Background of the Report :

Cost accounting as a tool of management provides management with detailed records of the
costs relating to products, operations or functions. There are many more cost accounting
techniques which are used for cost determination, control and analysis purposes. This study
attempts to investigate the adoption levels and also satisfaction levels of twenty cost
accounting techniques of manufacturing organizations in Bangladesh. It also examines the
influence of cost accounting techniques on overall satisfaction level, decision-making and
performance improvement. To achieve these purposes I select Beximco Pharmaceuticals Ltd
manufacturing organizations have been surveyed. Findings reveal that the high adoption
levels of cost accounting techniques are insignificant. It also shows that there are few cost
accounting techniques which have influence on overall satisfaction

level, decision-making and performance improvement.The importance of cost accounting and

cost accounting information is being increased day by day. It is not only help to reduce cost
but also in all kind of decision making. Without analysis of cost accounting information no
manager can make effective decision. The cost accounting collects the data, analyze those
data and help the managers to make better decision. In accordance with development of new
tools and techniques of cost accounting the use of cost accounting information is changing.
Managers need to use the cost accounting information in different way from traditional
method to evaluate the performance. Developing and accepting the JIT,TQM and other
contemporary costing techniques force to manager to change the performance evaluation
techniques and requires different cost accounting information unlike traditional labor based
information now a days which become obsolete. Primarily this report is concerned with cost
accounting information by an organization in decision making as well as corporate reporting,
the tools and techniques used by organizations and the implications of these in the
organization.

We select Beximco Pharma to examine the use of cost accounting information and cost
accounting tools and techniques used by the company. We emphasize on the implication of
using information and technique and examine whether Beximco Pharma use or not that
particular techniques and the reason of following or not following based on our queries to
respective authority of the company.
Objective of the Report: 1. To have a general idea about cost accounting information and its use
in decision making.

2. To have clear understanding about the cost accounting system used.

3. Finding out the disclosure of cost accounting information used by the company.

4. To draw a conclusion based on our understanding.

Methodology of the Report:

The details of the work plan are furnished below:

Data sources

The data and information for this report have been collected from both the primary and
secondary sources. Among the primary sources, face to face conversation with the respective
stuffs of the head office. The secondary sources of information are annual reports, websites, and
study of relevant reports, documents and different manuals.

Data processing

Data collected from primary and secondary sources have been processed manually and
qualitative approach in general and quantitative approach in some cases has been used
throughout the study.

Data analysis and interpretation

Qualitative approach has been adopted for data analysis and interpretation taking the processed
data as the base.

Organization of the Report : This report is divided in to mainly 5 parts. The 1st part is
introductory part that states the origin, background, scope, objectives, methodology of the report.
The 2nd part is the literature review of the study. This part explains the cost accounting
information and its use in decision making by the managers. The next part discusses about the
cost accounting system of Beximco Pharma. The 4th part finds out the contemporary methods
and techniques of cost accounting used in Beximco Pharma. The last part concludes the report
with some recommendation.

Limitation: There were some limitations in the preparation of the report. The source of the cost
accounting system of the company was mainly based on their financial reports of different.
Though we conducted the responsible authority, they were reluctant to give us the full disclosure
about their management policies. Because of such information is prepared for the management
for internal use only, this was not available. Moreover, most of them were confidencial. Other
limitations were our time constraint and resources to prepare an effective term paper on this
topic.

Cost Accounting Information: In a broad aspect, cost accounting refers to the measurement,
analysis, and reporting financial and nonfinancial information relating to the cost of acquiring or
using resources in an organization. So cost accounting can be defined as the information obtained
from cost accounting activities. For example, calculating the cost of product is a cost accounting
function that answers managers decision making needs (such as choosing products to offer).
Modern cost accounting takes the perspective that collecting cost information is a function of the
management decision being made. Cost accounting information helps the manager in short-run
and long-run planning and control decisions that increase value for the customers and lower the
costs of products and services. For example, managers make decisions regarding the amounts
and kinds of material being used, changes in plant processes, and changes in product designs.

Cost Accounting Information in Decision Making:

For making decision by using cost accounting information cost accountant usually follow some
specific models. They use different decision model for different courses of action. Management
accountants work with manager by analyzing and presenting relevant data to guide decisions. For
example, if any organization wants to reduce its existing manufacturing costs it must identify the
alternatives then it will analyze the alternatives by using only relevant data i.e., which can
influence the decisions.

Factors regarding decision making using cost accounting information: There are several factors
that affect the decision making procedure of the managers. Some important factors are discussed
here:

a. Relevant costs and relevant revenues: Relevant costs are expected future costs and relevant
revenues are expected future revenues that differ among the alternative courses of action being
considered. Both relevant costs and relevant revenues must occur in future and they differ among
the alternative courses of action. Focusing on the relevant data is especially helpful when all the
information needed to prepare detailed income information is unavailable. Understanding which
costs are relevant and which are irrelevant helps the decision maker concentrate on obtaining
only the pertinent data and saves time.

b. Qualitative and quantitative relevant information: Manager defines and weighs qualitative
and quantitative information. Quantitative information are those which can be measured by the
numerical number and qualitative information are those which cannot be measured by the
number and off course manager will decide which one is measurable by the number and which
one is not. Relevant cost analysis generally emphasis on quantitative factors but qualitative
factors also have their own importance.
c. One time only special orders: When factory has idle production capacity then manager must
decide whether accepting or rejection special orders if special order has no long implications.
Example: if any company has capacity to produce 18000 units and currently producing 16000
units. The total cost (fixed-5 and variable-5) per unit is tk. 10. If they got an order to deliver 4000
units for tk.6 per unit they should accept it. But if they get the order of 5000 units they should not
accept it because it crosses its relevant range. To make decision about special onetime order only
relevant cost should be considered. A common term in decision making is incremental cost
which means additional cost for producing every additional unit is also important in this regardd.

e. Focusing on grand total: Manager will focus on grand total cost in making decision rather
than unit cost. Sometimes unit cost could be misleading. If we want to make decision about make
or buy, insourcing vs. outsourcing we need to consider total cost not unit cost.

f. Using constrained resources: Under this condition, manager should select the product that
yields the highest contribution margin per unit of the constraining or limiting resources.

g. In deciding whether add or drop customer or to add or discontinue segment:

Manager should focus on whether total overhead cost change in making decision about adding or
dropping customer or adding or discontinuing segment. Manager should ignore allocating
overhead cost.

h. Replacement of equipment: In the time of equipment replacement existing book value is

irrelevant because it is a sunk cost so it should be ignored.

i. Concentrate on consistency on performance evaluation: There is always a confliction

between the decision model used by a manager and the performance model used to evaluate that
manager. Top management must ensure that the performance evaluation model will be consistent
with decision model. A common inconsistency is to tell these managers to take a multiple year
view in their decision making but then to judge their performance only on the basis of current
years operating income. If there is no consistency between performance evaluation and
performance model then control will be impossible and making decision model will be valueless.

Cost Accounting Information in Corporate Reporting: The main purpose of cost accounting
information is to help managers in decision making. Such information is provided for the internal
purpose only. There are some guided rules and regulations about the information in the reports.
According to IAS 1 (Presentation of Financial Statements), paragraph 117, An entity shall
disclose in the summary of significant accounting policies: (a) the measurement basis (or bases)
used in preparing the financial statements, and (b) the other accounting policies used that are
relevant to an understanding of the financial statements.

It is important for an entity to inform users of the measurement basis or bases used in the
financial statements (for example, historical cost, current cost, net realizable value, fair value or
recoverable amount) because the basis on which an entity prepares the financial statements
significantly affects users analysis. When an entity uses more than one measurement basis in the
financial statements, for example when particular classes of assets are revalued, it is sufficient to
provide an indication of the categories of assets and liabilities to which eachmeasurement basis is
applied. According to paragraph 125 of the same IAS,

An entity shall disclose information about the assumptions it makes about the future, and other
major sources of estimation uncertainty at the end of the reporting period, that have a significant
risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within
the next financial year. In respect of those assets and liabilities, the notes shall include details of:
(a) their nature, and (b) their carrying amount as at the end of the reporting period.

An entity presents the disclosures in paragraph 125 in a manner that helps users of financial
statements to understand the judgements that management makes about the future and about
other sources of estimation uncertainty. The nature and extent of the information provided vary
according to the nature of the assumption and other circumstances. Examples of the types of
disclosures an entity makes are:

(a) the nature of the assumption or other estimation uncertainty;

(b) the sensitivity of carrying amounts to the methods, assumptions and estimates underlying
their calculation, including the reasons for the sensitivity;

(c) the expected resolution of an uncertainty and the range of reasonably possible outcomes
within the next financial year in respect of the carrying amounts of the assets and liabilities
affected; and (d) an explanation of changes made to past assumptions concerning those assets
and liabilities, if the uncertainty remains unresolved.

Other IFRSs require the disclosure of some of the assumptions that would otherwise be required
in accordance with paragraph 125. For example, IAS 37 requires disclosure, in specified
circumstances, of major assumptions concerning future events affecting classes of provisions.
IFRS 7 requires disclosure of significant assumptions the entity uses in estimating the fair values
of financial assets and financial liabilities that are carried at fair value. IAS 16 requires disclosure
of significant assumptions that the entity uses in estimating the fair values of revalued items of
property, plant and equipment. There are also some guidelines for reporting cost accounting
information in IAS 2: Inventories. The objective of this Standard is to prescribe the accounting
treatment for inventories. A primary issue in accounting for inventories is the amount of cost to
be recognised as an asset and carried forward until the related revenues are recognised. This
Standard provides guidance on the determination of cost and its subsequent recognition as an
expense, including any write-down to net realizable value. It also provides guidance on the cost
formulas that are used to assign costs to inventories.
Measurement of inventories : Inventories shall be measured at the lower of cost and net
realisable value.

Cost of inventories

The cost of inventories shall comprise all costs of purchase, costs of conversion and other costs
incurred in bringing the inventories to their present location and condition.

Costs of purchase

The costs of purchase of inventories comprise the purchase price, import duties and other taxes
(other than those subsequently recoverable by the entity from the taxing authorities), and
transport, handling and other costs directly attributable to the acquisition of finished goods,
materials and services. Trade discounts, rebates and other similar items are deducted in
determining the costs of purchase.

Costs of conversion

The costs of conversion of inventories include costs directly related to the units of production,
such as direct labour. They also include a systematic allocation of fixed and variable production
overheads that are incurred in converting materials into finished goods. Fixed production
overheads are those indirect costs of production that remain relatively constant regardless of the
volume of production, such as depreciation and maintenance of factory buildings and equipment,
and the cost of factory management and administration. Variable production overheads are those
indirect costs of production that vary directly, or nearly directly, with thevolume of production,
such as indirect materials and indirect labour. The allocation of fixed production overheads to the
costs of conversion is based on the normal capacity of the production facilities. Normal capacity
is the production expected to be achieved on average over a number of periods or seasons under
normal circumstances, taking into account the loss of capacity resulting from planned
maintenance. The actual level of production may be used if it approximates normal capacity.
The amount of fixed overheadallocated to each unit of production is not increased as a
consequence of low production or idle plant. Unallocated overheads are recognised as an
expense in the period in which they are incurred. In periods of abnormally high production, the
amount of fixed overhead allocated to each unit of production is decreased so that inventories are
not measured above cost. Variable production overheads are allocated to each unit of production
on the basis of the actual use of the production facilities. A production process may result in
more than one product being produced simultaneously. This is the case, for example, when joint
products are produced or when there is a main product and a by-product. When the costs of
conversion of each product are not separately identifiable, they are allocated between the
products on a rational and consistent basis. The allocation may be based, for example, on the
relative sales value of each product either at the stage in the production process when the
products become separately identifiable, or at the completion of production. Most by-products,
by their nature, are immaterial. When this is the case, they are often measured at net realisable
value and this value is deducted from the cost of the main product. As a result, the carrying
amount of the main product is not materially different from its cost.

Disclosure of Inventory in Financial Statements : The financial statements shall disclose: (a) the
accounting policies adopted in measuring inventories, including the cost formula used; (b) the
total carrying amount of inventories and the carrying amount in classifications appropriate to the
entity; (c) the carrying amount of inventories carried at fair value less costs to sell; (d) the
amount of inventories recognised as an expense during the period; (e) the amount of any write-
down of inventories recognised as an expense in the period in accordance with paragraph 34; (f)
the amount of any reversal of any write-down that is recognised as a reduction in the amount of
inventories recognised as expense in the period in accordance with paragraph 34; (g) the
circumstances or events that led to the reversal of a write-down of inventories in accordance with
paragraph 34; and (h) the carrying amount of inventories pledged as security for liabilities.
Information about the carrying amounts held in different classifications of inventories and the
extent of the changes in these assets is useful to financial statement users. Common
classifications of inventories are merchandise, production supplies, materials, work in progress
and finished goods. The inventories of a service provider may be described as work in progress.
The amount of inventories recognised as an expense during the period, which is often referred to
as cost of sales, consists of those costs previously included in the measurement of inventory that
has now been sold and unallocated production overheads and abnormal amounts of production
costs of inventories. The circumstances of the entity may also warrant the inclusion of other
amounts, such as distribution costs.

Cost Accounting System of the company: The company primarily uses batch costing method in
their costing system. As a pharmaceuticals manufacturing company they need to produce huge
amount of product so here batch costing is appropriate for the company. Here it is cost effective
and easy to calculation. Batch costing has the several advantages over other methods in regard of
the providing following information: -the analysis and the cost control at each cost generator;
-the operative management of each place generator of costs, the specification of the production
and of the predicted costs and their control and realization; -the correct assessment of the
produced stocks; -determination of the efficiency obtained by the taken decisions. The company
uses weighted average method in time of inventory valuation. They believe that it gives more
accurate and clear picture of inventory. In this method it is very hard to manipulate and easy to
calculate though it has a limitation that it sometimes cant represent inflation.

Valuation of Inventories: Inventories are carried at the lower of cost and net realizable value as
prescribed by IAS 2: Inventories. Cost is determined on weighted average cost basis. The cost of
inventories comprises of expenditure incurred in the normal course of business in bringing the
inventories to their present location and condition. Net realizable value is based on estimated
selling price less any further costs expected to be incurred to make the sale. Cost included for
the local raw materials purchased are 1) Procurement Cost. 2) Transportation Cost 3) Bank
Charge Cost included for the imported raw materials are 1) Procurement Cost 2) Bank Charge
for Opening L/C 3) Insurance 4) Clearing from the Port and 5) Transportation Cost.