AbstractsEconomics

Research into an appropriate costing methodology for operational decision making in a maintenance environment.

by S. M. Unsted




Institution: University of Johannesburg
Department:
Year: 2014
Keywords: Service industries - Management; Decision making - Economic aspects.
Record ID: 1453114
Full text PDF: http://hdl.handle.net/10210/9456


Abstract

The aim of a service organisation functioning in the maintenance or repair market is the repair of components and products. Every contract quoted for is unique. Different procedures and processes must be followed before the repair is successfully completed. Due to this fact, the forecasting of costs to be incurred is made most difficult. The proportion of material costs to labour costs is generally low in this industry and if the labour force is permanently employed, the rued costs to variable costs ratio is high. It is thus difficult to obtain accurate costing information before a contract has been completed. Management have to, on a daily basis, make short term operational decisions and the cost information obtained from the company's costing system, is important in the making of these decisions. At present, there is no costing system that takes into account the unique circumstances of an organisation operating within the maintenance environment and at the same time provides enough relevant costing information for the organisation to recover its costs and quote on a competitive basis. Rotek Engineering, a service organisation that undertakes service, repairs and maintenance in the heavy engineering market, is used as a representative model in this research. The literature study undertaken, investigated which costs and costing systems, from an academic point of view, could provide management with the most relevant and accurate costing information in a service organisation. Rotek Engineering was investigated in order to determine to what extent their current costing system meets their costing information needs in terms of short term decision making and quoting. Shortcomings of the current costing system were also investigated. Rotek Engineering's competitors in the maintenance market were also interviewed in order to get some insight into how their costing systems have been adopted in their ongoing struggle to gain market share. As a result of the information obtained from the research and also the literature study, it is recommended that a marginal costing system be implemented in order to provide cost information for short term operational decision making. The recommendation involves a warning that the bookkeeping and productivity problems will not necessarily be solved as a result of the implementation of a marginal costing system. The company must urgently focus attention on solving these problems and also on phasing out the permanent labour force.