The use of job costing as a tool for the pricing and cost control decisions in the printing industry: the case of Société de Presse et d'Editions (SOPECAM)

CHAPTER TWO:

LITTERATURE REVIEW

The main objective of this chapter as its name suggests is an explanation and a brief exposé of the concepts, studies and theories related to the topic under study. Throughout this chapter we will try as much as possible to give you an insight into the mechanics, processes, procedures and theories related to job costing.

This chapter will be made up of three main parts:

· Some definitions of the important concepts

· The theory of job costing

· The results of studies conducted on job costing and the use of other costing methods (Empirical literature).

I. DEFINITION OF IMPORTANT CONCEPTS

These are some of the terms, expressions and words that will be used during the study and as such which need to be carefully analysed and explained so that they will serve as a guide for the good understanding of the topic. These explanations will be divided into two main parts: the first one will focus on the cost terms and the various costs classifications, the second one will be devoted to introducing the reader to the concepts of costing methods and techniques.

A. COST TERMS, CONCEPTS AND CLASSIFICATION.

From the accounting point of view, management main focus and interest is on the costs of the company. For management to be able to plan that is setting objectives and outlining how to attain these objectives, but also to control activities and operations effectively, that is, taking steps to ensure that objectives are realised (Garrison & Noreen, 2003), it must have figures, data and information relating to the costs incurred by the company. These costs are of various types; nature, use and they may be classified using different parameters such as their nature, their function or their behaviour. In order to determine what will be made of any cost data, we must therefore have a good knowledge of its characteristics.

1. Cost

In everyday language, a cost may be defined as «the price to be paid or amount of money to be incurred for something.» This definition seems to be too simple for this study, in a more accounting sense, a cost is defined by Needles, Anderson and Caldwell^9(*) (1981) as the exchange price associated with a business transaction at the point of recognition. This second definition is quite more complete than the previous one but it is still not very accurate and precise. Another expert, namely Lucey (1993) defines the cost, as the amount of expenditure be it actual or notional, incurred on, or attributable to a specified thing or activity.

All these definitions show that costs are measures of what it takes a company or an entity to perform an activity, they measure and evaluate the efforts directed towards the achievement of an objective; this implies that, without information relating to costs we may not be able to evaluate the success or failure of an entity or activity.

2. Cost Objective or cost object.

A cost is used to achieve a certain objective; this objective is termed cost object. It is defined by Garrison and Noreen (2003), as anything for which cost data is desired. That is any activity that requires information about the costs involved in performing that activity. Horngren and Foster (1991) define a cost objective as any activity or item for which a separate cost measurement is desired. It appears that a cost object is any activity on which cost can be measured and it is of great importance in accounting because it helps in assigning and allocating costs to various cost centres.

* ⁹