Costing methods applied within the local paints and coatings industry

Abstract

Purpose: The aim of this dissertation is to assess what costing methods are applied by the local coatings manufacturers. These systems are challenged by the rising environmental costs and the ever growing competition from imported paints which may lead operators to shift from manufacturers to importers. Design: The local coatings manufacturers' population only enabled a quantitative approach towards research. From the fourteen potential interviewees, the response rate of 64.29% aided in gaining an in depth analysis of the present industry situation. Findings: Total absorption costing tends to be the less common approach, practiced by two companies, while another four companies adopt a marginal costing system. The remaining confirmed that their system falls between the two ideologies, however all interviewees confirmed that raw material costs are the largest burden. Cost estimation at planning stage indicates whether a product will be profitable to produce in view of competitors' similar coatings market prices. Unconsciously, a target costing and pricing approach is used. Those products not worth manufacturing are not transferred to the production schedule but imported at a lower cost. This trend was evident by all interviewees but they were unwilling to completely abolish local manufacture. When faced with the ever growing environmental costs, not all the firms anticipated such rapid increases. However due to the local size of the firms, the high costs of emissions compliance were not a burden in themselves. Conclusions: Differentiated coatings provide a higher profit to producers however such residue between prices and costs is dependent on the basis undertaken for estimating costs. Value: The costing system and approach shall not be an end in themselves but an opportunity to look in depth at the current situation and the entity's goals and strategies. This ensures that the costing approach is not a tradition but challenged to meet customers' demands.