Examining cost and management accounting practices and cash flow patterns in an unorthodox trading scenario : a case study

Abstract

Introduction: The oil spill response industry is exigent to operate in because it is unpredictable and characterised by risk. This leads to a peculiar operating environment for Oil Spill Response Organisations (OSROs) when compared to that of 'normal' trading entities. In fact, OSROs are firms which survive depending on the contracts that they manage to secure. Hence, revenue generation is infrequent albeit daily costs have to be irrespectively paid; resulting in high cash requirements. Purpose: The purpose of this study is to obtain a thorough understanding of how Alpha Briggs Mediterranean Ltd., a small and relatively newly established local OSRO, operates in this unorthodox trading environment. Two cost and management accounting techniques (Job costing, and Planning and Budgeting) are examined whilst the Company's financial position is highlighted through an analysis of its cash flow patterns, sources of finance and the calculation of several ratios. Design: The objectives of this study have been attained through a case study approach using in-depth interviews and participant observation. The majority of the interviews have been conducted with various associates of Alpha Briggs. Moreover, an interview with the Bank Manager of this company has been carried out. Supplementary information of a financial nature has been obtained to permit the analysis of Alpha Briggs' cash flow patterns and a number of financial ratios. ii Findings & Conclusions Research has confirmed that Alpha Briggs' operating environment is challenging and uncertain. The cost and management accounting techniques analysed are crucial for the Company's operations. Furthermore, Alpha Briggs' cash flow patterns are highly irregular given that it does not transact every day. The study as there is still way for improvement. Implications & Value: It is believed that this research is beneficial in portraying how the Company manages to operate in its trading environment. Additionally, it provides insight as to the effectiveness or otherwise of the cost and management accounting techniques which Alpha Briggs applies. The study highlights areas where, by applying the benefit of research, alternative ways of financing could be explored by this company. Finally, given that local literature on the subject is limited, this dissertation could assist in encouraging further research about this topic.