Principles and Practices of Product Costing and Pricing: Analysis in Sri Lanka and Bangladesh

In this assignment we will discuss about accounting and below are the summaries point:- Analysis of principles and practices of product costing and pricing in manufacturing industries in Sri Lanka and Bangladesh. Comparison of product costing methods used by public quoted manufacturing companies in Sri Lanka. Contribution to existing literature on cost and management accounting practices in Sri Lanka.

Accounting
Assignment

An essay on the principles
And practices of the Product
Costing and pricing
Prepared by
Student’s Name:
Date: 18th January 2019
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Abstract
The major purpose of our study is to make a detailed analysis of the principles and practices of
the product costing and prices in terms of its application in the manufacturing industries of the
two countries of the Asia pacific region naming SriLanka and Bangladesh to discuss its
applications in these countries. At the same time, it proves a comparative analysis of these
principles and practices in these two countries. The main aim of this study is analyses the way
cost, and management accounting practices are used in manufacturing companies in Sri Lanka.
This paper will also contribute to existing literature pertaining to this phenomenon, particularly
relating to the use of cost and management accounting practices in Sri Lanka, where there is
dearth of research on this phenomenon. The main objectives of this study are as follows; Analyze
the current product costing methods used by public quoted manufacturing companies in Sri
Lanka
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Table of Contents
Abstract...................................................................................................................... 4
Introduction................................................................................................................ 6
Principles and practices of the Product costing and prices in the manufacturing
Industries in Srilanka.................................................................................................. 6
Conclusion.................................................................................................................. 9
References............................................................................................................... 10
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Introduction
Costing is the technique for the determination of cost of manufacturing a specific product or
service taking which a base the appropriate pricing strategy is chosen by the entity. The cost of
the product can be categorized as the direct overheads and the indirect overheads. Whereas it is
easy to relate the direct cost associated with the manufacture of a specific product or service, but
the allocation of the indirect overheads on an accurate basis seems to be quite difficult for which
there are basically two methods suggested (Grundy, Held, & Bero, 2017). The first being the
traditional costing method as per which the all the indirect overheads relating to the products or
services are absorbed on a single basis. Under the activity-based budgeting the cost drivers form
the basis for the allocation of these overheads (Charles H, Giovanna, Dennis M, & Robin W,
2015).
In our study an attempt has been made to make a critical comparative analysis of the principles
and practices of the product costing and pricing strategy adopted by the manufacturing industries
of two of the Asia pacific region countries naming SriLanka and Bangladesh. The detailed
discussion on this matter is provided in the forthcoming section (Coate & Mitschow, 2017).
The main aim of this study is analyses the way cost, and management accounting practices are
used in manufacturing companies in Sri Lanka. This paper will also contribute to existing
literature pertaining to this phenomenon, particularly relating to the use of cost and management
accounting practices in Sri Lanka, where there is dearth of research on this phenomenon. The
main objectives of this study are as follows; Analyze the current product costing methods used
by public quoted manufacturing companies in Sri Lanka. Another key objective of this study was
to analyst the reasons for the increased use of cost accounting in public quoted manufacturing
companies in Sri Lanka.
Cost management is an altogether a different concept that is inclusive of both cost management
and accounting and the main aim is to fulfil the major needs and objectives of the organization in
such a manner that the overall profit is increased with proper evaluation of the cost.
Principles and practices of the Product costing and prices
in the manufacturing Industries in Srilanka
In SriLanka on the basis of the various information collected in terms of the database from the
research studies shows that the activity based costing is highly preferred by the Footwear and the
apparel industries, whereas the pharmaceutical and chemical manufacturing industries much rely
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on the job costing method and the process costing is being followed by the tobacco
manufacturing and the food and beverage industry (Abdullah & Said, 2017).
Tough it could be seen that job costing, process costing, and the activity-based costing methods
are all being used by its manufacturing sector, but the predominantly used practice is the activity-
based costing only. At the same time it is to be kept in mind that it is the publicly quoted
manufacturing companies of the SriLanka that primarily goes for using this costing techniques
for the purpose of its indirect overhead allocation as it is helpful for them to take the major
decisions in terms of determination of the correct price of the products, performance
measurement by saving the amount of unnecessary cost allocation and the decision relating to the
profitability (Johan, 2018). The major factors that contribute towards the application of these
various practices of product costing and pricing are explained in brief hereunder:
1.In SriLanka the publicly quoted manufacturing industries heavily rely on the traditional
management accounting approaches like Standard costing, transfer pricing, budgeting, planning,
cost volume profit and the target costing in case of all these practices play a very significant role.
2. The major compelling reasons due to which the activity-based costing was accepted mostly by
the Nepal manufacturing industries are declining amount of the profits in the industry with the
apparel increase in the amount of the cost, increasing amount of the stiff competition increasing
the amount of the bargaining power of both supplier as well as the customers (Kaufmann, 2017).
If we go for making the comparison of the economy of the Srilanka with that of the Bangladesh
then it is found that there is no doubt that it is much more advanced than the Bangladesh, but at
the same time it cannot be denied that the scope of improvement is still lying.
As from the above it is quite clear that there is a lot industry in Srilanka, which though are
engaged in the manufacturing sector, but they have not yet implemented this practice of the
activity-based costing and are still following either the job coting or the process costing. There is
no doubt that most probably they are getting their desired outcome from the implement
(Knowlton, 2001). But they also have the option that they use some new methods and see how
they are benefiting from the same, they can also compare the pros and cons of these methods and
take decision based on that.
Principles and practices of the Product costing and prices in the manufacturing Industries
in Bangladesh
From the various data collected or provided from time to time it has been noticed that it is the
Garments and the textile industry has preferred the use of the Activity based budgeting in the
Bangladesh (Norberg, 2018). There are certain compelling factors that insisted the application of
this practice specifically by this industry which are in form of the pressure created by the
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industry for the reduction of the cost as the amount of competition became too higher hence
improvement in quality and operational efficiency became quite important for ensuring the
survival (Boghossian, 2017).
The Textile industry in Bangladesh felt the need of bringing improvement in the timelines,
quality and regular activities performed by them for which as a source of measurement correct
determination of the cost was one of the most significant factor. And it is the specific features
associated with the Activity based costing system that meet this requirement. Few of these
features are provided hereunder:
1. Through the help of the activity-based costing the difference between the value added
and the non-value-added activities can easily be made. Hence non-value-added activities
can be easily eliminated without compromising the quality of the product.
2. It is the activity-based costing system that can significantly contribute to the introduction
of the new and much more value-added activities into the existing system (Pereira, 2014).
It is also to be noticed that the technique of the activity-based costing did not prove to be highly
effective in the Bangladesh. The major reasons noticed for this was most of the local offices still
prefer the use of the manual techniques as a measure of cost determination. At the same time the
working professionals of the finance I the country are mostly old, and the activity-based costing
is a sophisticated method of the application or the cost accounting practice. Because of which it
became quite difficult or in other words they try their level best to resist its application. Second
thing is that in terms of techniques or process too it is much far from those foreign companies
working in the Bangla scythe process in these industries are not so well defined to make a correct
bifurcation between the fixed and the variable cost. The lack of the exact defined process
becomes the biggest hurdle for the implementation of the Activity based costing in this industry
(Wellmer, 2018).So we how important it is that people should be trained enough so that they can
apply such methods to their accounts and that will require funds from the management and this
seems to be a big disadvantage.
It is the fear working in the Bangladesh manufacturing sector or industry that the implementation
of the activity-based costing shall demand for the reengineering of their entire process too, hence
they resist its implementation (Webster, 2017).
In terms of using the software tools the people in Bangladesh are still lagging much far. It is
because the level of education in the country is too poor, hence without having the basic level of
education it seems difficult to convince the perplex in the Bangladesh to implement t the Activity
based costing in the most effective way.
As a measure for bringing improvement in this area what can be suggested ids the compulsory
implementation of the cost audit for the manifesting sectors working in the industry. The second
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important aspect to make the implementation of the activity-based costing is ensuring the
adequate degree of training and education amongst the working professionals in the field of
finance (Vieira, O’Dwyer, & Schneider, 2017).
It terms of the above detailed comparative fact analysis of the this is made absolutely clear that
for no one of the above mentioned Asia pacific countries are resorting to the traditional method
of the cost accounting practices or in other words it can be said that slowly and gradually it is the
developing and the developed countries of the Asia pacific region which are in the process of
rejecting fully or phase wise the traditional costing system. But there are limitations associated
with the implementation of the ABC for the whole industry as it is not possible that all
companies can take up the specific method for the valuation of their when it comes to using the
method of costings. In other Asia Pacific countries also, similar situations do exist where there is
no uniformity in the various methods that the companies can adopt. So, this leads to difficulty in
analyzing and taking opinions based on the same. But overall the adoption of such methods of
costing helps in solving many problems that the companies experience in the long run.
Conclusion
Based on the overall analysis it can be said that the main aim of this assignment was to show
how the various methods of cost allocation and calculation are taken into consideration in
various countries and how they are changing the ways the companies are preparing their
accounts in this situation. The various research articles that have been taken into consideration
have stated how in countries like Srilanka and Bangladesh have benefited with the use of these
methods of costing and why other countries should also adopt the same. So that in the long run
there is uniformity ascertained. There are disadvantages also that are associated with activity-
based costing and the related methods, but companies can work to delegate the same and make
sure that they are getting more and more benefited with improved methods and better
understanding. The government should also support such initiatives in such developing
countries.
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References
Abdullah, W., & Said, R. (2017). Religious, Educational Background and Corporate
Crime Tolerance by Accounting Professionals. State-of-the-Art Theories and
Empirical Evidence, 129-149.
Boghossian, P. (2017). The Socratic method, defeasibility, and doxastic
responsibility. Educational Philosophy and Theory, 50(3), 244-253.
Charles H, C., Giovanna, M., Dennis M, P., & Robin W, R. (2015). CSR disclosure: the
more things change…? Accounting, Auditing & Accountability Journal, 28(1),
14-35.
Coate, C., & Mitschow, M. (2017). Luca Pacioli and the Role of Accounting and
Business: Early Lessons in Social Responsibility.
Grundy, Q., Held, F., & Bero, L. (2017). A Social Network Analysis of the Financial
Links Backing Health and Fitness Apps. American Journal of Public Health.
Johan, S. (2018). The Relationship Between Economic Value Added, Market Value
Added And Return On Cost Of Capital In Measuring Corporate Performance.
Jurnal Manajemen Bisnis dan Kewirausahaan, 3(1).
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Kaufmann, W. (2017). The Problem of Regulatory Unreasonableness (First ed.). New
York: Routledge.
Knowlton, D. S. (2001). Promoting durable knowledge construction through online
discussion. MidSouth Instructional Technology Conference.
Norberg, P. (2018). Bankers Bashing Back: Amoral CSR Justifications. Journal of
Business Ethics, 147(2), 401-418.
Pereira, A. C. (2014). Analytical Processing for Forensic Analysis.
Vieira, R., O’Dwyer, B., & Schneider, R. (2017). Aligning Strategy and Performance
Management Systems. SAGE Journals, 30(1).
Webster, T. (2017). Successful Ethical Decision-Making Practices from the
Professional Accountants' Perspective. ProQuest Dissertations Publishing.
Wellmer, A. (2018). The Persistence of Modernity: Aesthetics, Ethics and
Postmodernism (fourth ed.). UK: Polity Press.
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