AN ASSESSMENT OF COST ALLOCATION SYSTEM IN MANUFACTURING COMPANY (IN CASE OF OROMIA PIPE FACTORY PLC)

Abstract

The purpose of this study was to assess cost allocation system in Oromia Pipe Factory PLC for management decision making. The study focused on cost system practice and allocation mechanism, internal control system, change of manufacturing process and cost, staff quality and company's capacity, maintaining database and department's involvement & customer's satisfaction on pricing decision. The target population is focused on 25 employees of Oromia Pipe Factory PLC. Those are listed from general manager, deputy general managers, department heads, factory and administrative staffs. Purposive sampling technique is used to select respondents for questionnaire and focus group discussion on the bases of their expertise in the research study. The data collected was analyzed through qualitative approach for focus group discussion and Quantitative approach for questionnaire which put into SPSS and then analyzed by using descriptive statistical tools. The basic findings from the study revealed that the company uses process costing system and traditional costing method to allocate factory overhead costs, the company assigns factory overhead cost using units of production, and also the company has no capacity to implement modern cost allocation system,. The result concluded that traditional costing method is not effective in which providing inaccurate cost information and affecting performance of the company. In addition, there is shortage of man power and trained employees because of capacity building training in relation with cost system have not been provided for staffs. Therefore the study recommended that the company need to develop and adopt the new cost method that method is activity based costing system. Moreover, top management support is crucially needed to facilitate training for staffs and to improve capacity of the company.