management accounting information for decision making has been highlighted in the literature, specifying the decision type in designing strategic management accounting. Strategic management accounting information system is becoming more importing in Nigeria today where companies faced with severe competition resulting from depressed nature of the economy are examining new directions for their organizations (Imoisili 1995).

 

The Purpose of the Study
The purpose of the study is to

        1. show the extent of the adoption of strategic management accounting technique by Nigerian companie
        2. provide a description and intensity of usage of a fundamental set of strategic management accounting techniques.

                                      3. investigate some  variables that may influence the use of strategic  management accounting techniques                           
Hypotheses
In order to subject the data collected to statistical testing, the following hypotheses were defined:
Ho1: there is no adoption of strategic management accounting techniques by Nigeria companies.

Ho2: strategic management accounting techniques usage rate is not higher in larger companies than medium companies.                                                         

Ho3 There is no significant relationship between pattern, mission, positioning, and company size variables and strategic management accounting techniques usage.

Theoretical Issues
Coad (1996:392) states that “Strategic management accounting is an emerging field of study whose boundaries are loose and as yet there is no unified view of what it is or how it might develop. The existing literature in the field is both disparate and disjointed.” However, Innes(1998) defines strategic management accounting as the provision of information to support  strategic decisions in organizations. According to Cooper and Kapland (1988), strategic management accounting techniques are designed to support the overall competitive strategy of the organization, principally by the power of using information technology to develop more refined products and service cost.
Simmonds (1981and 1982) who first coined strategic management accounting, views it as the provision and analysis of management information data about business and its competitors.
Clarke (1995:46-51), identifies the thrust of strategic management accounting as being ‘to provide information concerning the firm’s market and competitors, and to focus on internal data from a strategic perspective.’
From these statements it is evident that the defining characteristic of strategic management accounting is its external emphasis. Another way of describing this is its emphasis on market, hence the notion of strategic management accounting as market-oriented, or even market- driven accounting.(Roslender and Hart 2002). Many recent developments in management accounting are in varying degrees, joint ventures with other managerial disciplines.
Jones (1988), Bromwich (1990), Ward (1992) and Moon and Bates (1993) recognize the value of comparative information in achieving a competitive advantage.
 Shank (1989) stresses the need for management accounting to support a firm’s competitive strategies. Cravens and Guilding (2001) identified fourteen strategic management accounting criteria which include: activity base costing /management; value chain costing; strategic pricing; quality costing; and target costing.Others are strategic costing; competitor performance appraisal based on public financial statement; customer accounting; benchmarking and attribute costing. Still others are integrated performance measurement; competitive position monitoring; life cycle costing: and competitor cost assessment.
Research Design
The target population of this study was randomly selected from the list of  quoted manufacturing companies and some other medium size ones not listed by Nigerian Stock Exchange. The firms that were eventually included in the study were selected by the use of simple random sampling to include both medium and large manufacturing companies in Nigeria. Preliminary survey questionnaires were administered on each company to ensure that these companies are in operation.  Data were collected using primary and secondary sources. The initial sample comprises 120 manufacturing companies in Lagos and Ogun States industrial areas. A prior contact made with chief Accountants, management accountants and cost accountants was planned to present the research and to ensure their interest in the participation. From the first contact 105(87.5%) declared they would participate and 15(12.5%) declared they would not participate because the company policy does not permit staff to compile research questionnaire. Carefully designed

questionnaires were administered to the respondents.
The fourteen strategic management accounting techniques are shown in figure one below.


Figure 1: Fourteen Strategic Management Accounting Techniques


CONTINGENTVARIBLES

STRATEGIC MANAGEMENT ACCOUNTING TECHNIQUES

Strategic pattern
Strategic mission
Strategic positioning
Company size

Activity Based costing /management
Attribute costing
Benchmarking
Competitor performance appraisal on public financial statement.
Customer accounting
Integrated performance management system.
Life cycle costing.
Quality costing.
Strategic pricing.
Target costing.
Value chain costing.
Competitor cost assessment
Competititive position monitoring.
Strategic costing.


A Likert scale ranging from one (never) to five (always) was provided. Respondents could eventually mark I don’t know/ I don’t answer if the technique was unknown to their organization or if they did not want to answer. Business strategy was operationalised using three dimensions of strategy position, strategy
mission and strategy pattern. An extension of the method of Shortell and Zajac (1990) was replicated in this study. For each dimension a five-point scale was employed. Table one below provides a summary of respondents typologies and composition.


Table1:  Descriptive Statistics of Business Strategy.

 

number

mean

Std. Deviation

Pattern variable

102

4.23

2.88

Mission variable

100

4.65

2.11

Positioning variable

103

3.98

2.12

Source: Field Survey


Company size was measured using the total revenue/ turnover and number of employees. The data base provided the company size in terms of employees and turnovers: an analysis to verify the relationship between the two dimensions in Nigeria was conducted. It showed that in Nigeria in most cases the greater  the number of employees,  the greater the turnover and revenue value. In order to normalize the data, a logarithmic transformation of the measured values was necessary. Table 2 presents descriptive statistics of the turover measure.

Table 2:  Descriptive Statistics of Company Size (In Billion Naira)


Element

Number

Mean

Std.Deviation

Min

Max

Turnover/Revenue

103

394.40

1683.48

50

16884.00

Turnover/Revenue

103

3.38

0.86

2.8

7.86

Source: Field Survey


 Results
 The results of this study are presented in tables 3 and 4. Table 3 contains the frequencies and descriptive statistics for the fourteen strategic management accounting techniques usage rate. The mean score ranges from 3.71 (Life cycle costing) to 2.56 (Competitor position monitoring) and the actuals coincide with the theoretical range (1-5). This shows that most manufacturing companies in Nigeria use the strategic management accounting techniques. This apparent use is evident noticing that eight of the fourteen  strategic management techniques mean usage scores are situated above the midpoint of the measure scale.           
Competitive cost assessment, Activity Base Costing /Management, Benchmarking, Quality Costing, Strategic costing and strategic pricing) present mean score over 3. These techniques are indeed strongly oriented towards the provision of information for decision making. It is noteworthy that Target costing and competitive position have the highest non adoption rate (36% and35% respectively).This result is not consistent with recent research (Arena and Azzone 2005).


                                                 


Variables

Number of Respondents

Non Adoption 1

Low Adoption
2/3

High Adoption
4/5

I don’t know/ No answer

Median

Mean

Variance

Standard deviation

Actual Range

Activity
based costing/management

100 (100%)

12 (12%)

23 (25%)

65 (65%)

5

4

3.51

1.79

1.34

1-5

Life cycle
Costing

103 (100%)

9 (9%)

35 (36%)

59(60%)

2

4

3.71

1.56

1.25

1-5

Strategic
Pricing

92 (100%)

12 (13%)

31 (34%)

49 (53%)

13

4

3.27

1.17

1.08

1-5

Customer accounting

92 (100%)

!2 (13%)

31 (34%)

49 (53%)

13

4

3.59

1.67

1.29

1-5

Strategic costing

100 (100%)

!2 (12%)

36 (36%)

52 (52%)

5

4

3.44

1.78

1.34

1-5

Quantity Costing

100 (100%)

10 (10%)

40 (40%)

50 (50%)

5

3

3.31

1.77

1.33

1-5

Competitor cost assessment

98 (100%)

7 (7%)

44 (45%)

47 (48%)

7

3

3.59

2.10

1.45

1-5

Target costing

95 (100%)

35 (37%)

17 (18%)

43 (45%)

10

3

2.72

1.99

1.41

1-5

Benchmarking

98 (100%)

13 (15%)

44 (45%)

41 (42%)

7

3

3.48

1.96

1.40

1-5

Value chain costing

100 (100%)

23 (23%)

39 (39%)

38 (38%)

5

3

2.9

2.09

1.45

1-5

Integrated performance measurement

95 (100%)

31 (33%)

30 (31%)

34 (36%)

10

3

2.76

2.40

1.55

1-5

Attribute costing

100 (100%)

27 (27%)

40 (40%)

33 (33%)

5

3

2.77

2.04

1.43

1-5

Competitive position monitoring

102 (100%)

36 (35%)

35 (35%)

31 (30%)

3

2

2.56

2.21

1.49

1-5

Competitor performance appraisal based on publications of financial statement

100 (100%)

30 (30%)

42 (42%)

28 (28%)

5

2

2.6

2.02

1.42

1-5

Journal of Research in National Development 6(2) December, 2008


Hypothesis three seeks to investigate the relationship between pattern, mission,
positioning, and company size variables and strategic management.

 


Table 3: Frequencies and Descriptive Statistics of Strategic Management Techniques.
Source: Field Survey

 


Management accounting techniques usage- To test the hypothesis a correlation between the fourteen strategic management accounting techniques and four variables was employed. Table four contains details of the correlation output.


 

Table 4: Peason Correlation results

 

 

Pattern

Mission

Positioning

Company size

 

Competitive Position Monitoring

0.12

0.30

0.10

-0.07

 

Competitor Cost Assessment

0.29

-0.02

0.63

0.24

Factor 1

Competitor Performance Appraisal based on published financial statements

-0.07

0.39

-0.12

-0.07

 

Strategic Pricing

-0.24

0.21

-0.43

-0.17

 

Quality Costing

-0.26

0.02

-0.54

-0.18

Factor 2

Life Cycle Costing

0.33

0.07

0.34

-0.01

 

Strategic Costing

-0.39

0.10

-0.63

-0.23

 

ABC/M

-0.71

0.02

-0.74

0.36

Factor 3

Value-Chain Costing

0.15

-0.01

0.04

-0.11

 

Target Costing

-0.50

-0.21

-0.47

-0.09

Factor 4

Customer Accounting

0.42

0.14

0.61

0.33

 

Attribute Costing

-0.06

-0.42

-0.22

-0.18

 

Integrated Performance Measurement

-0.42

-0.08

-0.56

-0.12

 

Benchmarking

-0.27

0.25

-0.42

-0.20


Pattern variable result is not significantly related with some of the strategic management accounting techniques. However for customer accounting, Life cycle costing and competitor cost assessment there is positive relationship though not significant enough.    In this way pattern does not explain the adoption of strategic management accounting techniques.
Mission variable shows positive relationship with nine of the fourteen strategic management accounting techniques. A unique support is provided as mission is positively and statistically significantly related with competitive position monitoring, competitor performance appraisal based on published financial statements and Benchmarking. Positioning variable has a negative and statistically significant correlation with ten of fourteen strategic management accounting techniques. Only customer accounting and competitor cost assessment show positive statistically significant correlations.
Company size shows negative and statistically significant relationship with nearly all the strategic management accounting techniques.
Conclusions
From this study some  conclusions emerge. Firstly, despite the limited empirical research about strategic management accounting techniques in the literature, the research provides effort to represent business strategy variable through three dimensions - pattern, mission and positioning. The results show that pattern and company size do not seem to play a significant role in strategic management accounting technique adoption by Nigeria organizations; while strategic mission and strategic positioning seem to be appropriate variables. Secondly, there is significant use of strategic management accounting techniques by manufacturing companies in Nigeria. Eight of the fourteen strategic management accounting techniques usage show a mean score of 3 in a 1-5 Likert measuring scale.   
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