CHAPTER I

INTRODUCTION

1.1 Background
Management accounting is distinguished to be a very valuable accounting
resource that extensively helps organizations incorporate cost accounting data,
financial and nonfinancial information. According to Ballada (2012) management
accounting deals with provision of information to managers, those who are inside the
organization and mostly direct and control the operations of the organization. Hilton
and Platt (2011) stated that management accounting is the process of identifying,
measuring, analyzing, interpreting and communicating information in pursuit of
organization’s goals. Management accounting is integral part of management
process.In every business enterprise, various transactions and events take place every
day; sales are affected, purchases are made, expenses are met or incurred, payments
are received and made, assets are sold and acquired. Those events, arising out of the
decision and actions of management, exercise their effects and impact on the
operational efficiency and position of the enterprise. Most of those transactions and
events have money values or can be measured and expressed in money values. Since
they effect the operation and position of the enterprise, they need to be measured,
recorded and analyzed and reported to the management so that the management can
evaluate their effect upon the enterprise.

Management accounting (MA) concern with providing information to

managers and users within the organization directly and provides the organization the
necessary basic information through the preparation of various types of reports, some
of them related to performance and comparison with that is planned and other
frequently and periodically, analytical reports to investigate specific problems facing
the organization (Garrison, et al, 2012). MA also comprises the preparation of
financial reports for non-management groups such as shareholders, creditors,
regulatory agencies and tax authorities (Smith, 2014).

MA measures analyzes, and reports financial and non financial information

that helps managers make decisions to fulfill the goals of an organization. Managers
use MA information to develop, communicate implement strategy. They also use

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MAinformation to coordinate product design, production and marketing decisions to
evaluate performance (Horngren and Datar, 2013). As a result, the cost data used by
management was accumulated in different manner from different sources of financial
accounting. This shift in emphasis led to the emergence of MA (Gautam and
Bhattarai, 2014).

Hilton and Platt (2011) also stated that management accountants are important
strategic partners in an organization’s domestic and international management teams.
Horngren et al. (2013) explained that management accounting helps managers to
measure, analyze and report financial and nonfinancial information in making
decisions to fulfill the goals of an organization. Garrison, Noreen and Brewer (2011)
placed an emphasis as to what extent management accounting information can help
managers to perform their functions. This include assisting firms in decision making,
planning for the future, controlling and problem-solving. Nandan (2010) argued that
both large and small firms require adequate and sophisticated management accounting
techniques and systems to better manage scarce resources and enhance the firm’s
values. This led to an increasing shift in focus from traditional to modern management
accounting techniques in order to fulfill this emerging need for management
accounting as an aid to strategic decisions-making.

MA is an emerging discipline With the changing environmental factors and

cutthroat competition in the international market, the demand for the thoughtful
decision making is highly appreciable.Conventional MAPs were geared towards
providing information to aid managers in internal decision making in a firm and as
such the focus of the MA systems has also tended to be internally orientated. In the
late 1980s, scholars and academics particularly (Johnson and Kaplan,) noticed that
the traditional MA was not adjusting to changes in the modern business environment
hence was fall short of its basic function as an aid to managers in formulating policies
and decision making. It is to fulfill the need to enhance the quality of MA
information for managers it was necessary to focus more widely on the external
environment of the firm and thus the concept of strategic MA developed.

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1.1.1 Management Accounting Practices

MA practice helps an organization to survive in the competitive, ever-

changing world, because it provides an important competitive advantage for an
organization that guides management action, motivates behaviors, supports and
creates the cultural values necessary to achieve an organization’s strategic objectives.
MA is concerned primarily with the internal needs of management. It is oriented
toward evaluation of performance and development of estimates of the future as
opposed to traditional financial accounting which emphasizes historical data related to
such legal financial matters as ownership, investment, credit granting, taxation,
regulation, and the building of foundations for consistent and conservative external
reporting, “in accordance with generally accepted accounting principles.” Flexibility
is an essential characteristic ofMA since it presupposes that careful attention has been
given to determine the important needs of management, many of which cannot be
precisely identified in advance (Parker, 2002). The Institute of Management
Accountants (IMA), theprofessional association of practicing and academic
management accountants, defines MA as “The process of identification,
measurement, accumulation, analysis, preparation, interpretation, and communication
of financial information used by management to plan, evaluate, and control within an
organization and to assure appropriate use of and accountability for its resources. MA
also comprises the preparation of financial reports for non-management groups such
as shareholders, creditors, regulatory agencies, and tax authorities” (Smith, 2009).

MA provides information from its environment to management to facilitate

decision-making. Good MA information has three attributes: Technical-it enhances
the understanding of the phenomena measured and provides relevant information for
strategic decisions, Behavioral-it encourages actions that are consistent with an
organization’s strategic objectives, and Cultural-it supports and/or creates a set of
shared cultural values, beliefs, and mindsets in an organization and society
(McWatters, 2001). In order to remain competitive in today’s global market, business
must continually improve. Good MAPs help the organization to improve continually.
Due to these all over the world there are so many MA tools & techniques developed
and practiced.

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1.1.2 Manufacturing Companies in Nepal

The manufacturing companies in Nepal players fall in the following categories

as represented in the Nepal association of manufacture’s listings; food and beverages
processing, Paper and paper board, Wood products Pharmaceutical and medical
equipment, Leather products, Chemical and allied, Textiles, Tobacco, Plastics and
rubber. Nepal is afavorite destination for investors willing to put their money in
manufacturing sector, productive agricultural sector and hence a dependable source of
raw materials for agro-based manufacturing, a fairly versatile financial services sector,
bankable telecommunications and proximity to port facilities. A wide range of
opportunities for direct and joint venture investments exist in the manufacturing
sector including processing, manufacture of garments, assembly of automotive
components, electronics, plastics, chemicals, pharmaceuticals, metal engineering
products for both domestic and export markets.

Manufacturing firms’ range of products cut across the socio-economic range.

In the pursuit of improved performance manufacturing firms are turning towards
management accounting practices. These manufacturing firms employ management
accounting practices to plan, direct and control operational costs in order to enhance
profitability. It is for this reason that the current study seeks to investigate the effects
of managerial accounting practices on the organizational performance of
manufacturing firms in industrial Area Nepal.This study sought to investigate the
effects of management accounting practices on organizational performance of
manufacturing firms with a focus on manufacturing firms in Nepal.

1.2 Statement of the Problems

Nepal’s manufacturing sector still in an early stage of development although

its role is important in the industrial sector both in terms of its share and growth. The
manufacturing sector contributes to national economy by providing employment
opportunities, and by providing revenue to the government through regular payments
of tax. Therefore, manufacturing companies are chosen in order to know situation of
practice of MA tools to help management in its functions, planning, directing,
controlling and area of specialization included with the bounds of MA.

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 Profit is major factor for every manufacturing company. Manufacturing
company try to maximize profit. To maximize the profit MA tools helps to every
companies. Lack of information, extra cost burden, and cognizance about MA tools
are the main factors causing problem in the application MA tools. Lack of
knowledge, intensive decision, lack of skilled manpower, lack of infrastructure
development and extra cost burden are the main reasons behind not practicing new
MA tools. Nepalese manufacturing sector is infant stage in practicing MA tools,
which are indispensable for the success of business, so there is lack of separate
MAdepartment and accounting expert. Some manufacturing companies are still
practice traditional method for evaluating investment proposals. Budget and plan is
formulated by all according to their past events. In estimating cost and revenue for
future period, companies take historical data for the base. Hence the business
complexity can be changed into opportunity by using various tools and techniques of
MA (Tamang, 2014).This study seeks to answer the following research questions:

1. What are the MA practices in Nepalesemanufacturing companies?

2. Is there any effects between MAPs and organizational performance in Nepalese

manufacturing firms?

1.3 Purpose of the study

The general purpose of this study is to explore the MAPs and examine the
extent to which the level of adoption affects the performance of manufacturing firm in
the Nepal. More specifically this study proposes following objectives:

1. To examine the present practice of MA in Nepalese manufacturing firms.

2. To examine the impact ofMAPs on performance of manufacturing firms in Nepal.

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1.4 Significance of the study:

MA is the integral part of the management process such as planning,

coordinating, controlling and decision making. This study is design to describe the
different types of MAPs use by Nepalese manufacturing companies. Besides this
study adds onto the theory of MA in developing countries by focusing on the practices
of manufacturing companies in Nepal. The study show whether the manufacturing
companies still prefer the traditional practices and the describe different methods and
types of MAPs used by Nepalese manufacturing companies available for them as far
as controlling cost are concerned.

Importance to Manufacturing Firms:

The study would show the MAPs that play a part in the financial health of a
firm through improving organizational performance. It would also help organizations
and competitors become aware of the tools, methods and techniques available to them
in a bid to control costs and maximizing profits. The findings of this study would also
be invaluable to manufacturing firms in Nepal as they would be able to understand
vividly the role that of MAPs play on financialperformance. The recommendations
given in the study would help the manufacturing firms as well as other sectors in
Nepal by equipping them with adequate tools to get the solutions to the problems and
challenges posed by the identified aspects. This study also benefit various other
companies in Nepal as they understand the methods and tools available for them as far
as controlling cost are concerned.

Importance to Academicians and Researchers:

The study would form basis or foundation for further studies and critique to be
done by academic scholars interested in pursuing Accounting profession. The
documented report of this study would be easily acquired in the library and it would
equip the learners with more knowledge and skills on factors that influence the
adoption of MAPs. The study would further make a myriad contribution to the
literature on adoption of management accounting practices among manufacturing
firms in Nepal which would be part of articles that would be useful to researchers who
want to further in this study and to other wider stakeholders in academic circles.

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Importance to Investors:

The study would enable the investor to consider and analyze whether a
company pursue tight cost control policies, perform project appraisal before engaging
in a project, have a future plan for the business in terms of market expansions,
revenue growth and profitability improvement before making a decision on whether
to invest in an organization. By using the study results, the investors in the sector
would be in a better position to understand influence of MAPs on organizational
performance and be conversant with best solutions in regards to business performance
and sustainable profitability.

The Government:

The government would be able to understand the factors that influence the
adoption of MAPs among manufacturing firms in Nepal and the extent to which the
policies drafted affect manufacturing firms. Additionally, since the study would draw
attention to the factors that influence the adoption of MAPs among manufacturing
firms, the study would provide useful insights to the government and the policy
makers for adaptive and creative strategies which would be consistent with current
economic and competitive environmental realities. The government through various
stakeholders would facilitate development of operational policies that would ensure
rapid growth of the sectors hence immense contribution to the economy as well as job
creation opportunity.

1.5 Scope of the study

The focus of this study lay on investigating the effects of management

accounting practices on organizational performance of manufacturing firms with a
special focus on manufacturing firms in Nepal. The study focused on identifying the
MAPs adopted by manufacturing firms in Nepal with a special focus on
manufacturing firms in Kathmandu and went deeper to establish how these practices
have influenced the organizational performance of the firms.

Conceptually, the study concentrated on the effects of Costing system,

budgeting practices,performance evaluation,Controlling and reporting and decision
making on the organizational performance of manufacturing firms in Nepal. The

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target respondents of the study were the employees and owners of the manufacturing
companies.

1.6 Limitations of the Study

Due to the time and budget constraints, this study carried only in few MA
practitioners of Nepalese manufacturing companies. The present study has the
following limitations.

1. Out of total manufacturing companies in Kathmandu only 4 companies (Herb

production and processing co. ltd, Surya Nepal pvt. ltd, Dabur Nepal pvt. ltd, Bottlers
Nepal. ltd)out of 220 as convenience sampling.

2. This study only concerned with MA. It doesn’t concern other aspect of the
company.

3. Lack of Literature Review perspective of Nepalese manufacturing companies in

Nepal.

4. This is simply a partial requirement of MBS program. There are some limitations,
which weaken generalization e.g. inadequate coverage of industries, period taken,
reliability of statistical tools used and their variations.

5. This study is focused only in manufacturing companies. So the findings may not
applicable for non-manufacturing.

1.7 Organization of the Study

This study divided into five chapters, they are given below.

Chapter I: Introduction

The introduction chapter deals with the main topic of the study like general
background, statement of the problem, objectives of the study, significant of the
study,scope of the limitations of the study.

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Chapter II: Review of Literature

The second chapters focused on review of literature. It contains the review of

theoretical framework which include meaning and definition of MA, brief review of
MA tools and review of related studies.

Chapter III: Research Methodology

The third chapter deals on the methodology used in the study. It consists of
research design, sources of data, data gathering procedure, research variables and data
processing procedure.

Chapter IV: Results

The fourth chapter deals with presentation, analysis and interpretation of data
it consists of analysis of questionnaire, analysis with open-end opinions and major
findings of the study.

Chapter V: Conclusion

The last chapter covers summary, conclusions and recommendations. Finally

makes some recommendations to improve performance of manufacturing firms in
Nepal and gives suggestions for future study.

Reference and appendix have also been incorporate at the end of this study.

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 CHAPTER-II

LITERATURE REVIEW

The previous study cannot be ignored in any study. We can find many past
articles, journals, study reports, public books, manuals, thesis in this topic. In order to
find out what other scholars have already done and what remains to be done and
assess similarities and dissimilarities with the study review is necessary. We can
found many articles, reviews, thesis on the topic about MAPs of manufacturing firms.
The following review is the impact of MApractices on organizational performance of
manufacturing companies.

This chapter presents a review of literature on MA concepts. The research has

drawn materials from several sources which are closely related to the theme and the
objectives of the study. The chapter focuses on aspects of MA including costing
system, budget practices, controlling and reporting system, performance evaluation
and decision making. This is followed by a summary of the literature review.

2.1 Meaning and Definition of Management Accounting

The term MA consists of two words ‘management’ and ‘accounting’.

‘Management’ refers to all level managers in the organization. The word ‘accounting’
not only refers to mere record of business transaction but also covers other fields of
study. MA is a branch of accounting that produces information for managers and
forms an important integral part of the strategic process within an organization. It
involves the process of identifying, measuring, accumulating, analyzing, preparing,
interpreting and communication information that helps managers fulfill organizational
objectives (Hilton, 2014).

The charted institute of management accountants (UK) views MA as an

integral part of management process which requires the identification, generation,
presentation, interpretation and use of information. Smith (2014) also asserts MA
involves the preparation of financial reports for non-management groups such as tax
authorities, shareholders, creditors and regulatory agencies.

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 The term MAPs has been defined by Ittner and Larcker (2002) as the various
methods especially considered for manufacturing firms in order to support the
infrastructure and MA processes of the organization. Gichaaga (2014) asserts that
MAPs can consist of performance evaluation, budgeting, strategic analyses and
information for decision making, among others. They help management acquire
relevant information needed to make meaningful decisions (Alleyne and weeks-
Marshall, 2011). Usually, the larger the organization is, the greater is management’s
need for information.

Manufacturing companies use MA techniques to assess their operations. This

includesbudgeting, variance analysis and breakeven analysis. These helps
organizations to plan, direct and control operating costs and to achieve profitability. It
is recognized that MAPs are important to success of organization. Significant change
in the business environment and emergence of modern manufacturing environment
have reflected the effectiveness of modern accounting information systems and the
effectiveness of management accounting information systems and cost accounting.
MAPs provide information to managers and help them to find solution of problems
and assess performance.MA as a system of measuring and providing operational and
financial information that gives management action, motivates behaviors and supports
and creates the cultural values necessary to achieve organizations strategic objectives
(Johnson and Kaplan, 2007). MA that is an indispensible part of management
function, which is defined as planning, organization, implementation and control of
business activities, id one of the greatest helpers of business management in decision
making. Due to the fact that decision-making might be defined as making a choice
between options to achieve a result, MA has an important role in putting out the
situation that occurred in the past through numerical data, making plans for the future,
and performing the control function through comparing the planned and actual results
(Mott, 2015, p.39).

2.1.1 A Brief Review of Management Accounting Tools

MA is an integral part of the management process i.e. planning, coordinating,

controlling and decision making. It measures and reports financial information as well
as other types of information that assists managers to fulfilling the goals of the

11
organization (Shah and Ojha, 2016). Tools and techniques provided by MA to
discharge functions like, planning, controlling and organizing can be defined as such:

A. Cost Concept:
According to Harris and Durden, (2012) there are main two types of costing. One is
activity base costing (ABC) and the second is inter organizational cost management.
Due to the rapid change in the business environments the use of activity based
costing, just in time, total quality management tools have been emerged in the
organizations. In 1980, ABC concepts emerged in the businesses and in 1990 this
concept was used as to control costs in an efficient way. But still ABC is not in rapid
used by the organizations of the world (Abdel-Kader & Luther 2008). According to
Abdel-Kader and Luther, (2008) the following are the main tools for costing system:
1. Fixed and variable costs
2. Overhead rates on the basis of plant and department
3. Learning curve
4. Cost of quality
5. Target costing
6. Activity based costing

B.Cost Classification in a Manufacturing Firm:

Classification means to put an item or thing under a certain category. Cost

classification is the process of grouping costs according to their common
characteristics. The same cost figures sometimes can be classified according to
different ways of costing depending upon the purpose to be achieved and
requirements of a particular concern. The important ways of cost classification are:
(Ergin and Elmaci, 2015)

• By nature or element

• By function

• By direct or indirect

• By variability

• By Controllability

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 • By normality, Time
• By capital or revenue
• According to planning and control
• For management decision
"In MA with the purpose of manager's in management task, costs are classified
on the following ground" (Garrison,at.el. 2012).

(I) Cost Relating to Income Measurement

a) Product Costs "Those cost which attach or cling to units of finished goods
are caused product cost. Traditionally, in cost accounting product cost will consist of
direct materials, direct labor and a reasonable share of factory overhead" (Ergin and
Elmaci, 2015).
b) Period Costs
Period cost do not attach to products. They are incurred for a time period and
are charged to profit and loss on that period. Non manufacturing cost, selling cost and
administrative costs are generally treated as period cost (Ergin and Elmaci, 2015).
c) Absorbed Cost and Unabsorbed Cost
The part of fixed costs which is absorbed during the revenue of the particular
period is known as absorption cost. Absorbed cost which have been charged to
production cost which remains unchanged is known as unabsorbed cost (Ergin and
Elmaci, 2015).

d) Joint Product Cost and Separable Cost

"Joint product costs are the costs of a single process or a series of processes
that simultaneously produce two or more products of significant sales values. Such
costs are attributable to different individual products until after a certain stage of
production known as the split off point. Separable cost, in contrast, refers to any cost
that can be attributed exclusively and wholly to a particular product, process, division
or department" (Horngren and Datar,2013

e) Expired Costs and Unexpired Costs

Expired cost is the monetary value of the resources th3at have already been
used in producing revenue. It does not have a future revenue producing potential.

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"Unexpired cost which still has a potential of generating revenue in future an
unexpired cost represent the monetary value of an unused resources"

(II) Cost Relating to Profit Planning

Profit planning is concern with decision making. Cost volume profit

relationship is an integral part of profit planning, that is how the cost and profits vary
with sales volume. Planning deals with future. The future costs are relevant costs. The
relevant cost concepts are:

a) Variable Cost, Fixed Cost and Semi Variable Cost

Variable costs are the costs that tend to vary in direct proportion and same
direction to changes in production activity, sales activity or some other measures of
volume or cost driver. Variable costs change in direct proportion to and in the same
direction as the changes in activity levels or outputs. Fixed costs are costs associated
with those inputs, which do not vary with changes in the volume of output or activity
within a specified range of activity or output. If any cost remains constant in total at
any level of activity within the relevant range, it is called fixed costs (Drury, 2017).
Semi variable cost also known as mixed cost as they consist both of fixed costs and
variable costs. All costs, other than fully variable and fixed, which are neither
perfectly variable nor absolutely fixed in relation to volume changes, are semi
variable costs.

b) Methods of Semi Variable Cost Segregation

There are mainly two popular methods of semi-variable cost segregation,

which are as follows:

i) High Low Point Method

In the high low point method, the semi-variable cost is segregated into the
fixed and the variable components using exactly two data points. The points consist of
selecting the periods of the highest and lowest activity levels comprising the changes
in costs that result from the two levels (Hilton, 2014)

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 ii) High Low Point Method

In the high low point method, the semi-variable cost is segregated into the
fixed and the variable components using exactly two data points. The points consist of
selecting the periods of the highest and lowest activity levels comprising the changes
in costs that result from the two levels (Hilton, 2014)

III) Cost for control

a) Controllable Cost and Non-Controllable Cost

A cost is considered to be controllable if that can be managed or charged
within the related responsibility and within the given period of time. A cost that is not
subject to change within the related responsibility center and within the short time
span is called a non-controllable cost (Shah and Ojha, 2016).
b) Direct and Indirect cost

Direct cost is a cost that can be easily and conveniently traced to the particular
cost object under consideration. Indirect cost is a cost that cannot be easily and
conveniently traced to the particular cost object under consideration. It is also known
as common cost.

(IV) Cost of Decision Making

a) Relevant and Irrelevant Cost

A cost, which is influenced by a decision, is a relevant cost and hence is

important for decision makers. Relevant cost in true sense is an incremental cost.
Relevant cost are those costs, which differ from one alternative to the next. A cost,
which is not affected by a decision, is irrelevant cost. Such a cost is of no relevance to
decision makers. These costs should be ignored while making decisions. (Khan and
Jain, 2013)

b) Out of Pocket Costs, Marginal or Difference Costs, Opportunity Costs, and

Sunk Costs

Out of pocket costs

Out of pocket cost means the cash incurred in an activity. Since, out of pocket
costs involve a cash outlay it is very important for external reporting and internal

15
planning and decision making both. Like raw material, labor, salary, rent, etc. out of
pocket costs (Shah and Ojha, 2016)

Marginal or differential costs

Any cost that is present under one alternative but is absent in whole or in part
under another alternative is known as differential cost. Differential cost is also known
as incremental cost. Any costs which increases between the alternatives is incremental
cost while the one that decreases is decremental cost. Both incremental and
decremental cost are relevant in decision-making purpose (Garrison, et. Al. 2012).

Marginal cost is the change in total cost owing to the change in output. More
precisely marginal cost is the increase in the cost due to one more unit of output
produced

Opportunity cost
Opportunity cost is the profit foregone by selecting one alternative over other.
Opportunity cost is relevant for many decisions, but are sometimes difficult toidentify
and quantify, and are seldom recorded in an organization's accounting system (kalpan,
2012).
Sunk cost

These are costs that were incurred in the past. Sunk cost are irrelevant for
decisions, because they cannot be changed (kalpan, 2012).

c) Avoidable and Unavoidable Costs

Sometimes the term ‘avoidable’ and ‘unavoidable costs’ are used instead of
relevant and irrelevant costs. Dropping a department or product or an alternative can
save avoidable costs. Unavoidable costs remain unaltered with or without a product or
department or an alternative. Therefore only the avoidable costs are relevant for the
drop or continue decision (Khan and Jain, 2013).

d) Explicit and Implicit Costs

Explicit costs are those accounting expenses, which can be proved for external
reporting purpose such as for tax purpose. Most of the explicit costs are out of pocket
costs, which need to be paid in cash to suppliers, employees, etc. But some of the
explicit costs are non-cash in nature like depreciation expenses.

16
 Implicit costs are those expenses, which cannot be proved for external
reporting. These are not allowable for tax purpose. Implicit costs are in implied in
nature, which can just be understood, but may not need to be paid in cash at present or
in future; for example, interest on owner’s capital (Drury, 2017).

C. Cost Allocation and Apportion Methods:

There are two popular methods of allocating the cost of service department.

a) Direct Method

"Direct method of cost allocation ignores the cost of services between

departments and allocates all service department costs directly to producing
department" (Horngren and Datar, 2013).

b) Step-Down Allocation Method

Under the step-down method, once a support department’s costs have been
allocated, no subsequent support department costs are allocated back to it.

D. Product Costing Methods:

There are two popular methods of product costing. They are absorption
costing and variable costing.

a) Absorption Costing

Absorption costing method is also known as conventional costing, traditional

costing or full costing method. A costing method that includes all manufacturing cost
in the cost of a unit of product is known as absorption costing system. Under
absorption costing fixed manufacturingcost is also included in the cost of product. It
absorbs all cost necessary to production (Horngren and Datar, 2013).

b) Variable Costing

Variable costing method is also known as modern costing or marginal costing

method. Variable costing is a method of recording and reporting costs, which regards
as product costs only those manufacturing costs, which tend to vary directly with
volume of activity (Koirala and Acharya, 2013).

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E. Budgeting

Budgeting is the very important tool for controlling and forecasting all the
activities of the organization. Budgeting includes the rational allocations of
organizational resources for achieving the organizational goals and overall objectives.
There are a lot of budgeting techniques such as activity based budgeting and activity
based costing The primary objective of budget is to collect all the costs for example
material, labor etc within the organization. Activity based budgeting gives us a true
and precise picture of the costs allocations in the organization. Budgeting process
contains the different sort of budgets like master budget, cash budget etc. Cash budget
includes the receipts and payments of cash and opening and ending cash position of
the organization, whereas the master budget includes the entire summary of firm’s
activities.

Budgeting is perceived as an important control system in almost all

organizations. The main focus on budgeting has been on uptake rates and the purposes
underlying its use. Previous research indicates that the main purposes of budgeting are
planning future performance; planning the future financial position; planning future
cash flows; planning future day to day operations; and controlling costs; Abdel-Kader
and Luther, 2006)

i. Budgeting process
The main objectives of a business firm is to make an excess of revenue over
expenses so as to maximize profits. But it is not a matter of dream or chance. There
are no magic formulas of boosting the figure of profit overnight. Budgeting, if
followed properly, can increase the chances of making profits within the given
environment. A systematic budgeting should encompass the procedures such as
evaluating the business environment, setting objectives, setting specific goal, identify
potential strategies, communicating the planned guidelines, developing the long-term
plan and implementation of budgets (Shah and Ojha, 2016).

Budgeting process pushes managers to take time to create strategies, targets

and goals before activity begins. Budget preparation helps management focus on the
next month or the entire coming year. The budgeting process forces managers to
assess current operating conditions and aids in forecasting and implementing needed
changes. As Kariuki (2010) argues, budget preparation is also an excellent vehicle
18
with which to work with all supervised personnel by requesting their managers and
their staffs to participate. At the end of a period the budget helps managers evaluate
performance, locate problematic areas, bottlenecks and provide solutions to these
problems. Conventional budgeting concentrates on expenditures by budget centers
under conventional cost headings for example salaries, telephone and travelling
expenses. These are sometimes known as line items budgets as there is a line for each
expenditure item (Kariuki, 2010).

ii. Budgetary control

Budgetary Control Budget control is key to good management. The process of

developing financial plans for a company’s expected operations and controlling
operations which help to carry out those plans is known as budgetary control.
Objectives of budgetary control are: To aid in establishing procedures for preparing a
company’s planned revenues and costs. Budgets also aid in coordinating and
communicating these plans to various levels of management (Kariuki, 2010). In
addition, budgets formulate a basis for effective revenue and cost control. For
companies to benefit from budgetary control, they first set quantitative goals, define
the roles of individuals, and establish operating targets.

Short term or one year plans are generally formulated in a set of period
budgets. A period budget is a forecast of operating results for a segment or function of
a company for specific period of time. In practice, most of the manufacturing
companies use period budgets as their budgetary control (Amalokwu &Obiajulum,
2008). They follow several MA tools such as knowledge of responsibility accounting
reporting systems, cost behavior patterns, and the use of cost, volume-profit analyses
help management project revenues and costs for departments or products. A profit
planning in itself is possible only after all cost behavior patterns have been identified.

iii. Budgeting and organizational Performance

Budgeting can support organizational performance management by integrating

known organizational outcomes with frequent re-forecasting of the budget and linked
to analysis of performance trends.The emergence of scientific management
philosophy laid emphasis on detailed information as a basis for taking decisions thus
leading to tremendous development of MA and budgeting techniques (Bartle, 2008).

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At early stage of development, budgeting was concerned with preparing and
presenting credible information to legitimize accountability and to permit correct
performance evaluation and consequently, rewards (Hindereth, 2002), However, over
the years, the function and focus of budgeting has shifted considerably as business
organization became more complex and their environment become dynamic.

F. Control and Reporting

Anthony (1965) defined control is the process of assuring that resources are
obtained and used effectively and efficiently in the accomplishment of the
organization's objectives. It is a function that compares achieved results with planned
goals. The control function is the process of ordering, evaluating, and providing
feedback to the management system of an organization. The environment in which
modern organizations operate are becoming more and more complex – more products,
more players, and rapidly changing technology and markets. As a result of this
complexity, no single individual or group can evolve a solution, which is considered
effective. Hence, the need for an integrated system of management control arises
(Gyawali, 2005).Control refers to monitoring and evaluation of performance to
determine the degree of conformance of actions to plans. Ideally, planning precedes
control, which is followed by a feedback corrective action or a feed forward
preventive action.

“In attempting to control costs, managers have two types of decisions to make
decisions relating to prices paid and decision relating to quantities used. Managers are
expected to pay the lowest possible prices, consistent with the quality of output
desired, in attempting the objectives of their firms. In attaining, these objectives,
managers are expected to continue the minimum quantity of whatever resources they
have at their command, again consistent with the quality of output desired. Break
even downs in control over either price or quality will lead to excessive cost and to
deteriorating profit margins. Managers could personally examine every transaction
that takes place to control price paid and quantity used, but this would be an
inefficient use of management time. Thus, the answer to the control problem use in
standard cost”(Garrison,at.el. 2012)

G. Decision Making

20
 Generally, there is a perception about MA that its information provides the
managers for effective decision making. There are a lot of different tools for decision
making in which product profitability analysis, cost volume profit etc. Cost volume
profit includes the potential change in the revenues, costs and prices of the company
(Horngren, et al. 2009). Decision making practices are as follows.

1. Profitability analysis about the product;

2. Break even analysis or cost volume profit analysis;

3. Cash flows;

4. Time value of money and payback period

5. Profitability analysis about the customer;

6. Probability analysis;

7. Some non-financial decision making

There is a general perception that MA provides relevant information for

making decisions, both internally or externally and on a long term or short term basis.
There are many different tools for making short term decisions such as cost volume
profit (CVP) analysis, and customer profitability analysis. Horngren et al. (2009,
p.87) defined cost volume profit analysis as a method or tool for measuring potential
changes in the company’s revenues, costs and prices. CVP analysis is used in
manufacturing companies to determine how many units of a particular product must
be sold in order to break even. The application of this principle is relatively straight
forward with the unit selling price being subtracted from the variable cost per unit to
arrive at the contribution margin. The total fixed cost is then divided by the
contribution margin in order to arrive at the number of break even units required.

Therefore, this allows managers to see the behavior of the cost prior to
making a solid commitment or final decision on a specific order. CVP analysis may
also be used by managers when considering if a product should be bought or made.
Cost volume profit analysis appears to be a practice that is strongly used by
manufacturing companies in the food business. MA can also produce useful

21
information to make financial management decisions such as payback periods,
accounting rate of return and discounted cash flow methods. Most companies used
the popular way of measuring return on investment by using the accounting rate of
return to calculate the cash flows on major capital projects. However, the use of
discounted cash flows and internal rate of return techniques to calculate the cost of
capital seems not to be a regular MA practice used by businesses.

Decision making is the art of selecting the best alternatives among the various
alternatives available to solve a given problem. In case of business, the best
alternative is one, which is likely to provide maximum profits and involve a minimum
cost without violating the social responsibilities (Gautam and Bhattarai, 2014).

1. Decision Situations

I) Sales Volume Related Decision

a) Decision to a Special Order

b) Decision to Drop a Product Line

c) Decision to Make or Buy

d) Decision to Further Process Joint Products

H. Performance Evaluation

Many of the studied have been shown about the adoption of performance
evaluation measures by the companies in the world. It includes financial as well as
non financial measures but mostly financial measures have been used in the
companies.

The following are the major practices of performance evaluation adopted by the
companies in the world.

1. Financial measures

2. Non financial measures that are related to the operation and innovation

3. Non financial measures that are related to customers

22
4. Benchmark of performance evaluation

5. Non financial measures about employee

Emmanuel et al. (1990) noted that performance evaluation was an important

function of MA. Performance evaluation provides information for managers to
support the achievement of their organization‘s strategic objectives.(Jusoh and
Parnell,2008).

Hall (2008)argued that in recent years organizations have sought to develop more
comprehensive performance measurement systems (PMS) to provide managers and
employees with information to assist in managing their operations. Hall(2008) also
stated popular techniques for delivering a wider set of performance measures are the
balanced scorecard and performance hierarchies (Lynch and Cross, 1992). highlighted
the frameworks for performance measurement and management which are the value-
based management (VBM); ABC and activity-based management; balanced
scorecard; European Foundation for Quality Management (EFQM) excellence model;
benchmarking; strategic enterprise management (SEM); and six sigma. However the
literature indicates that in general both financial and non-financial measures are used
to measure performance.

I. Organizational Performance

Performance refers to outcomes, end results and achievements arising out of

organizational activities. Organizational performance encompasses three specific
areas of firm outcomes which include financial performance (profits, return on assets
and return on investments), product-market performance (sales and market share) and
shareholder returns (total shareholder return and economic value added).
Organizational performance comprises the actual output or results of an organization
as measured against its intended outputs (or goals and objectives). It is the objective
of any organization because only through performance, are organizations able to grow
and progress.

(a) Financial performance (profits, return on assets, return on investment, etc.);

(b) Product market performance (sales, market share, etc.);

23
(c) Shareholder return (total shareholder return, economic value added, etc).

Organizational performance refers to how well an organization is doing to

reach its vision, mission, and goals. Assessing organizational performance is a vital
aspect of strategic management. Executives must know how well their organizations
are performing to figure out what strategic changes, if any, to make. Performance is a
very complex concept, however, and a lot of attention needs to be paid to how it is
assessed.

Hove, Sibanda and Pooe (2014) explains that organizational performance

refers to how the aggregate technology enabled performance impacts across all firm
activities, such as cost reduction, revenue enhancement and competitiveness.
Organizational performance involves the effectiveness and efficiency of a business in
attaining the set goals and the extent to which the organization is able to excel in
meeting the needs of all its stakeholders states that business performance might be
defined in terms of doing the work, as well as in terms of the results achieved.

2.1.2 Pricing of the Product and Services

“Pricing decisions are decision that managers make about what to charge for
the products and services they deliver. The pricing of product is not just marketing
decision or a financial decision, rather it a decision touching on all aspects of firms”
activities and as such of affects the entire of firm’s activities and as such of affects the
entire enterprise. As the prices charged on products largely determine the quantities
customers are will to purchase the setting of prices dictates inflows of revenues
consistently fail to cover all the costs of the firm and then in the long run, the firm
cannot survive” (Garrison, at. el., 2012).

For pricing decision economists have their own view while accountant has
their own perspectives. Economic theories indicate that companies acting optimally
should produce and sales units until the marginal revenue equal marginal cost the
market price is the price that creates a demand for these optimal numbers of units. But
economic theory of pricing based on marginal cost and revenue approach is subject to
criticism. On the ground that this models of pricing is applicable only in monopoly
and monopolistic competition market. This model of pricing on marginal revenue and
cost is not applicable to oligopolistic situation. Thus management account has

24
different perspective regarding pricing decision. They consider cost as the key factor
to pricing decision of the standard product” (Horngren and Datar, 2013)

Not all pricing decisions can be approached in the way as economics theory
describes. Some pricing of standard products that are sold to customers in the routine
day to day conduct of business activities other pricing decision related a special order
of standard or near standard an effort to fill out unused productive capacity. The ways
of pricing special products are:

• Cost plus pricing

• Target cost pricing

• Variable cost pricing

• Full (absorption) cost pricing

2.2 Review of Related Studies

Ahamad (2014) an exploratory study of the level of sophistication of MAPs in

Libyan manufacturing companies. The major purpose of this study is to examine the
MAPs in Libyan manufacturing companies. For this purpose exploratory research
design has been used. His study shows that almost all of Libyan manufacturing
companies are implementing MAPs which provided information for cost
determination financial control and information for management planning control.
The Libyan manufacturing companies rely heavily on traditional MA techniques,
while the adoption rates of recently developed or advanced tools were rather low,
slow and similar than those presented in other developing countries. Sophistication
level of MA is also found very low between Libyan manufacturing companies under
this study.

Duwadi (2014) has submitted a thesis on the topic "A study on MAPs in joint
venture banks". The major objectives of this study are to analyze the practices of MA
tools being used in joint venture banks. The necessary data is collected based on
primary data

25
The major findings of this research work were:

Almost 100% of banks breakeven analysis and responsibility accounting were

practiced about 83% and 33% respectively whereas the tools like activity base
costing, standard costing, long term and zero based budgeting were unusual in joint
venture banks. While preparing the budget there was no practice of taking
consultancy service.

The committee and chief of finance division prepared the budget. While
evaluating loan proposal all the joint venture bank focused on valuation of assets,
purpose of loan, analysis of customer back ground with customer social status and the
chances of loan recovery. Joint venture banks mostly accepted the securities like land
and building, government bonds, treasury bills, share and debentures, gold and other
valuable assets. Some remarkable recommendations of the research work were.
Techniques like high low point method, average method and analysis method should
be used to segregate costs. Joint venture needs to use responsibility accounting for the
cost control and performance evaluation. Use of outside expert should be used by
JVBs for the budget preparation. JVBs were not found practicing cash budget. So,
they should practice cash budget which gives all details about sources and use of cash.

Kariyawasam (2018) conducted study on the topic “cost and MAPs in

Srilanlka’s manufacturing industry”. The main objective of this study is to analyze
the use of cost accounting and MAPs in public quoted manufacturing companies in
Sri Lanka. To meet this objective applied and survey research method has been used.
According to the study the main costing method used by public quoted manufacturing
companies in Sri Lanka is activity based costing, followed by process and job costing.
MAPs in public quoted manufacturing companies give high importance of traditional
MAPssuch as planning and controlling, budgeting, target costing, and cost volume
profit analysis. It implies that modern MAPs is dominated by traditional MAPs in
manufacturing companies of Sri Lanka.

Ghimire (2010) submitted the thesis on the topic of “MA practice in Nepalese
listed manufacturing companies”. The necessary data and information has been
collected through primary sources of data collection. Mr. Ghimire found under the
study, regarding the practice of transfer price in the Nepalese manufacturing

26
companies, 58% of the manufacturing companies practiced cost base transfer pricing,
23% of manufacturing companies practiced market based transfer pricing where as
5% of manufacturing companies practiced negotiated transfer price for their product.

The study shows that decision making and control process followed by
Nepalese manufacturing firm, it was found that 69% of Nepalese manufacturing
companies practiced control during the work period. 18% practiced control before
work has to be stated, where as 5% practiced controls after finishing the work. The
cost and revenue estimation practice of Nepalese manufacturing firm, it was found
that 78% of the manufacturing companies practiced historical trend for cost and
revenue estimation while 18% manufacturing firm practiced market survey. Whereas
no one companies practiced zero based budgeting and judgment analysis for their cost
and revenue estimation purpose. The area where MA tools is effective in practice to
make strength of the companies, it was found that 49% in Nepalese manufacturing
companies said production area is effective for practicing MA tools; 29% said
marketing area is effective and 11% said financial area is effective. Regarding the
practice for the issue of inventors in Nepalese manufacturing companies, it was found
that 68% manufacturing companies practiced FIFO method while, 18% practiced
weighted average and only 5% practiced specified items by law for the issue of
inventory.

Kushwaha (2015) has submitted the thesis on the topic “MAPs in Nepalese
insurance companies”. The necessary information and data are collected through
primary as well as secondary sources of data collection. The major findings of this
research work, cash flow and short term budgeting are mostly practiced tools in
selected Nepalese insurance companies. Whereas regarding the practice of capital
budgeting tools in the selected Nepalese insurance companies, from the study it was
found that ARR is the mostly practiced tools i.e. (70%). While PBP, NPV and IRR
are the less practiced tools for long term investment decision. This study also shows
that the tools practiced by the selected Nepalese insurance companies for measuring
and controlling their overall performance, (90%) of the selected insurance companies
measure their performance on the basis of profit and loss made by then during the
year. While (30%) of the companies are using budgetary control but standard costing
and breakeven point methods are not in practice. As regarded to the practicing of

27
transfer price the selected Nepalese insurance companies are practicing only (30%)
cost based price and another (30%) their own price. Market based price and
negotiation price are less practiced price by the selected Nepalese insurance
companies i.e. (10%). Whereas (20%) are not practicing any kinds of pricing
techniques because of lack of knowledge, skills, resources and manpower etc. As
regarded to the variance inflation factor of independent variables budgeting and
planning is (1.82), costing is (2.227), controlling and reporting is (5.340). The value
of each variables is less than (10) thus, it indicates that there is significant positive
contribution in overall organizational performance of the selected Nepalese insurance
companies.

Sharma (2015) has conducted research on topic “practices of financial and

MA: evidence from small and medium sized enterprises of Nepal”. This study has
stand on exploratory research methodology. Under this study, financial and MAPs in
the small and medium size enterprise are relatively contemporary. They still used to
prepare financial and MA reports such as profit and loss, balance sheet, cash flow
statement, CVP analysis, variance analysis and budget on regular basis. They are not
followed advanced MA tools and techniques. In terms of usefulness of accounting
reports, MA reports are considered to be more useful than financial accounting
reports.

Gyawali (2017) has conducted the research on the topic “MA systems practice
in Nepalese commercial banks”. The major objective of this study is to analyze the
MA systems practices and its roles in Nepalese commercial banks. This research work
finds that budgetary control is the foremost used MA system tool in Nepalese
commercial banks. Thereafter, they use other MA systems tools also such rankings;
cash flow statement analysis, ratio analysis, variance analysis and CVP analysis.
According to his research work there is still gap between the theory and practical
accounting tools in Nepalese commercial banks.

Liqat (2006) conducted study to determine the application of contemporary

MA techniques in Indian companies. A survey research design was employed. The
study targeted 530 members companies of India’s national association of financial
directors and cost controllers. The study focused on findings on how widely
contemporary and traditional MAPs were employed by Indian companies. It was

28
discovered that improvement of general cost reduction and profitability were the
motive behind the utilization of MA in Indian firms. The study also discovered a
positive relationship between the adaptation of ABC and firm characters and such as
pressure of competition, degree of customization, proportion of overhead to total
costs, business size. None of the variations, however, was found to be at 10% of
significant level.

Karki (2009) conducted a research work entitled “MA practice in public

enterprises”. Mr. karki has mainly focused to study and examine the extent of practice
of “MA tools and techniques made in Nepalese public enterprises”. The data and
necessary information have been collected from the primary as well as secondary
sources. In this study, it was found that various MA tools and techniques, which are
taught in colleges and universities, are not used in real practice in Nepalese public
enterprises. Some MA tools like capital budgeting, cash flow, ratio analysis and
annual budgeting are widely practiced in joint ventures banks of Nepal but some tools
like standard costing, activity based budgeting, zero base budgeting, long term budget
are not practiced.

Eugine and Miston ,(2017) ,have conducted a study on the Impact of (MAPs)
on the Business Performance of Small and Medium Enterprises within the Gauteng
Province of South Africa: This study contributes to the body of knowledge in the area
of MA by providing current insights on both literature and research methodologies. In
this manner, the paper may be used as a reference source by future researchers on
similar matters. Furthermore, the study validates that MAPs such as costing system,
budgeting, performance evaluation, information for decision-making and strategic
analysis are instrumental in stimulating the SMEs business performance within the
Gauteng Province of South Africa. The study further validates that those small and
medium enterprises that are engaged in MAPs enhance business performance. The
study has both theoretical and management implications. Theoretically, this study
makes a noteworthy progression in MA concept by methodically examining the
interplay between management account practices and business performance. In this
manner, the study is an important contributor to the existing literature on this subject.
The study also underwrites a new direction in the research on MAPs by opening up a

29
discussion on the importance of MAPs in the development of SMEs in developing
countries such as South Africa.

Ahmed, Abdurrahman &Ghani, (2019) have conducted a study MAPs in many

countries around the world a review of the literature. This study contributes to the
GAP in MAPs studies in several countries and provide an invaluable framework for
future studies to adopt. MAPs (MAPs) studies have garnered increasing attention
fromresearches and professional in accounting across several countries particularly
those that are in the process of transitionary. This study data was gathered from prior
literature and tabulated based on title year and country of the study and the sample
size as well as the publication journal. The finding showed that researchers have been
extensively dedicating their efforts to examining accounting management practices in
various sectors particularly in manufacturing firms.

Emiaso, Egbunike,Patrik, (2018)has conducted research ontopic

StrategicMAPs and organizational performance of manufacturing firms in Nigeria.
This study was carried out to examine the relationship between organizational
performance of the Nigerian’s manufacturing companies and the application of
strategic MA techniques. The study adopted the survey research design. The
population of the study consists of all manufacturing companies in Delta State,
Nigeria. The study used simple random sampling. 15 manufacturing companies were
randomly selected for the study. Data for the study were obtained through the
administration of a self-designed questionnaire to managers or accountants of the
sampled firms. Regression and t-test were used to test the hypotheses postulated for
the study. The study showed that application of strategic MA tools have a positive
relationship with organizational performance of companies survey. The study also
found a significant difference in effectiveness of decision making between application
of strategic MA tools and traditional MA techniques and concludes that
implementation of strategic MA practice is necessary to enhance organizational
performance of the firm. The study therefore recommends that manufacturing
companies, especially the ones operating in Delta State, put in place appropriate
measures to apply Strategic MA tools to ensure efficient and realistic decision making
process that will enhance organizationalperformance.

30
 Oyerogba, et al. (2014)Have conducted research on topic MAPs in the
developing economies of Nigeria listed companies. This study investigated the MAPs
in developing economy with a particular reference to the Nigeria listed manufacturing
organizations. The three objectives for this study were the investigation of the
adoption level of the new MA techniques, identification of factors influencing the
choice of MAPs in manufacturing organizations and the extent to which MAPs were
influenced by those factors. Descriptive and inferential statistics were carried out on
the opinion of 148 randomly selected staff of listed manufacturing companies in
Nigeria. The findings revealed that cost volume profit analysis, marginal costing,
accounting rate of return, discounted net present value, and internal rate of return
were very prominent in manufacturing companies in Nigeria.Since the activity based
management and balanced score card has not been fully embraced, it is therefore
recommended that adequate awareness should be created for the said techniques.

Abdel-Kader and Luther (2006)studied MAPs (MAPs) in the food and drinks
industry in the U.K. in order to understand the level of MAP’s sophistication and the
factors that affect implementation of MAPs in this industry. The research
methodology used in this study was a survey questionnaire sent to 650 executives of
the industry. In total, 245 usable completed questionnaires were received and
analyzed. Respondents were asked to indicate the frequency of use of 38 MAPs
(MAPs) using a Likert scale (1 indicating never and 5 indicating very often). They
were also asked to assess the importance of each technique/practice by rating these as
‘not important, moderately important or important. The study found that as companies
moved into a more uncertain environment, the sophistication level of MAPs
increased. Likewise, as their power relative to customers’ diminished, companies
moved up the stages of evolution. Analysis of the MAPs used suggested that the MA
systems employed in many food and drinks companies were not particularly
sophisticated. Taking the industry as a whole, there was little evidence of MA directly
connected with ‘value creation’.

Abdel-maksoud (2011) conducted a research entitled: MAPs and management

techniques and practices in manufacturing firms: Egyptian evidence. The
implementation of innovative management practices and manufacturing techniques is
viewed as having considerable implications for MAPs. This study aims at exploring

31
the relationships among levels of implementation of various innovative management
practices, computerized manufacturing techniques and automated stock-handling
systems on one hand, and levels of deployment of advanced MAPs in Egyptian
manufacturing firms on the other. The paper presents findings from interviewing
managers of 240 Egyptian manufacturing firms operating in the biggest three
industrial areas in Egypt in mid-2005. The findings provide unequivocal evidence
supporting the hypothesized significant positive correlations between levels of
implementation of innovative management practices and levels of deployment of
advanced MAPs. In contrast, the hypothesized significant positive correlation
between levels of implementation of automated stock handling systems and levels of
deployment of advanced MAPs is found to be influenced by firms’ size, industry area
and type firms belong to. The study findings contribute to advance MAPs literature in
Egypt.

32
 Table: Review of related studies
S.N Author Titles/objectives Methodology Findings

1. Ahamad To examine the MAPs Exploratory All most all of Libyan

(2014) in Libyan manufacturing companies
manufacturing are implementing MAPs.
companies.

2 Duwadi To analyze the Exploratory All Banks were practiced

(2014) practices of MA tools Break Even Analysis and
beings used in joint responsibility accounting.
venture bank.
3 Kariyaw To analyze the use of Survey MA practice support the
asam cost accounting and research organizational structure
(2018) MAPs in srilanka and MA process.
manufacturing firms.
4 Ghimire MAPs in Nepalese Descriptive Mostly [Cost based]
(2010) listed manufacturing transfer pricing in the
companies. Nepalese manufacturing
companies.
5 Kushwah To examine the MAPs Descriptive Cash flow &short-term
a in Nepalese Insurance and mostly practiced tools in
(2015) companies. Analytical insurance companies.
6 Emiaso To examine the Survey Concluded that strategic
(2018) relationship between research MAPs is to necessary to
organizational Enhance
performance and organizationalperformanc
strategic MA. e.
7 Liqat Application of Survey It was discovered that
(2006) contemporary MA research improvement of general
techniques in Indian cost reduction and
companies. profitability were motive
behind the utilization of
MA in Indian companies.
8 Gyawali To analyze the MA Descriptive MA systems have affected
(2017) systems practices and and casual the performance of sample
its role in Nepalese organization.
commercial bank.

33
9 Karki To study &examine the Descriptive MA tools and techniques
(2009) extent of practices of taught in colleges and
MA tools and university but not used in
techniques made in real practices in Nepalese
Nepalese public public enterprise.
enterprise.
10 Eugine& Impact of MAPs on the Simple SMEs are engaged in
mistonss business performance random MAPs enhance business
(2017) of SMEs of Gauteng sampling performance.
province of south
Africa.
11 Ahmed, To review studies Descriptive Researchers have been
Abdurra dedicated to MAPs in and casual extensively dedicatingto
hman several country. management practices in
&Ghani manufacturing firms.
(2019)

12 Abdel- To exploring the Survey Finding shows that

Maksoud relationship among method significant positive
(2011) levels of correlation between levels
implementation of of implementation of
various innovative innovative management
management practices. practices.

13 Abdel- MAPs in the food and Survey Manufacturing companies

Kader, drinks industry in the research moved into amore
M., & U.K survey. Design uncertain environment the
Luther, sophistication level of
R. MAPs increased.
(2006)

14 Oyerogb To investigate in the Descriptive & The finding revealed the

eat al. MAPs in developing casual CVP analysis, Marginal
(2014) economy with the costing ARR, Discounted
Nigeria listed NPV& IRR were very
manufacturing prominent in
organizations manufacturing companies
in Nigeria.

34
15 Alleyne To examine the MAPs Descriptive MAPs were consistent and
(2011) in three manufacturing standardized across the
companies within a group.
public limited group
company in Barbados.

2.3 Theoretical Framework

Theoretical framework clearly shows the cause and effect of independent

variables on dependent variables. It helps to increase MAPs and improve
organizational performance of manufacturing firms. To find the impact of
independent variables (MAPs) on dependent variables (organizational performance), a
theoretical framework has been developed. This is shown below:

Costing System

Budgeting System

Controlling and reporting Organizational

performance

Decision making

Performance evaluation

Independent variables Dependent Variable

From the above theoretical framework it has been conceptualized that

budgeting and planning, controlling and reporting, performance evaluation system,
decision making system, costing system(Management accounting systems) have
positive correlation.

35
2.4 Research Gap

There is a gap between the present research and previous researches conducted
on MAPs in Nepalese manufacturing companies. They were either a case study of a
particular company or a comparative study of two different companies. The findings
of the previous researches were mostly based on the secondary data. The previous
research did not disclose which of the accounting tools are mostly practiced and
which are not and why? The literature review on different articles, journals, and thesis
shows that there is positive impact of MApractices on manufacturing companies.
MAPshelps to increase the organizational performance of manufacturing company.
The variables of the previous study are almost same. The previous research are
conducted only MAPs but not show its relation with organizational performance.
They also did not show the cause and effects of MAPs on firm performance. Previous
research is mostly focus on traditional MAPs. They were focus only MAPs but not its
implementation. Thus, to fulfill those gaps current research is conducted.

This research is survey type of research. It is completely based on primary

sources of data. Market survey in management activities of planning, controlling and
decision makingprobably the new research study made in present study. Thus, present
study will be fruitful to those interested person, parties, scholars, professors, students,
businessmen and government for academically as well as policy perspective.

36
 CHAPTER-III

RESEARCH METHODOLOGY

Research methodology is a way to systematically solve the problems. In other

words Research methodology refers to the various sequential steps (along with
rationale of each such steps) to be adopted by researcher in studying a problem with
research projects are not meaningful, unless they are in sequential order, which
determined by the particular problem at hand. Descriptive research design was used in
this study. This research strategy was considered necessary because of its ability to
view comprehensively and in details the major question raised in the study. This
chapter deals with sampling techniques, data collection methods, data analysis tools,
research instruments etc. To achieve the stated objectives the following methodology
has been used.

3.1 Research Design

The main objectives of this research study is to examine the present practices
of management accounting systems and show the relationship between management
accounting practices and its effects on organizational performance. To fulfill these
research objectives descriptive and explanatory research design has been used.
In addition, this design enables the researcher describe the characteristics of the
population being studied as they exist at present hence minimizing biases and
maximizing the reliability of the evidence collected. Finally, this design is chosen
because it also provides a relatively complete picture of what is occurring at a given
time and allows the development of questions for further study. The research was
relied on data obtained from respondents on effects of costing, budgeting, decision
making, controlling and performance evaluation on the organization performance of
manufacturing firms in Nepal.

3.2 Population and sample

This study is designed to complete the research work on the present practice of MAPs
by Nepalese manufacturing companies. The total 220 numbers of manufacturing
companies as population for the study [Industrial Statistic FY 2074/75]. Out of them 4
companies were selected for the study that is called sample. The sample

37
manufacturing companies have been selected with the help of convenience sampling
method. This study focused on 4 manufacturing companies in Kathmandu area
because their highest contribution on GDP (highest tax payer & highest goods
exporter) of Nepal.

3.3 Nature and Sources of Data

In general, there are two main sources of data that can be used in a research.
These are primary and secondary data. To fulfill the objective of this study primary
data has been used and collected through questionnaire from 100 respondents. They
are classified and tabulated in required form.

3.4 Data collection procedures

Kothari (2004) defined data collection as a means by which information is

obtained from the selected subjects of an investigation. Data collection instruments
refer to the tools used in obtaining information from respondents. The researcher
collected data using a questionnaire. A questionnaire is a systematically prepared
form or document with a set of questions deliberately designed to elicit responses
from respondents or research informants for the purpose of collecting data or
information (Kumar, 2011). The questionnaire method was considered appropriate for
this study since it is an inexpensive method of data collection as it is administered
collectively to a study population.

The study collected primary data from the respondents. The study utilized a
questionnaire to collect data. The questionnaire designed in this study comprised of
two sections. The first part included the demographic and operational characteristics
designed to determine fundamental issues including the demographic characteristics
of the respondent. The second part was devoted to the questions on the effects of
MAPs and organizational performance of manufacturing companies in Nepal.

38
3.5 Data Processing Procedures

The data collected was first cleaned, then sorted and coded using numerical
numbers. The data was then entered in the SPSS software after which analysis was
done. The quantitative information gathered was investigated by the utilization of
spellbinding measurements utilizing SPSS and introduced through means and
standard deviations. The information was broken down as per the goals of the
examination. Factual Package for Social Sciences (SPSS) adaptation 25.0 was utilized
as an instrument to investigate the information. The data exhibited through utilization
of tables and figures. This was finished by counting up reactions, registering rates of
varieties accordingly and also depictingand translating the information in accordance
with the examination targets and suppositions through utilization of SPSS.

3.6 Reliability Test:

Table 3.1: Cronbach’s alpha coefficients

Cronbach's Alpha Cronbach's Alpha Based on No. of Items

Standardized Items

.729 .785 6

The reliability analysis was done for the present management accounting tools
questionnaire construction consistency of responses to items. The Cronbach’s alpha
coefficient comes to α = (0.729) on item 6, which is higher than 0.5. The results
indicated the importance of management accounting tools are significant

It was generally used as a measure of internal consistency or reliability.

Nunnally (1978) suggested that alpha coefficients of 0.50 to 0.60 will be deem
acceptable for exploratory research.

39
 CHAPTER IV

RESULTS

This chapter mainly incorporates data presentation, analysis and interpretation.

Presented data are analyzed and interpreted by using statistical tools like mean,
standard deviation and regression analysis of variance test, so as to achieve the
results.

4.1 Analysis of Primary Data

MA is an integral part of management concerned with identifying, presenting

and interpreting information used for formulating strategy, planning and control
activities. It is primarily concerned with data gathering, analyzing, processing,
interpreting and communicating the resulting information for use within the
organization. So that management can more effectively plan, make decisions and
control operations (Shah and Ojha, 2016).

The basic objective of the study is to examine the practice of MA tools and its
effects on organizational performance in Nepalese manufacturing companies and to
identify the area where MAPs could be applied to strengthen the company. This
chapter presents the analysis and interpretation of data. To meet the objectives, all
manufacturing companies having head office in Kathmandu valley which are in
operation, are taken as population. Among them questions were distributed to four
companies. Besides questionnaire, discussions were also made with general manager,
finance in chief and account in-chief of the companies. To get more information about
the present practice of MA practices views of managers, accountants and finance in-
chief are also included in this chapter.

Raw data were properly processed, tabulated and analyzed. They were
presented in to tables. Tables were developed on the basis of question asked.

40
4.2 Descriptive Analysis

The respondents company were asked to rate the usage of costing, budgeting,
controlling, performance evaluation and decision making management accounting
practices in their company. The ranking ranged from 1 to 5. Questions are used in five
point likert scale questionnaire and each question ranging from "strongly disagree" to
"strongly agree", coded by 1 is "strongly disagree", 2 representing "disagree", 3
representing "neutral", 4 representing "agree" and 5 representing strongly "agree".

Table 4.1
Descriptive Statistics of Budgeting and Planning
Code Statement Test value=3
N Mean Std. Deviation
BP1 Budgeting develops a sense of 100 3.97 .795
responsibility
BP2 Budgeting increase operational 100 3.78 .782
efficiency
BP3 Maximization of profit 100 3.99 .685
BP4 Budgeting help to make plan. 100 3.96 .774
BP5 Budget ensure better 100 3.9 .700
understanding
Overall Mean and SD 3.92 .747
Source: Primary data, SPSS output

Table 4.1 shows descriptive statistics of an individual item and as a whole of

budgeting and planning sub-factor. There are five statements are used to measure the
variables. Each of respondents submitted their responses in the five point liker scale.
The overall mean of budgeting and planning practices is 3.92, which is greater than 3,
with standard deviation of 0.747. This shows that organizational performance could
be achieve through effective budgeting and planning.

41
 Table 4.2
Descriptive Statistics of costing System

Code Statement Test value=3

N Mean Std. Deviation

CS1 Costing system help segregate total cost 100 3.83 1.753
in fixed, variable and semi-variable

CS2 Costing system identify opportunities 100 3.76 1.176

for product improvement

CS3 Applied standard costing technique 100 3.83 .726

CS4 Reduce cost in areas of product 100 3.76 .698

improvement

CS5 Organization has used cost information 100 3.92 1.734

Overall Mean and SD 3.82 1.364

Source: primary data, SPSS output
Table 4.2 shows descriptive statistics of an individual items and as a whole of
costing systems sub-factor. There are five statements are used to measure the
variables. Each of respondents submitted their responses in the five point liker scale.
The overall mean of costing practices is 3.82, which is greater than 3, with standard
deviation .736. This shows that organizational performance could be achieve through
effective costing systems.

42
 Table 4.3

Descriptive Statistics of controlling and reporting

Code Statement Test value=3

N Mean Std. Deviation

CR1 To monitor and measures employees 100 3.81 .761

performance
CR2 Responsibility centre helps to 100 3.9 .704
control cost
CR3 Proper and timely feedback, 100 3.8 .682
monitoring, supervision systems
adopted
CR4 Detects & corrects unintentional 100 3.83 .739
error.
CR5 Progress in achieving corrective 100 3.97 .745
actions.
Overall Mean and SD 3.86 .726
Source: Primary data, SPSS output

Table 4.3 shows descriptive statistics of individual items and as a whole of

controlling and reporting sub-factor. There are five statements are used to measure the
variables. Each of respondents submitted their responses in the five point likert scale.
The overall mean of controlling and reporting practices is 3.86, which is greater than
3, with standard deviation .726. This shows that organizational performance could be
achieve through controlling and reporting technique.

43
 Table 4.4
Descriptive Statistics of Performance Evaluation
Code Statement Test value=3
N Mean Std. Deviation
PE1 Customer satisfaction surveys frequently. 100 3.92 .734
PE2 Bench marking system has been adopted 100 3.02 1.251
for the quality delivery of services
PE3 Performance evaluation is made based on 100 3.87 1.816
RI, ROI, ROA, ROE .
PE4 Performance evaluation is made based an 100 4.06 .763
employee's attitude/behavior.
PE5 An effective measurement and reporting 100 3.06 .722
process can improve efficiency in
productivity.
Overall Mean and SD 3.57 1.06
Source: Primary data, SPSS output

Table 4.4 shows descriptive statistics of individual items and as a whole of

performance evaluation sub-factor. There are five statements are used to measure the
variables. Each of respondents submitted their responses in the five point likert scale.
The overall mean of controlling and reporting practices is 3.57, which is greater than
3, with standard deviation 1.06. This shows that organizational performance could be
achieve through controlling and reporting technique.

44
 Table 4.5

Descriptive Statistics of decision making

Code Statement Test value=3
N Mean Std. Deviation
DM1 Customer profitability analysis to 100 4.27 .706
make customer related decision.
DM2 Increase market share, productivity 100 4.70 .765
and profit.
DM3 Launching a new product. 100 4.51 .759

DM4 Management functions are 100 4.00 .804

determined by the good decision
made by the BOD.
DM5 Decision making provide accurate 100 4.50 .804
cost information to Management
accountant.
Overall Mean SD 4.39 .760
Source: primary data, SPSS
Table 4.5 shows descriptive statistics of individual items and as a whole of
decision-making sub-factor. There are five statements are used to measure the
variables. Each of respondents submitted their responses in the five point likert scale.
The overall mean of decision making practices is 4.39, which is greater than 3, with
standard deviation .76. This shows that organizational performance could be achieve
through effective decision making.

45
 Table 4.6
Descriptive Statistics organizational performance

Code Statement
Test value=3
N Mean Std.Deviation
OP1 MAPs help to increase product service 100 4.11 .764
quality.
OP2 MAPs help to development of new 100 4.04 .777
product.
OP3 MAPs help to increase Return on 100 4.26 .719
investment.
OP4 Organizational performance is based 100 4.27 .633
on customer satisfaction level.
OP5 MAPs help to increase market share 100 4.34 .742
/sales margin.
Overall mean and SD 4.204 .727
Source: primary data, SPSS

Table 4.6 shows descriptive statistics of individual items and as a whole of

organizational performance sub-factor. There are five statements are used to measure
the variables. Each of respondents submitted their responses in the five point likert
scale. The overall mean of organizational performance is 4.204, which is greater than
3, with standard deviation .727. This shows good organizational performance.

4.3 Correlations Analysis

Correlation is defined as a statistical measure which is used to study the

degree of relationship between two or more variables (Yadav and Acharya, 2013). If
the variables under study are only two, then the correlation is said to be simple
correlation. If the variables under the study are two or more, then the correlation is
said to be multiple correlatio

46
 Table 4.7Correlations

Organizational
performance
Organizational performance Pearson Correlation 1
Sig. (2-tailed)
Budgeting and Planning Pearson Correlation .135
Sig.(2-tailed) .868
Costing system Pearson Correlation 0.87
Sig.(2-tailed) .689
Controlling and reporting Pearson Correlation .098
Sig.(2-tailed) .905
Decision making Pearson Correlation .385
Sig.(2-tailed) .556
Performance evaluation Pearson Correlation .146
Sig.(2-tailed) .620

Source: SPSS output

Table 4.6 shows that the multiple correlation between management accounting
Practices and organizational performance. There are five variables are used to
measure the correlation. Find out the correlation five point likert scale has been used.
From the table it is found that there is positive relationship between management
accounting practices and performance of manufacturing companies.

4.4 Regression Analysis

Regression analysis is the statistical technique that indentifies the relationship

between two or more quantitative variables: a dependent variable, whose value is to
be predicted and an independent or explanatory variable, about which knowledge is
available. The technique is used to find the equation that represents the relationship
between the variables. Multiple regressions provide an equation that predicts one
variable from two or more independent variables.

47
 The researcher conducted a multiple regression analysis so as to test
relationship among variables (independent) on the organizational performance of
manufacturing companies in Nepal. The researcher applied the statistical package for
social science to code, enter and compute the measurements of the multiple
regressions for the study. Coefficient of determination explains the extent to which
changes in the dependent variable can be explained by the change in the independent
variables or the percentage of variation in the dependent variable (organizational
performance of manufacturing companies in Nepal) that is explained by al the five
independent variables (budgeting and planning, costing, controlling, performance
evaluation and decision making).

The study adopted multiple regression guided by the following model:

Multiple regression model B5x5

Y= a+B1X1+B2x2+B3X3+B4X4+B5X5+ei

Where,

Y= organizational performance

X1= budgeting and planning, X2= costing systems, X3= controlling and reporting,
X4= decision making,X5= performance evaluation

a= constant

Bi= coefficient of slope of regression model

ei= error term

Where, A is constant, B is regression coefficient. A measure of change Y per unit

change in X. if 1 unit increases in economic aspect, the competitiveness will also
increase. This is presented the table, 4.7

48
 Table 4.8: Model Summary

Model R R square Adjusted R square Std. error of the

estimated

1 .896 .798 .657 .33804

a. Predictors: (Constant), Controlling and reporting, Costing system, Budgeting and

planning, Performance evaluation, Decision making

Source: primary data, SPSS

The results in Table 4.7 indicate that the management accounting practices had
a joint significant effect on Organizational performance of manufacturing companies
in Nepal.The finding of multiple regression analysis between MAPs and
organizational performance indicates that MAPs is significant predictors of
organizational performance. The R value of 0.896 indicates the moderate to strong
positive relationship between MAPs and organizational performance. The R squared
of 0.798 shows that the independent variables explained by 79.8% of the variance on
organizational performance of manufacturing companies in Nepal. Adj. R square
indicates 65.7% of variation in the dependent variable is explained by the independent
variables.

49
 Table 4.9ANOVAa

Model Sum of df Mean Square F Sig.

Squares

1 Regression 124.469 21 5.927 2.0995 .000

Residual 220.1889 78 2.823

Total
344.657 99

a. Dependent Variable: OP

b. Predictors: (Constant), CR, CS, BP, PE, DM

Source: SPSS output

The results in table 4.9 show that the f static was 2.0995. At 5% level of
confidence, the F-static was significant. In this case, all the predictor variables
(budgeting and planning, costing, performance evaluation, controlling and reporting,
decision making) explain a variation in organizational performance and that the
overall model is significant.

50
 Table 4.10 Coefficientsa

Model Unstandardized Standardized T Sig

Coefficients
Coefficients

B Std.error Beta

Constant .804 .229 .765 .000

Decision making .599 .086 .327 .582 .000

Costing system .558 .028 .317 .745 .008

Controlling and reporting .705 .024 .367 .801 .416

Budgeting and planning .657 .029 .422 .220 .001

Performance evaluation .620 .058 .248 .561 .002

a. Dependent Variable: OP

From the above results, the estimated equation can be written by taking the values
from the model-1 Y= a+B1X1+B2x2+B3X3+B4X4+B5X5

Therefore, Y= .804+.599*X1+.558*x2+.705*X3+.657*X4+.620*X5

It is observed that the t-values of four variables are statistically significant at

1% level namely Budgetingand Planning, Decision Making and Costing System,
Performance Evaluation. This suggests that these variables have a bearing on
explaining the variability of organization performance. However; the variable
Controlling and Reporting is not statistically significant. Hence, there is sufficient
evidence that Management Accounting practices has a positive impact on
organizational performance (Scherrer1996). Hence, there is enough evidence that
change in Management Accounting practices improve the sorganizational
Performance.

51
 4.5 Summary of findings:

Based on the above analysis, the major findings are as follows:

a) The study also revealed that costing, budgeting and planning, performance evaluation,
controlling, and decision making constant organizational performance to be 0.804. it
is also found that decision making practices has the greatest impact on organizational
performance of manufacturing companies in Nepal followed by costing, budgeting
and controlling and reporting respectively.
b) Regarding the organizational performance of manufacturing firm decision making
tools shows the highest mean value than neutral value i.e. 4.39 with standard
deviation 0.760. it shows that there is a positive impact of decision making on
organizational performance of Nepalese manufacturing companies. The
constant (decision making) is significantly different from 0 at the 0.05 alpha level. So
it is found that there is a positive impact of management accounting tools and
technique on performance of manufacturing companies in Nepal.
c) The coefficient for decision making (.599) is statistically significantly different from 0
using alpha of 0.05 because its p-value is 0.000, which is smaller than 0.05.
d) The study also shows that the one percent changes in management accounting tools
they effects 89.6 percent on organizational performance of manufacturing companies
in Nepal.
e) The study shows that the management accounting practices have a joint significant
(79.8%) effect on the organizational performance of manufacturing companies in
Nepal. At 5% level of confidence, the F-static was significant. The sum of squares
also confirms that the regression model explained less than the residual. This research
is also consistency with Kenya research work was done by Peter Mwangi Gichaaga
(2013). His research work reveals that same there is joint significant effects of
management accounting techniques on organizational performance of manufacturing
companies in Kenya.
f) Results indicates that Nepalese manufacturing companies rely heavily on traditional
management accounting practices, while adoption rates of recently developed or
advance practices are rather low and slow. The findings are consistent with other
similar studies in transitional countries like, Libya, Kenya and Egyptian
manufacturing companies. The research work of Egyptian manufacturing companies

52
 which was conducted by Adebel, Al. (2011) found that Egyptian manufacturing
companies are rely heavily on traditional management accounting techniques.
g) Gul (1991), Chenhall and Morris (1995), in which they concluded that AIS (MAS)
contribute to performance in high perceived environmental uncertainty situation,
which involves highly competitive actions and market demand. Likewise, Chenhall
and Morris (1995) concluded with empirical findings that there is an impact of
management accounting system on the organizational performance.
h) Another research of manufacturing companies of Libya was conducted by Nassr
Saleh Mohamad Ahamad (2014) also found that Libyanmanufacturing companies are
also rely heavily on traditional management accounting practices.
i) The research conducted by Peter Mwangi Gichaaga (2013) on the topic of
management accounting practices on financial performance of manufacturing firms in
Kenya found that manufacturing companies of Kenya is also rely heavily on
traditional management accounting practices.
j) All these research work shows that there is joint effects of management accountings
tools and techniques on organizational performance of manufacturing firms. So this
research is consistent with other transitional countries.

53
 CHAPTER V: CONCLUSION

5.1 Summary

The general objective of this study was to examine the effects of management
accounting practices on organizational performance of manufacturing companies in
Nepal. This study adopted a descriptive survey design. The target population for this
study was the 220 manufacturing companies in Nepal.

Management accounting is concerned with the provision and interpretation of

information which an assists management in planning, controlling, decision making
and appraising performance. Management effectively achieves organizational
objectives through the efficient use of scare resources. Environment is changing and
future is uncertain. Uncertain exists in all business situations and the information
supplied by the management accountant must reflect the uncertainties and variability
of the situation. Good management is effective weapon to reduce risk.Corporate firm
that carry out the economic activities. Economic activities are the backbone of the
economy. They impact the whole economy. Every organization has limited resources.
To utilize the limited resources in a better way, different management accounting
tools and techniques have been developed. Among the various tools and techniques
management accounting tools have proved beneficial in different aspects of
management activities. The main objectives are the management accounting is to help
managers in overall management activities by providing information and helping in
planning, controlling and decision making. This acts as a strategic business paper in
support of management role in decision making.

The study found out that the decision making practices were highly used in the
respondents companies. They included; CVP analysis for major product, product
profitability analysis, customers profitability analysis evaluation of major capital
investment.

54
5.2 Conclusion

The general objective of this study is to examine the impacts of management

accounting practice on organizational performance of manufacturing companies in
Nepal. This study adopted a descriptive and causal research design.

Nepalese manufacturing companies are in infant stage in practicing the

management accounting tools. No one of the companies has a management
accounting expert. They think management account is similar to financial accounting.
The different types of management accounting tools which we have learnt are not
practiced by Nepalese manufacturing companies. It shows that gap between theory
and practice. Tools like budget, ratio analysis, break even analysis, standard costing
are practice but application of new tools of management accounting is not practice.
New tools and techniques such as activity costing, target costing and engineering have
been developed around the global but practice is almost nil. In, Nepalese
manufacturing company lack of information, extra cost burden and ignorance about
management accounting tools are the main factors causing problem in the application
of such tools. Besides this limited, market, nature of the business, size of the business
and extra cost burden were also the factors causing difficulties in the implementation
of the tools.

Finally, it can be conclude that the manufacturing companies in Nepal are in

infant stage with respect to the application of modern management accounting tools.
So, it is concluded that to improve overall performance, Nepalese manufacturing
companies should focus new management accounting practices.

5.3 Implications and recommendation for future research

The management accounting tools and techniques in every type of

organization are not the optional but also the compulsion in the better organizational
performance of the entity. It provides the key ideas, guidelines and strategies to the
management for better organizational performance of management functions.
Economic liberalization, globalization, changing nature of human behavior and
technological advancements are making complexity to every organization. To meet
the expected challenges to grab the opportunities, the organization must practice the
management accounting tools and techniques. The analysis and interpretation of

55
application of management accounting tools helped to draw some findings.
Concerning these findings, it may be appropriate to make some suggestions and
recommendations. It will be helpful to the concerned stakeholders of an organization
to bring some improvements in Nepalese manufacturing companies through
application of management accounting tools. Thus, the following recommendations
were made on the basis of findings.

1. This study can be a good implication for manufacturing firm (enterprises) more
reliable information of management accounting tools.

2. From the study, it was found that costing, budgeting and planning, controlling and
decision making and performance evaluation tools has positive relationship to
organizational performance. So the firm can do management accounting practices to
gain the competitive advantage.

3. The study can be useful for company to know the management accounting tools
and their behavior in performance of the firms.

4. The study found that the new management accounting tools is helpful to improve
the firm's performance.

5. Research should be carried out that also includes those companies in other sectors
to establish if they also consider the management accounting practices as important
and to establish the frequency of usage of the practices.

6. Manufacturing companies of Nepal should use different MA tools and apply it in

different areas according to the nature of tools. For example budgeting, decision
making, capital budgeting, cost estimation, cost classification and allocation can apply
for planning. Similarly standard costing, budgetary control, cash flow statement,
flexing budgeting and responsibility accounting can be used for controlling. If
management apply right tools in right place, then the company can achieve more
benefit in near future.

7. To strengthen the competitiveness of manufacturing companies and carryout

management activities effectively and efficiently the use of management accounting
tools and techniques are recommended to practice. For planning activities; tools like

56
cost estimation, classification and allocation, profit measurement and recognition, cost
volume-profit analysis, can be applied.

8. Academics who have better knowledge about the management accounting tools and
techniques, should put an effort to develop environment friendly, tools and techniques
into practice, so that the existing gap between theory and practice can be somehow
shortened. And the Nepalese manufacturing companies would be benefited from the
use of management accounting.

9. Internal and external information are needed for proper application of management
accounting tools and techniques. Therefore, it is recommended to setup management
accounting information system. It helps to get feedback information regularly

10 Interaction between academician and business organization is a must. Therefore it

is recommended that manufacturing companies should create an atmosphere of
interaction between the academician and the manufacturing Companies.

Further research is important in other countries with similar or almost same

micro and macroeconomic environments for manufacturing companies. The findings
would be enhance a cross-country comparison of the management accounting
practices and their impact on organizational performance. In addition, future studies
should examine specific factors as to why manufacturing companies are not adopting
newly developed management accounting tools. The increment in respondent size can
make the result more reliable and fruitful to the shareholders. There were time
limitations in study because of completion of thesis requirement, so in future time
limitations can be minimized. Our study depends on questionnaires which were not
free from biasness, so future study may be included questionnaires as well as
interviewed.
The findings based on descriptive study which highlights the current status of
management accounting practices, not before or after, so longitudinal research can be
required in future with more power full statistical techniques. Finally, the difference
between traditional and new management accounting techniques needs further
investigation.

57
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 APPENDIX I
QUESTIONNAIRES

Dear Respected Participants

I am planning to conduct a research study on Management Accounting Practices and
organizational performance of Nepalese manufacturing company. The objective of
this questionnaire is to collect information about the Present practices of
Management Accounting and Employee satisfaction offered by manufacturing
company in Nepal. Each of your opinion will be very important to managers,
researchers and academicians for strategy development and policy perspectives. Your
answers will be kept strictly confidential and please be assured that you will not be
victimized for anything written here. The information collected is intended to be used
to pursue academic purposes. I shall be grateful for your valuable inputs and active
co-operation.
Use of scale 1 to 5 are available that shows your perceptions about the organizational
performance. Where 1=Strongly disagree, 2=Disagree, 3=Netural, 4=Agree,
5=Strongly agree Circle (Ὀ ) or Tick(√) at the appropriate alternative number that
comes closest to your opinion. You should rank each statement as follows.
1. Name (optional):………………………………….
2. Sex: Male [ ] Female [ ]
3. Age: 18 to 30 [ ], 31 – 50 [ ] 51 and above [ ]
4. Educational level: SLC or below [ ]
+2 or Bachelor level [ ]
Postgraduate [ ]

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s.n Budgeting and Planning Score
1 Budgeting develops a sense of responsibility, policy among the 1 2 3 4 5
employees and assist in assignment of responsibility.
2 Budgeting increases operational efficiency; reduce waste and uncertainty 1 2 3 4 5
of future.
3 Maximization of profit through careful planning and control is possible 1 2 3 4 5
with the help of budgeting.
4 Budgeting helps to make plan about the sources and uses of money and 1 2 3 4 5
when and where additional cash borrowing necessary.
5 Budget ensures better understanding and harmonious relation between 1 2 3 4 5
top management managers and workers.
Controlling and reporting
1 Control system is used to monitor and measure employees' performance 1 2 3 4 5
against targets (output quality).
2 You have managed the responsibility centers like investment, profits, 1 2 3 4 5
revenue and cost that helps to control its activities that leads to better
performance
3 There are proper and timely feedback, monitoring, supervision systems 1 2 3 4 5
adopted in your organization.
4 It detects and corrects unintentional performance error and intentional 1 2 3 4 5
irregularities such as theft or misuse of resources, waste, fraud and
mismanagement.
5 There is a mechanism of reviewing periodic status reports on department 1 2 3 4 5
wise progress in achieving corrective actions.
Decision Making
1 The organization has made customer profitability analysis to make 1 2 3 4 5
customer related decision.
2 Good decision has helped to increase market share, productivity and 1 2 3 4 5
profit.
3 The organization has applied break-even analysis for launching a new 1 2 3 4 5
product.
4 Management functions such as planning, organizing, leading, directing 1 2 3 4 5

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 and controlling are determined by the good decision made by the BOD.
5 MAPs provides accurate cost information to Management accountant 1 2 3 4 5
with respect to product pricing and While pricing decision of the
product/service, price of competitors has been considered.
Costing System
1 MAPs has helped to segregate the total cost in fixed, variable and semi- 1 2 3 4 5
variable component that leads to reduce the cost and to increase revenue
and profit.
2 Target costing helps to examining a competitors’ product in order to 1 2 3 4 5
identify opportunities for product improvement and cost reduction.
3 The organization has adopted and applied standard costing technique in 1 2 3 4 5
controlling cost i.e. salary, operational, cost and R & D cost.
4 MAPs help to reduce cost in areas of product improvement, operation 1 2 3 4 5
methods, marketing areas, administrative and financial areas.
5 MAPs help to reduce cost in areas of product improvement, operation 1 2 3 4 5
methods, marketing areas, administrative and financial areas.
Performance Evaluation
1 The organization makes customer satisfaction surveys frequently. 1 2 3 4 5
2 Bench marking system has been adopted for the quality delivery of 1 2 3 4 5
services
3 Performance evaluation is made based on Residual income, ROI, 1 2 3 4 5
Divisional profit, Return on asset, Return on Equity that assess
profitability, and overall organizational performance.
4 Performance evaluation is made based an employee's attitude/behavior. 1 2 3 4 5
5 An effective measurement and reporting process can improve 1 2 3 4 5
performance and efficiency in productivity.
Organizational Performance
1 MAPs help to increase product service quality. 1 2 3 4 5
2 MAPs help to development of new product. 1 2 3 4 5
3 MAPs help to increase Return on investment. 1 2 3 4 5
4 Organizational performance is based on customer satisfaction level. 1 2 3 4 5
5 MAPs help to increase market share /sales margin. 1 2 3 4 5
Thank you for your participation

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