The application of cost accounting methods by the general engineering companies in Southern Gauteng

Abstract

General engineering is characterised by its ability to manufacture and service a number of diverse products. Companies that manufacture various products can only measure costs accurately by using a job-order costing system whereby costs such as material, labour and overheads can be recorded. General engineering companies in Southern Gauteng supply precision manufactured components and services to the petrochemical, mining and steel manufacturing industries. When submitting a tender to a prospective client, companies often rely on informal methods such as “hearsay benchmarking”. Traditional costing methods are often ignored. Due to the competitive environment as well as to ensure sustainability, companies have to ensure that their pricing structures are efficient. The review of literature and research seem to indicate that companies often neglect cost accounting and often use methods that are obsolete and no longer relevant to the changing manufacturing environment. The main objective of this study was to explore the extent to which general engineering companies in Southern Gauteng are employing cost accounting methods. The study focused on the current methods and their relevance and effectiveness in providing the information required by the users to maintain a competitive edge in the market and still conduct a sustainable business. The research was conducted on the general engineering companies within Gauteng South. A literature study on cost accounting methods was undertaken, focusing primarily on cost accounting methods used by engineering companies involved in the manufacturing and servicing of diverse products. The empirical study was carried out in two phases: • A case study on a reputable general engineering company. • A survey was done on the cost accounting methods used by other general engineering companies. The study adopted a quantitative approach. The case study was used as a benchmark to draw up the structured questionnaire that was used to survey 91 general engineering companies that were selected using purposive sampling. The questionnaire embodied four sections; A, B, C and D. Section A requested general information and the demographic profile of the respondents. Section B invited views on cost accounting methods applicable to the general engineering environment. Section C gathered information regarding cost accounting methods currently used in the company. Section D examined the relevance and effectiveness of costing methods in decision making. Questionnaires were delivered by hand to owners and managers who are responsible for the costing methods at the designated general engineering companies. The study found that the respondents had a good understanding of the costing methods applicable to the general engineering environment. Although respondents had a good understanding of costing methods, the implementation thereof at their organisations was still wanting in some areas. Significant differences between companies’ views on costing methods their relevance and effectiveness and the methods they currently use were found. When companies were categorised according to their turnover it was evident that turnover did play role in the companies’ views on costing methods and their relevance and effectiveness in decision making. Those with a higher turnover had relatively more costing methods and systems in place.