Colin Drury

Product costing in UK manufacturing organizations

This paper reports and comments on the findings from a questionnaire survey on the product costing practices used by 260 UK manufacturing companies. The aims of the paper are (1) to provide evidence to ascertain the extent to which recent criticisms of product costing can be judged and (2) to compare and comment upon the theory and practice of product costing. The survey findings indicate that product costs computed to meet inventory valuation requirements are widely used for decision-making and internal profit measurement. The majority of firms, however, used both full costs and variable costs for decision-making and the findings suggest that product cost information is used in a more flexible manner than that depicted by previous studies. The paper reports on the methods used by companies to compute full product costs. Most organizations used questionable overhead allocations that are likely to result in the reporting of distorted product costs. The concluding sections of the paper discuss the possible reasons why observed practices differ from conventional wisdom and suggest areas where further research is required.

Moving from Make/Buy to strategic sourcing: the outsource decision process

Companies are paying increasing attention to outsourcing components and processes. In most of todays business environments the decision to outsource has many ramifications, not least the impact on capital budgets. On the one hand, the decision to outsource releases capital that can be used elsewhere. On the other, the decision to continue in-house keeps open strategic options for the product in question, but has knock-on effects due to the reduction in capital. However most companies separate the process of making capital allocations from the purchasing function. This paper examines how one company moved to a position where purchasing was integrated with top functions, especially capital budgeting. It achieved this by working off the strategic sourcing model described in this paper.

Research into product costing practice: a European perspective

This paper summarizes and reviews research of product costing practice in Europe. The review considers research into how many accounting systems firms use, product cost structures, the use of blanket overhead rates in product costing, the bases used to calculate overhead rates, the application of product costs in decision making and product pricing, and the use of activity-based costing. Although significant progress has been made over the last decade in describing costing practices in Europe, further work remains to be done. Having identified gaps in, and questions arising from, previous research, the paper concludes with recommendations for future research.

The misapplication of capital investment appraisal techniques

Surveys of capital budgeting practices in the UK and USA reveal a trend towards the increased use of more sophisticated investment appraisals requiring the application of discounted cash flow (DCF) techniques. Several writers, however, have claimed that companies are underinvesting because they misapply or misinterpret DCF techniques. Such claims have been made on the basis of observations in only a few companies, or anecdotal evidence, without any supporting statistical evidence. Reports on a recent survey conducted by the authors which suggests that many UK firms are guilty of misapplying DCF techniques. Also provides evidence relating to some issues that have not been thoroughly examined in previous studies, namely the impact of company size and the relative importance that firms attach to different investment appraisal techniques.

A comparison of New Zealand and British product costing practices

The results of a mailed survey designed to compare product-costing practices employed by New Zealand (NZ) and United Kingdom (UK) manufacturing companies is reported. The studys main findings are that, when company size is removed as an explanatory factor, there appear to be few systematic differences in the product-costing practices of the two countries, although there is a suggestion of marginally less sophisticated product-costing practices in NZ. Widespread use of theoretically deficient costing practices in both countries adds to the growing evidence of a time lag between the theory and practice of management accounting.

UK capital budgeting practices: some additional survey evidence

Probably more surveys have been undertaken on the use of capital budgeting techniques than on any other accounting and finance topic. Despite the many surveys a number of issues remain unresolved. The surveys have consisted of a sample of either very large or very small companies and observations relating to the impact of company size have been derived from comparing the responses from different surveys undertaken at different points in time. The aim of this paper is to provide additional empirical evidence relating to some of the unresolved issues and to examine the impact of company size on the use of financial appraisal techniques. In particular, the paper concentrates on the treatment of inflation, the appraisal of advanced manufacturing technologies and examines whether the empirical evidence supports the claim that many companies use excessive discount rates.

An empirical investigation of the importance of cost‐plus pricing

Purpose – This paper has two specific objectives: to appraise the relative importance of cost‐plus pricing and to develop and test hypotheses concerned with contingent factors that might affect the degree of importance attached to cost‐plus pricing.Design/methodology/approach – Data were collected via a mailed survey of UK and Australian companies. Tests were applied and non‐response bias was not a threat to the validity of the findings.Findings – A relatively high degree of importance attached to cost‐plus pricing is noted, although there appears to be a substantial number of companies that use cost‐plus pricing for a relatively small sub‐set of products and services. Companies confronted by high competition intensity attach relatively high degrees of importance to cost‐plus pricing and manufacturing companies attach a relatively low degree of importance to cost‐plus pricing.Originality/value – The paper makes a contribution, given that only two empirical studies with a specific focus on cost‐plus pricin...

The Leasing Decision: A Comparison of Theory and Practice

Abstract The UK leasing industry has grown dramatically in the 1980s. The academic literature suggests that there are two major reasons for leasing—taxation benefits and off-balance sheet financing. Recently taxation and financial reporting changes have substantially reduced the taxation and off-balance sheet financing benefits from leasing. Against this background a postal questionnaire survey of the opinions of UK financial managers on various issues relating to finance leases was undertaken. This paper reports on the findings of the questionnaire survey. A distinguishing feature of the survey is that the replies were analysed by various financial characteristics of the responding companies.

New manufacturing technologies and management accounting systems: Some evidence of the perceptions of UK management accounting practitioners

Abstract During the 1980s European manufacturing companies faced significant and radical changes in both manufacturing technologies and the level and nature of competition. Critics have argued that management accounting has hindered rather than helped these changes to come about. It is claimed that management accounting has failed to make visible and therefore governable the detailed work processes of a modern manufacturing organisation. Most of the literature relating to the impact of advanced manufacturing technologies (AMTs) on management accounting systems results from the views expressed by academics rather than management accountants working in an AMT environment. To remedy this deficiency and to ascertain the extent to which management accounting systems have changed or are likely to change a questionnaire survey was undertaken which sought to obtain the perceptions of and practices adopted by experienced management accountants in UK manufacturing companies. The paper reports on the systems in current use for costing, performance measurement, control and investment appraisal. It incorporates the opinions of practitioners on a range of common assertions relating to the modern manufacturing and competitive environment and through the use of open-ended questions provides the opportunity for direct practitioner input to the debate on the relevance of management accounting. The paper enables some conclusions to be drawn but also raises important questions on the extent to which manufacturing is hindered by inappropriate or delayed development of management accounting systems.

Management Accounting Information Systems in UK Building Societies

A significant feature of the UK economy over the past decade hasbeen the growth in the financial services sector: Little has been written on the nature and content of accounting information systems in the financial services sector: To remedy, this deficiency a postal survey and interviews were undertaken to provide information on the nature and scope of management accounting information systems within UK building societies. This paper reports on the survey and interview findings relating to the role of branch and product profitability analysis for making strategic decisions, the evaluation of branch managerial performance, transfer pricing, budgeting and the monitoring of competitor performance.