University of Twente Student Theses


Creating harmonisation in cost accounting practices at Wavin

Kroes, R.J.B. (2012) Creating harmonisation in cost accounting practices at Wavin.

[img] PDF
Abstract:This master thesis analyses differences in cost accounting practices and explorers opportunities to increase harmonisation between Belgium, Germany and the Netherlands. Wavin had a decentralised organisation structure in the past, which caused diverging cost accounting practices. Wavin would like to harmonise cost accounting practices to reduce costs, improve communication and create transparency. Wavin has three types of cost price calculations the standard, IFRS adjustment and fiscal cost price, these are analysed to improve harmonisation. The thesis provides insights about the cost prices namely the functions, definitions, calculations differences and a proposal for creating harmonisation. The problem definition of the thesis is: analysing differences in cost accounting practices and a proposal for the harmonisation of the cost accounting system. In order to answer the problem first the definitions, functions and calculations of the standard cost price, IFRS adjustment and fiscal cost price have to be known. The standard cost price is the price for a product which is determined on forecasted raw materials, the budgeted direct production cost and depreciation costs (Accounting Manual Wavin, 2008). Budgeted direct production costs are energy, labour, maintenance, packaging and other costs. Other costs incorporated in the standard cost price are direct materials, depreciation based on replacement value and a mark up. The function of the standard cost price is used for profit measurement, inventory valuation and to support managerial decision making. The IFRS adjustment calculation caused confusion, because among employees it was first known as the commercial cost price and the accounting manual of Wavin does not prescribes the right definition. The IFRS adjustment is calculated every month for inventory valuation, the total costs of sales have to match with the inventory value. To arrive at the IFRS adjustment the following calculations have to be performed an adjustment for raw materials, adjustment for direct depreciation, adjustment for indirect costs such as indirect production, storage & distribution and depreciation and finally an adjustment for intercompany products. The fiscal cost price is calculated for external financial reporting to value inventory based on the international financial reporting standards (IFRS) and general accepted accounting principles (GAAP). The IFRS requires finished products to be valued at the absorption price or lower net realisable value. The fiscal cost price incorporates the similar costs as the standard cost price, but is based on actual costs. Depreciation is based on historical costs instead of replacement value. Besides actual indirect costs have to be added, these are the same as in the IFRS adjustment. The standard cost price differs because of the different allocation methods of costs. Depreciation is in Belgium, Germany and the Netherlands not calculated according to the accounting manual and energy is in Belgium differently allocated in comparison to the other countries. Overall there are limited differences, because Wavin has already been started with the harmonisation of the standard cost price. 4 The IFRS adjustment was the most difficult to grasp. Each country has its own calculation model which causes inconsistencies. Costs for indirect storage & distribution are not allocated in Belgium and the Netherlands. Germany does not incorporate an adjustment for direct depreciation and the Netherlands bases their figures on average budgeted figures instead of actual figures. Remarkable contains the accounting manual mistakes about the definition and calculation of the IFRS adjustment, which creates ambiguity. The Fiscal cost price differs because of rules, regulations and different calculation models. The most practices within Wavin are according to the rules of the International Financial Reporting Standards, but for inventory valuation countries have to follow to Local Accepted Accounting Principles. Germany has to calculate inventory according to net realisable value in contradiction to Belgium and the Netherlands, who value inventory according to current costs. In Belgium it is prohibited to incorporate indirect costs for inventory valuation. Harmonisation in cost accounting practices can be achieved through eliminating the differences as much as possible. The harmonisation should lead to improved communication, prevents different interpretations, creates uniformity and reduces costs. This can be achieved by creating harmonisation in calculations and allocation of costs for all countries. The accounting manual should have an important role in the harmonisation, it should be the leading format where all important knowledge can be retrieved. Harmonisation of the standard cost price can be achieved by allocating costs according to an unified method. This means that depreciation has to be based on 80% of planned operating time and energy should be allocated based on production volume in all countries. For the IFRS adjustment it is recommended to create a redesign which incorporates all necessary costs. A redesign for the IFRS adjustment is elaborated in the thesis and could be applied for all countries. Benefits of the redesign are harmonisation of procedures, improvement of quality, employees can be exchanged between countries and calculations are simplified. The fiscal cost price is currently a very extensive calculation mainly the German method. It is recommended to redesign this calculation to improve efficiency and transparency. The redesign should consist of similar steps for all countries. The model of the standard cost price can be used to allocate actual costs, but instead of budgeted costs actual costs have to be used and indirect costs have to be added. Depreciation has to be based on historical value instead of replacement value. In Belgium it is prohibited to incorporate indirect costs, which makes the calculation less complex. After these steps Belgium and the Netherlands are finished and could upload the costs into SAP, Germany has to perform additional steps to meet the local requirements. Currently the calculation files of the cost prices are out dated and have to be updated with the newest functions of excel or replaced by SAP technology. To overcome problems with the management of knowledge, it is recommended to improve storage of knowledge. The accounting manual should be the leading format which contains clear definitions and prescribes which cost components have to be incorporated. Without a clear accounting manual harmonisation will be impeded. Improved management of knowledge could prevent different interpretations, mistakes will be prevented and harmonisation will be stimulated
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Administration MSc (60644)
Link to this item:
Export this item as:BibTeX
HTML Citation
Reference Manager


Repository Staff Only: item control page