Determinants of cost management in Micro and

Small Enterprises

Ozeana Celestino de Lima

Graduated in Accounting from UERN.

State University of Rio Grande do Norte, UERN, Brazil.

ozeanalima@alu.uern.br

http://lattes.cnpq.br/9202269016372023

https://orcid.org/0000-0001-7806-3878

Sérgio Luiz Pedrosa Silva

PhD in Geography from UFPE.

PhD in Business Administration from UnP.

State University of Rio Grande do Norte, UERN, Brazil.

jandesondantas@uern.br

http://lattes.cnpq.br/9190312918421422

https://orcid.org/0000-0003-2189-5053

Availability: https://doi.org/10.5965/2764747111212022038

37

Determinants of cost management in Micro and Small Enterprises

Abstract

approach, by applying a questionnaire to managers of MSE. Results: We verified that cost

management offers subsidies that assist in the managers’ decision-making, being inventory

control and valuation, as well as increase in competitiveness, the determinants of cost

management. The participants consider cost control information relevant for the planning and

performance analysis of the company. Moreover, we found that the level of use of cost

management in this research exceeded the average of Sebrae, which points out that 60% of

companies do not use cost control, whereas in this research only 30% reported not to use it.

Contributions: The research contributes to show the relevance of determinants for the MSE

to carry out an effective cost management, indicating a list of practices adopted in the surveyed

companies, which can serve as a guide for other companies to use in their decisions. Our results

Resumo

Objetivo(s): O objetivo desta pesquisa foi evidenciar os determinantes da gestão de custos nas

micro e pequenas empresas (MPE) na cidade de Mossoró (RN). Método: As MPE são

instituições imprescindíveis para a economia brasileira por sua representatividade em número

de empresas e pela geração de emprego e renda. Para atingir o objetivo proposto, foi realizada

uma pesquisa com abordagem quantitativa, com aplicação de um questionário aos gestores das

MPE. Resultados: Os resultados evidenciaram que a gestão de custos oferece subsídios que

auxiliam na tomada de decisão, sendo o controle e a avaliação de estoque, assim como o

incremento da competitividade, os determinantes para a gestão de custos. Verificou-se que os

práticas utilizadas nas empresas pesquisadas que pode servir de orientação para outras

empresas em suas decisões. Tais resultados foram convergentes em alguns aspectos e

divergentes em outros com relação a estudos empíricos pesquisados na literatura.

Palavras-chave: Micro e Pequenas Empresas. Gestão de Custos. Determinantes.

38

Determinantes de la gestión de costos en las Micro y Pequeñas Empresas

Resumen

los directivos de las MYPE. Resultados: Los resultados mostraron que la gestión de costos

ofrece subsidios que auxilian en la toma de decisiones, con el control y evaluación de

inventarios, así como el aumento de la competitividad, determinantes para la gestión de costos.

Se constató que los participantes consideran relevante la información de control de costos para

planificar y analizar el desempeño de la empresa. También se constató que el nivel de uso de

la gestión de costos en esta investigación superó la media del Sebrae, que apunta que el 60%

de las empresas no adoptan tal medida, mientras que en esta investigación solo el 30% declaró

no adoptar el control de costos. Aportes: La investigación tiene el aporte de mostrar la

relevancia de los determinantes para que las MPE realicen una gestión de costos efectiva,

señalando un listado de prácticas utilizadas en las empresas encuestadas que pueden servir de

current scenario. According to the Brazilian Micro and Small Business Support Service

(Sebrae, 2022), the growth of entrepreneurship in MSE has gained prominence in the economy,

reaching 14 million companies in Brazil. According to Sebrae, MSE boosted the rise of

formalized jobs in Brazil in the first semester of 2022: of the 1.33 million jobs created, 72%

originated from small businesses, with 961 thousand job openings from January to June,

according to a survey based on the General Register of Employed and Unemployed Persons

(Cadastro Nacional de Empregados e Desempregados – Caged). Therefore, the predominance

in the generation of employment and income of small businesses over medium and large

enterprises stands out (Maximo, 2022; Oliveira et al., 2022).

to stimulate the generation of new jobs.

agencies are circumspect by the construction and instruction of companies, such as Sebrae,

which was founded in 1972 and was the first institution designed to instruct individuals who

intend to be entrepreneurs, providing the service of promoting the practice without interruption

of actions and renewal in the SE by dynamic, free, efficient, and personalized guidance.

39

mortality rate of these companies over the years is significant. In the period from 2021 to 2022,

detailed view of operations. Consequently, decision-making will prove to be faster and more

objective, leading to positive and enlightening results. Nevertheless, costs require something

more specific and detailed, making entrepreneurs face difficulties in the estimations for not

mastering the technique (Fernandes et al., 2021).

making process, as managers base their decisions on the information provided to them such as

how much, when, and in which area to invest or which amount should be applied to products

and services. In addition to knowledge and control of the manufacturing costs of the

product/service, it is essential to identify the possibilities for improving processes. These

procedures must result in an analysis to identify and eliminate wastes that reduce profit.

estimating the unit cost of the product was highlighted as the most common among managers.

In turn, Costa et al. (2018) identified as determinants the estimation of the contribution margin,

analysis of the sale price, cost records, strategic evaluation and pricing, financial analysis of

inventories, detailing cost information in specific reports, monitoring competitiveness, and

control of cash flow.

the contribution margin, and the break-even point in the management analysis of the business.

Zanin et al. (2019) highlighted variable costing as the most used method, and the specificities

of companies, such as revenue, branch of activity, and form of taxation, as determinants in cost

of the study is to evidence the determinants of cost management in MSE in the city of Mossoró

(RN), Brazil.

in such a way that we can analyze its contribution and the discussion on the development of

the topic regarding the surveyed companies. To this end, the study is based on the reports of

Scheren et al. (2019), who assert that knowledge of the cost is vital to analyze whether the

product/service is profitable or not and whether it is possible to reduce it; therefore, it is

40

businesses face obstacles to survive in the market. Thus, cost management becomes an essential

investigated. The second part portrays the theoretical framework. The third section presents a

description of the study’s methodological structure. The fourth section explains the results and

achieved objectives; and, finally, the fifth section presents the final considerations and the

consulted references.

After the introduction of the proposed topic, the theoretical framework seeks to

establish a set of content related to the topic to support the analyses carried out in this research.

payment processes, the Simples Nacional (Brasil, 2006).

optional for these companies and aims to encourage the economical growth of MSE in the

country (Brasil, 2006). Simples Nacional aims to facilitate the payment of tax contributions.

According to Amaral et al. (2021), Simples Nacional is an economic-tax policy instrument that

was constitutionally determined to help MSE by a unified tax collection regime.

by a company, characterized by a set of laws that guide and indicate information regarding

taxes that must be paid. From this perspective, according to Veloso et al. (2021), MSE originate

employing about 52% of the formal workforce. These companies are one of the main means of

growth in the Brazilian economy, considering their capacity to generate jobs. According to

Aragão et al. (2021), companies promote innovation, and entrepreneurship is the action that

encompasses resources with the new capacity to create wealth. Thus, MSE are strong in the

national economy, underlining the importance of seeking to solve management problems

research seeks to better understand the cost management of these companies.

41

Cost Management

Small and large organizations prioritize the internal control of costs, whether they are

the total cost of the product as a management tool is not enough. The knowledge of direct and

indirect costs is relevant, as classifying costs between direct and indirect is rather related to the

developed product or the provided service, and not to production in the general sense (Braga

et al., 2020).

bottleneck of this system, as direct costs are easy to allocate to the product/service. Cost

management is an efficient process directed by the effectiveness of planning, execution, and

control activities, as companies seek to reduce costs and increase their productivity. It is a

useful tool that assists management in the control and estimation of results (Oliveira et al.,

2021; Wamser et al., 2019).

Costing Methods

The literature highlights costing methods, whose implementation has been strengthened

by the technological development relationship. As the business world develops, business

activities follow these changes, in which the management of costs — previously considered an

expense — begins to meet the companies’ needs as a fundamental element to thoroughly know

the expenses, what will the revenue margin be, and other market trends, which are virtually

daily issues in the business sectors, according to Paula et al. (2019).

costing. The existence of other types is evident, for example, full costing and activity-based

costing (ABC). In this research, the absorption and variable methods will be primarily

described because they are the tools most used by MSE, considering that activity-based costing,

despite promoting an improvement in the allocation of fixed costs, is applied to companies with

a large technological infrastructure.

42

(2019), consists of identifying all the costs involved in the production of goods or provided

disadvantage of the absorption costing method lies in the determination of the value of the

product without specifying the contribution margin, which is the discrepancy between the sales

price and the cost of the product, generating a value that impairs competitiveness with its

competitors (Araújo et al., 2021).

product, whereas fixed costs are recorded as expenses in the Income Summary. This

understanding derives from the following logic: fixed costs decrease as the volume of

production increases, so they should not compose the cost of the productive unit. The analyses,

therefore, focus on the control of variable costs (Braga et al., 2020; Santos, 2021).

period. In fact, there may be obstacles in assessing costs, as there are semivariable and

semifixed costs. Overall, variable costs are used for short-term decision-making, which may

hinder the long-term continuity of the company. It should be noted that the methods addressed

in this study are the most common in MSE. The cost management practices used by these

organizations are described next.

Cost Management Practices

The spread of information and communication technologies (ICT) provided the

connection between economies and, consequently, transformed the practices adopted by

companies, further boosting competitiveness in all branches of activity. Digital media led

everyone to live in a world without borders, in which knowledge of cost management practices

is rapidly disseminated seeking to survive in the business world, to optimize resources in order

to be competitive, and with the aim of maintaining and getting new customers (Aragão et al.,

2021; Paula et al., 2019).

and practices of cost management strategies to adapt them to their business. Thus, being aware

of the processes that arise in the market and using them to promote effective cost management

43

Table 1

2021, Cavalcanti, & Santos, 2022). There is no better or worse practice, as they adapt to

companies according to their specificities; hence, a recurring and usual practice in one

company may not be useful for another. In addition, within this context, the cost-benefit ratio

must be observed when using the tools (Araújo et al., 2021, Cavalcanti, & Santos, 2022).

44

Previous Studies Related to the Topic

Articles related to the topic — cost management determinants or practices in micro-

cost management tools, which facilitate decisions involving information on MSE.

the determinants of cost management in the salt industry of the state of Rio Grande do Norte

(Brazil), the authors highlighted the variables: cost control and analysis, identification of

variable costs, cost planning, use of absorption costing, and cost monitoring. Calculating the

unit cost of products was the most common factor among managers.

of cost management practices in fruit growing companies in Rio Grande do Norte, the

following factors were verified: estimation of contribution margin, sales price analysis, cost

records, strategic evaluation and pricing, financial analysis of inventories, detailing cost

51

(2022) showed in a study that 60% of MSE have no control over the costs of their operations,

effectiveness of business planning, reducing costs and increasing profitability. Moreover,

Veloso et al. (2021) observed that absorption costing is advantageous for long-term planning.

Santos et al. (2020) reported that cost information is relevant to the operational and strategic

planning of companies, despite the lack of technical knowledge on the part of managers to use

cost management information.

the products, Zanin et al. (2021) and Veloso et al. (2021) highlight the main function of variable

costing in establishing the sales price of products; Rocha et al. (2019) corroborate this idea,

pointing to variable costing as the most appropriate for establishing the sales price for

considering the estimations of contribution margin and the break-even point in cost

variable costing as more common than variables such as revenue, branch of activity, and form

of taxation among the factors that influence the cost management decisions of these companies.

that the company uses in the development of its activities (Peres et al., 2020), as they are

bring benefits and positive results, in addition to economic growth for the company. According

to Peres et al. (2020) and Querino et al. (2021), inventory management has the main objective

a tool used for the availability of products with a view to efficient inventory management.

Fatores determinantes nas micro e pequenas empresas

52

53

Final considerations

This research aimed to highlight the determinants of cost management in MSE in the