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Product / service cost system design in Malaysian companies

By Nagarethnam Sithambaram


Despite much publicity given to the criticisms relating to product cost\ud measurement and the prevailing costing systems since the mid-1980s, there was\ud a scarcity in surveys relating to this area. In the 1990s, studies on management\ud accounting practices and product-costing, focusing on the Activity-Based Costing\ud (ABC) increased, but mainly in Europe and the US. Therefore this research is\ud undertaken in Malaysia, to study the product-cost system design from a broader\ud perspective, and investigate the criticisms. The over-riding objective is to explore\ud the influence of explanatory variables on the design of product costing systems,\ud using the contingency theory framework explicitly, one of the major contributions\ud for this study. Other objectives include examining the extent to which different\ud cost information is used for different purposes; sophistication level of productcost\ud system maintained; prevalence of financial accounting mentality; treatment\ud of non-manufacturing costs in manufacturing companies; extent of ABC usage;\ud nature, content and role of profitability analysis.\ud A postal questionnaire survey was conducted giving a response rate of 27%.\ud Concrete evidence on the prevalence of financial accounting mentality is not\ud available as the overall findings indicated mixed responses. Investigation\ud revealed that 51% of the firms use unsophisticated, 42% maintain low\ud sophistication level and 7% maintain sophisticated systems. Only 6.5% of the\ud firms adopted ABC. Nevertheless the respondents were satisfied and perceived\ud their costing systems to be accurately assigning costs to products/services.\ud Although periodic profitability analysis is considered to be important for decisionmaking,\ud the content of it is questionable as a large number of firms use full costs\ud with arbitrary allocation bases or inappropriate cost drivers.\ud Only the variables 'size' (significant) and 'competitive environment' (weak\ud significant) influence sophistication levels maintained.\ud Finally the limitations of this study that may affect the possibility of generalising\ud the findings are acknowledged and suggestions for areas of future research\ud highlighted

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