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Alpha University College College of Business and Economics PostGr aduat ePr ogr am Mast er sofSci encei n Account i ngandFi nance Assignment II Advance cost and management Article Review

Submitted by Fikirte G/Egziabhare

MAF1/15/042/12

Submitted to Abebe Bayu (PhD, Asst. Prof.)

Addis Ababa, Ethiopia August, 2020

Cost Accounting and Financial Health: Analysis of Cost Reduction Policy Effect in Selected Enterprises of Metallurgy Industry in Uzbekistan

Summary This article is prepared by Nodira Abdusalomova in International Journal of Management Science and Business Administration March, 2017 Vol. 3, Issue 3 and 6 pages. The purpose of this article was to study accounting specially cost accounting reforms in Uzbekistan after Post- Soviet Union era. This includes analyzing the historical practices of cost accounting, reforms towards free market accounting. After the collapse of Soviet Union many countries are enter to economy reform transiting from planned to market economy had to change not only accounting system, but also business structure and people’s views towards ownership. Because, the regulatory bodies, laws and regulations on accounting in the post-soviet countries were develop over a long period of communistic rule. So, emerging of private ownership and creation of a business environment required new accounting policy. Uzbekistan also decided for stepwise adoption of accounting principles to remove the gaps in accounting competency. But, Cost accounting remained in ‘traditional’ era of accounting, despite its current importance for business and investment environment. And these reforms begin with the implementation of Production Cost Regulation which was a guide for accountant’s business finance, tax accounting, and income statement preparation. The government start cost reduction policy in main local business areas, which directly affect the cost, profit and tax aspects of industries. In this article by choosing 13 heavy industries enterprise

samples that start cost reduction under government support, analyzed the impact of cost related decision in firm's financial health.

This article chosen Enyi’s Relative Solvency Ratio (RSR) model to examine the effect of cost reduction policy in firm's financial health. Which evaluate organization’s ability to recover costs and make profit. It is accompanied by the concept of operational breakeven point (OBEP), operational mark-up rate (MUR) and a required working capital volume. And it has four steps: First by dividing Profit before Tax (PBT) by Total Operating Costs (TOC) mark-up ratio (MUR) is calculated, which indicates the competence and ability of the management of a firm to recover costs Next Operational Break Even Point (OBEP) is calculated by using the first step result: OBEP=

1+ MUR 2∗MUR

Then by dividing Total Operating Costs (TOC) by 52(represents the number of weeks in a year) and multiplying the result by operational break-even point (OBEP), Working capital required (WCR) is calculated After that, The relative solvency ratio (RSR) is measured, 𝑅𝑅𝑅 = 𝑅𝑅 𝑅 / , it tell us the liquidity of a business in terms of the availability of adequate working capital. Here, AWC – available working capital. Finally Chance of Insolvency (COI) = 1 – RSR, is calculated which measure insolvency likelihood Using the above formula and 13 enterprises data, dated from 2012 – 2015, the below cumulative data result was found. MUR OBEP RWC RSR

2012 0.0166 30,632 1,621,680 0.97

2013 0.0045 112,024 1,717,589 0.92

2014 0.0154 33,008 1,858,926 0,.96

2015 0.0051 99,107 2258557 0.97

In the sample of selected 13 enterprises and cumulative data for the industry, cost reduction policy of the government influenced positively. General Critique This research topic is definitely important, especially for countries in economic transition (developing countries). The problem stated is researchable, and could be done in a variety of ways. Out of this the entire article was very poor;  The study has a poor introduction; it doesn’t presented relevance and the context of the study clearly. The questions of the study don’t clearly state.  The problem statement doesn’t properly illustrate the variables of interest and the specific relationship between those variables which are investigated. The author doesn’t clearly put what he tries to discover in the research.  When sample was selected, method of selecting the sample doesn’t clearly identified, the size and major characteristics of the population poorly described, Are the size and major characteristics of the sample described  When Enyi’s Relative Solvency Ratio (RSR) model is selected it doesn’t give us the rationale behind the selection of the measurement. Even though the purpose instrument describe, their appropriateness for measuring the intended variables aren’t stated  It’s difficult to understand how the results are found(it doesn’t show us step by step) and the data in each tables are poorly described  The data presented, analyzed and final result of the research, doesn’t have any linkage with its initial problem, presented in the introduction part, which is Post Soviet Union economic transition, even though the in the first phase of the research, the author give wide coverage economic transition, he doesn’t tell us how this result related with that.

As I stated earlier the research topic is important, so Future researchers can properly study the topic....