UNDERGRADUATE PROGRAM

Assessment of Cost Accounting Practices

(The Case of Flintstone Homes Real Estate Share Company)

Research Proposal submitted to Gage University College Faculty of Business and

Economics Department of Accounting and Finance

By ID

ABRAHAM HABTAMU 180/12

GENET SEFEW 182/12
MITIKE TESFAYE 200/12
SHEWAYE WOLDE 186/12
ZEBURA ALI 201-12

Advisor:

Instructor Eden

May, 2024
ADDIS ABABA, ETHIOPIA
Contents
1. Introduction.........................................................................................................................................1
Background of the Study.........................................................................................................................1
Background of the Organization..............................................................................................................2
Statement of the Problem.......................................................................................................................2
Research Question...................................................................................................................................2
Objective of the Study.............................................................................................................................3
Significance of the Study.........................................................................................................................3
Scope of the Study...................................................................................................................................3
Limitation of the Study............................................................................................................................3
Organization of the Study........................................................................................................................4
2. Literature Review................................................................................................................................4
Introduction.............................................................................................................................................4
Definition of Cost.....................................................................................................................................5
Types of Costs..........................................................................................................................................5
Meaning of Cost Accounting....................................................................................................................6
Purpose of Cost Accounting.....................................................................................................................7
Cost Accounting Practices........................................................................................................................7
Types of Cost Accounting........................................................................................................................8
Costing Methods in Cost Accounting.....................................................................................................10
3. Research Methodology......................................................................................................................11
4. Data Analysis and Interpretation.......................................................................................................11
5. Timeline............................................................................................................................................11
6. References.........................................................................................................................................12

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 CHAPTER ONE

Introduction

Scholars believe that cost accounting was first developed during the industrial revolution when
the emerging economics of industrial supply and demand forced manufacturers to start tracking
their fixed and variable expenses in order to optimize their production processes. (Fleischman,
1993)

Cost accounting system is an accounting system that provides financial and non-financial cost
related information. In today’s dynamic business landscape, cost accounting practices play a
pivotal role in organizational success. The ability to accurately assess and manage costs directly
impacts profitability, decision-making, and overall financial health. This research will investigate
into the cost accounting practices within Flintstone Homes Real Estate Share Company,
shedding light on their methods, challenges, and potential areas for improvement.

Cost accounting has evolved significantly over time. Its roots trace back to ancient civilizations,
where merchants recorded costs for trade purposes. In the modern era, cost accounting gained
prominence during the Industrial Revolution. Frederick Winslow Taylor’s scientific management
principles emphasized efficiency and cost control. Since then, various cost accounting systems—
such as job costing, process costing, and activity-based costing—have emerged. To this end, this
research will evaluate the cost accounting practice of Flintstone Homes Real State Share Co.

Background of the Study

Cost accounting serves as the compass guiding financial decisions within organizations. Cost
accounting for real estate can be a real hassle with expenses like commission, taxes,
maintenance, other property fees, along with fluctuating prices of property. By evaluating
Flintstone Homes’ cost accounting practices, we will gain insights into their cost structure,
allocation methods, and efficiency. Therefore, this assessment will enable us to identify areas
where optimization is possible, ensuring practical resource utilization and competitive advantage.

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Background of the Organization

Flintstone Homes Real Estate Share Company operates in the real estate sector, specializing in
property development, sales, and management. Flintstone Homes Share Company, which was
formerly known as “Tsedeke Yihune Construction” when founded in 1992, joined the Ethiopian
construction sector as a level 8 building contractor. A year later the company was named
Flintstone Engineering, after the “flitstones” which the early men used to lit fire to symbolize the
advancement of humanity through innovation and technology. This company aims to provide
quality housing solutions to its customers.

Flintstone Homes started to involve in subcontract works from existing firms and started its
remarkable journey thereby developing its construction management, as well as manpower
capacity. Today, the company is able to establish itself as one of the leading real-estate and
construction firms in Ethiopia (Homes, 2024). As a key player in the real estate market,
understanding its cost accounting practices is crucial for sustainable growth.

Statement of the Problem

The real estate industry plays a crucial role in the economy, and effective cost accounting
practices are essential for its sustainable growth. Flintstone Homes Real Estate Share Company
operates within this dynamic sector, and understanding its cost accounting practices is vital. The
assessment aims to explore how Flintstone Homes manages costs, allocates resources, and
ensures financial viability. By delving into these practices, we can identify areas for
improvement and contribute to the company’s overall success. So that, we can answer the
questions: Are there inefficiencies, inaccuracies, or areas for improvement?

Research Question

The research questions for this paper are as follows:

 How effective are Flintstone Homes Real Estate Share Company’s cost accounting
practices in controlling costs and enhancing financial performance?

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  What specific cost accounting methods does Flintstone Homes Real Estate Share
Company employ, and how do they impact decision-making?”

Objective of the Study

The primary objective of this study is to assess Flintstone Homes’ cost accounting practices
comprehensively. Specifically, we aim to:

 To assess the adequacy and effectiveness of cost accounting practices at Flintstone

Homes Real Estate Share Co.
 To recommend improvements based on the findings.

Significance of the Study

The assessment of cost accounting practices at Flintstone Homes will have several implications.
First, it will provide insights into the company’s financial health, allowing stakeholders to make
informed decisions. Second, understanding cost allocation methods helps optimize resource
utilization, leading to better profitability. Third, the study will contribute to the broader field of
cost accounting by examining real-world practices in a specific context. In addition, researchers,
practitioners, and policymakers can benefit from the findings.

Scope of the Study

This research will solely focus on cost accounting practices of Flintstone Homes Share Co.

Limitation of the Study

Since cost accounting focuses on recording, assessing, and interpreting a business’ costs and
primarily meant for managers and executives, we expect challenges in data availability and
access to the company’s information.

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Organization of the Study

This research will proceed as follows:

Background and Context: We will investigate deeper into Flintstone Homes’ operations,
emphasizing the relevance of cost accounting.

Cost Accounting Practices: We will explore the company’s existing cost accounting methods,
highlighting strengths and weaknesses.

Challenges and Recommendations: Based on our assessment, we will propose actionable

recommendations for enhancing cost efficiency.

Conclusion: We will summarize key findings and emphasize the importance of robust cost
accounting practices for Flintstone Homes’ sustained success.

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 CHAPTER TWO

Literature Review

Understanding existing knowledge on cost accounting practices is essential for businesses to

make informed financial decisions. According to (Rajan, 2018), cost accounting provides
valuable insights into the cost structure of a business, helping managers allocate resources
efficiently and improve overall performance. By analyzing cost data and trends, organizations
can identify cost drivers, control expenses, and enhance profitability. Additionally, (Kaplan,
2007) emphasize the importance of cost accounting in strategic decision-making, as it enables
businesses to evaluate the profitability of different products or services and make informed
pricing decisions.

Furthermore, a comprehensive understanding of cost accounting practices is crucial for

evaluating the financial health of a business and identifying areas for improvement. As noted by
Drury (2018), cost accounting helps businesses monitor and control costs, measure performance
against targets, and identify opportunities for cost reduction. By leveraging existing knowledge
on cost accounting practices, organizations can enhance their competitiveness, drive sustainable
growth, and achieve long-term success in today's dynamic business environment.

Definition of Cost

Cost is the measurement of the sacrifice of economic resources that has already been made or is
to be made in the future, in order to achieve a specific objective (Shim, 2000). Cost can be
defined as the value of inputs that have been used to produce something, or the value measured
by what must be given, done, or undergone to obtain something. Measuring costs is the second
most important thing accountants do, right after measuring profit (Tracy, 2007).

Usually the term “Cost” is used as an alternative with the term “Expense”. Expense can be
defined as a measured outflow of goods or services. The costs of the materials or services used to
produce the revenue (Syme, 2013). Actually, the terms cost and expense have been used by

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accountants, economists, and engineers according to their needs. Accountants have defined cost
as an exchange price, a forgoing, a sacrifice made to secure benefit.

Cost is defined as an economic resource related to manpower, equipment, real facilities, supplies
and all other resources that required to accomplish work activities or to produce output (Stewart,
1995). Usually costs are stated in terms of monetary value. Therefore, costs are the value of
money which represents the resources paid for the production of the output.

Types of Costs

Fixed costs are costs that don't vary depending on the level of production. These are usually
things like the mortgage or lease payment on a building or a piece of equipment that
is depreciated at a fixed monthly rate. An increase or decrease in production levels would cause
no change in these costs. Rent or mortgage, salaried employees, property taxes and insurance,
etc.

Variable costs are costs tied to a company's level of production. For example, marketing,
education and training, landscaping, rental maintenance, etc.

Operating costs are costs associated with the day-to-day operations of a business. These costs
can be either fixed or variable depending on the unique situation.

Direct costs are costs specifically related to producing a product. If a coffee roaster spends five
hours roasting coffee, the direct costs of the finished product include the labor hours of the
roaster and the cost of the coffee beans.

Indirect costs are costs that cannot be directly linked to a product. In the coffee roaster
example, the energy cost to heat the roaster would be indirect because it is inexact and difficult
to trace to individual products.

Meaning of Cost Accounting

Cost accounting is a form of managerial accounting that aims to capture a company's total cost of
production by assessing the variable costs of each step of production as well as fixed costs, such

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as a lease expense. Cost accounting is not GAAP-compliant, and can only be used for internal
purposes.

Cost accounting is used by a company's internal management team to identify all variable and
fixed costs associated with the production process. It will first measure and record these costs
individually, then compare input costs to output results to aid in measuring financial performance
and making future business decisions.

Cost accounting is often used by management within a company to aid in decision-making. Cost
accounting can be most beneficial as a tool for management in budgeting and in setting up cost-
control programs, which can improve net margins for the company in the future.

One key difference between cost accounting and financial accounting is that, while in financial
accounting the cost is classified depending on the type of transaction, cost accounting classifies
costs according to the information needs of the management. Cost accounting, because it is used
as an internal tool by management, does not have to meet any specific standard such as generally
accepted accounting principles (GAAP) and, as a result, varies in use from company to company
or department to department (Tuovila, 2023).

Purpose of Cost Accounting

Cost accounting is helpful because it can identify where a company is spending its money, how
much it earns, and where money is being lost. Cost accounting aims to report, analyze, and lead
to the improvement of internal cost controls and efficiency. Even though companies cannot use
cost-accounting figures in their financial statements or for tax purposes, they are crucial for
internal controls (Tuovila, 2023).

In contrast to general accounting or financial accounting, the cost-accounting method is an

internally focused, firm-specific system used to implement cost controls. Cost accounting can be
much more flexible and specific, particularly when it comes to the subdivision of costs and
inventory valuation. Cost-accounting methods and techniques will vary from firm to firm and
can become quite complex.

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Cost Accounting Practices

Many of our modern cost accounting practices were derived from those utilized by the U.S.
Army from 1861 to 1865. Cost accounting practices were vitally important during this period in
order to properly manage all expenses relating to "men and materials." Modern business firms
utilize a variety of cost accounting practices in an effort to manage expenditures and maximize
profits (Case, 2009). All business enterprises try to maximize profit margin by controlling
expenditures. A cost accounting department can minimize the costs by providing all necessary
information to management.

Cost accounting practices in real estate involve various aspects, including measuring investment
property, accounting for acquisitions, and handling lease income. These practices help real estate
companies manage their finances effectively and make informed decisions (Deloitte, 2022).

The types of costs that go into cost accounting vary from industry to industry and firm to firm,
however certain cost categories will typically be included (some of which may overlap), such as
direct costs, indirect costs, variable costs, fixed costs, and operating costs.

Since cost-accounting methods are developed by and tailored to a specific firm, they are highly
customizable and adaptable. Managers appreciate cost accounting because it can be adapted,
tinkered with, and implemented according to the changing needs of the business . Cost
accounting need only concern itself with insider eyes and internal purposes. Management can
analyze information based on criteria that it specifically values, which guides how prices are set,
resources are distributed, capital is raised, and risks are assumed.

Cost-accounting systems, and the techniques that are used with them, can have a high start-up
cost to develop and implement. Training accounting staff and managers can be difficult and often
complex systems takes time and effort, and mistakes may be made early on. Higher-
skilled accountants and auditors are likely to charge more for their services when evaluating a
cost-accounting system than a standardized one like GAAP (Tuovila, 2023).

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Types of Cost Accounting

There are mainly four types of cost accounting: standard cost accounting, activity based
accounting, lean accounting and marginal costing.

Standardized Cost Accounting: Standard costing assigns "standard" costs, rather than actual
costs, to its cost of goods sold (COGS) and inventory. The standard costs are based on the
efficient use of labor and materials to produce the good or service under standard operating
conditions, and they are essentially the budgeted amount. Even though standard costs are
assigned to the goods, the company still has to pay actual costs. Assessing the difference
between the standard (efficient) cost and the actual cost incurred is called variance analysis.

If the variance analysis determines that actual costs are higher than expected, the variance is
unfavorable. If it determines the actual costs are lower than expected, the variance is favorable.
Two factors can contribute to a favorable or unfavorable variance. There is the cost of the input,
such as the cost of labor and materials. This is considered to be a rate variance.

Additionally, there is the efficiency or quantity of the input used. This is considered to be a
volume variance. If, for example, Flintstone Homes Company expected to produce 400 homes in
a period but ended up producing 500 homes, the cost of materials would be higher due to the
total quantity produced.

Activity-Based Cost (ABC) Accounting: ABC identifies overhead costs from each department
and assigns them to specific cost objects, such as goods or services. The ABC system of cost
accounting is based on activities, which refer to any event, unit of work, or task with a specific
goal, such as setting up machines for production, designing products, distributing finished goods,
or operating machines. These activities are also considered to be cost drivers, and they are the
measures used as the basis for allocating overhead costs.

Traditionally, overhead costs are assigned based on one generic measure, such as machine hours.
Under ABC, an activity analysis is performed where appropriate measures are identified as the
cost drivers. As a result, ABC tends to be much more accurate and helpful when it comes to
managers reviewing the cost and profitability of their company's specific services or products.

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Lean Accounting: The main goal of lean accounting is to improve financial management
practices within an organization. Lean accounting is an extension of the philosophy of lean
manufacturing and production, which has the stated intention of minimizing waste while
optimizing productivity. For example, if an accounting department is able to cut down on wasted
time, employees can focus that saved time more productively on value-added tasks.

When using lean accounting, traditional costing methods are replaced by value-based pricing and
lean-focused performance measurements. Financial decision-making is based on the impact on
the company's total value stream profitability. Value streams are the profit centers of a company,
which is any branch or division that directly adds to its bottom-line profitability.

Marginal Costing (sometimes called cost-volume-profit analysis) is the impact on the cost of
a product by adding one additional unit into production. It is useful for short-term economic
decisions. Marginal costing can help management identify the impact of varying levels of costs
and volume on operating profit. This type of analysis can be used by management to gain
insight into potentially profitable new products, sales prices to establish for existing products,
and the impact of marketing campaigns.

The break-even point—which is the production level where total revenue for a product equals
total expense—is calculated as the total fixed costs of a company divided by its contribution
margin. The contribution margin, calculated as the sales revenue minus variable costs, can also
be calculated on a per-unit basis in order to determine the extent to which a specific product
contributes to the overall profit of the company (Tuovila, 2023).

Costing Methods in Cost Accounting

A costing method refers to the approach or technique used by businesses to determine the costs
associated with producing a product or providing a service. It involves analyzing various cost
elements such as raw materials, labor, overhead expenses, and other factors to accurately
calculate the total cost per unit or service.

The cost accounting system typically includes two processes. Cost accumulation and Cost
allocation. “Cost accumulation” is a system of gathering information like the physical resource

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used and the human resource needed. “Cost allocation” is the tracing and reassigning of costs to
one or more cost objectives such as activities, departments, customers, or products” (Horngren,
2012).

Different costing methods exist, and each has its own advantages and applicability depending
on the nature of the business. Choosing the right costing method is crucial as it impacts pricing
decisions, profit margins, and financial performance. By selecting the most appropriate method
for their business, companies can achieve optimal cost control and make informed pricing
strategies (Katana, 2024). The two basic cost accounting systems include the job order costing
system and the process costing system. Job order costing focuses on custom products, while
process costing focuses on standardized or mass-produced products (Study.com, 2024).

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 CHAPTER THREE

Research Methodology

To achieve our objectives, we will employ a mixed-methods approach. The data collection
methodology of the study is questionnaire survey and interviews of key informants. Survey
questionnaire are to be conducted randomly for company staffs. The questionnaire will contain
multiple choice, open-ended, and Likert-Scale questions.

1. Data Analysis and Interpretation

Quantitative analysis will involve examining financial statements, cost reports, and budgetary
data. We will calculate key performance indicators (KPIs) such as cost-to-revenue ratios, return
on investment, and cost variances. Qualitative methods, including interviews and surveys, will
provide insights into managerial perceptions and decision-making processes. By triangulating
data, we aim to present a comprehensive assessment of Flintstone Homes’ cost accounting
practices.

2. Timeline
The following table indicates the projected timeline for our project

Month
Activities
April May June July
1. Topic selection
2. Literature review
3. Proposal writing
4. Updating proposal contents based on advisor’s comments
5. Data collection
6. Data analysis
7. Report writing
8. Paper submission

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 3. References

Katana. (2024). Retrieved May 4, 2024, from Katana: https://katanamrp.com

Case, D. K. (2009). Historical influences on modern cost accounting practices. Academy of

Accounting and Financial Studies Journal, 21-40.

Deloitte. (2022, March 4). Real Estate Accounting Guide. Accounting of real estate investment.

Derbeck, E. J. (2013). Principles of Cost Accounting. Cengage Learning.

Drury, C. (2013). Management & Cost Accounting. New York: Springer New York, NY.

Feyera, B. (2018). St. Mary's University. Retrieved April 16, 2024, from St. Mary's University:
http://www.repository.smuc.edu.et/handle/123456789/5844

Fikadu, D. (2021). Assessment fo Cost Accounting Practice in GMM Garment Private Ltd. Co.
Addis Ababa, Ethiopia.

Fleischman, R. K. (1993). The Economic History Review: Cost Accounting During the Industrial
Revolution: The Present State of Historical Knowledge. Economic History Review, 503-
517.

Homes, F. (2024, May). Flintstone Engineering. Retrieved from Flintstone Homes:

http://www.flintstonehomes.com

Horngren, D. &. (2012). Cost accounting A managerial emphasis. New York: Prentice Hall,2012
.

Kaplan, R. a. (2007). Time-Driven Activity-Based Costing: A Simpler and More Powerful to

Higher Profits. Boston: Harvard Bussiness School Press, 2007.

Rajan, S. D. (2018). Horngren's Cost Accounting: A Managerial Emphasis. Pearson.

Shim, J. K. (2000). Modern Cost Management & Analysis. New York, NY: Barron’s educational
series, Inc.

Stewart, R. W. (1995). Cost estimator’s reference manual. New York: Johan Wiley & sons, inc.

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Study.com. (2024). cost-accounting-system-definition-function. Retrieved May 6, 2024, from
https://study.com

Syme, G. I. (2013). Accounting 1 . Toronto, Canada: pearson canada inc.

Tracy, J. A. (2007). Accounting for Canadians. Mississauga, Canada: John Wiley & Sons
Canada, Ltd.

Tuovila, A. ( 2023, December 18). Investopedia. Retrieved May 4, 2024, from Investopedia:
https://www.investopedia.com

Uyar, A. (2020). Cost and Management Accounting Practices: A Survey of Manufacturing

Companies. Eurasian Journal of BUsiness and Economics.

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