APPRAISAL OF COST-VOLUME PROFIT ANALYSIS IN MANUFACTURING FIRMS (A CASE STUDY OF OBIKA INDUSTRY NKPOLOGWU).

CHAPTER ONE

1.1   BACKGROUND OF THE STUDY

The base objectives of every business is profit making. Cost- volume –profit analysis gives an overview of the planning price and responses of cost affluences. Managers are constantly faced with decision about selling price, fixed costs and variable cost. Managers must decide how to acquire and utilize economic resources for their profit goal to be achieved. According to Needle Anderson and Coldwell (1933), cost volume-profit analysis provided techniques expressed in relationship among revenue, sales – mix, cost, volume and profit. These related items provide a general model of financial activity that management can form a short range planning. Evaluating performance and analyzing decision alternatives. The cost volume profit analysis can be a valuable and reliable decision making tools. If it is exhaustively conducted and applied Managers’ failure to make accurate prediction about cost, revenue levels will make their decision undesirable or even disastrous. The cost-volume – profit analysis is an inevitable tool in assisting managers’ makes policies and decisions on;

1. Make or buy decisions
2. A change in selling price
3. The increasing or decreasing volume of production
4. The introduction of a new product
5. The quality of various products to be manufactured

Therefore, cost-volume-profit analysis involves the analysis of how total costs, total revenues and total profit are related to sales volume and is therefore concerned with predicting the effects of changes in cost and sales volume on profit.

It is an analysis that guides decision making in respect of going into a production level process, expanding an existing production level, minimizing the cost of production or diversifying into unusual areas of operations. The analysis could be done graphically or mathematically.

1.2   STATEMENT OF THE PROBLEM

The problems associated with the research topic which make the researcher to embark on the study are;

1. The combination of these three forces which is cost, volume and profit to achieve the objective of the firm.
2. Limitation in the amount of information cost-volume-profit analysis can provide in a multi-product operation. The effect of management efficiency in the ability of a firm to meet a set standard of objectives using cost-volume-profit analysis.
3. The extent of which cost-volume-profit analysis can provide information for the firms’ management control.
4. The significant of cost – volume – profit analysis as a performance indicator among others.

1.3   PURPOSE OF THE STUDY

The purposes of this study are as follows;

1. To seek ways of solving related problems presently facing the manufacturing industry.
2. To highlight numerous advantages of the application of cost-volume-charts and ratio in decision making so as to enhance the overall performance of manufacturing firms.
3. To ascertain whether the adoption of cost-volume profit analysis would be cumbersome and create problems in manufacturing firm.

1.4   RESEARCH QUESTION

Consequently, this research was undertaken to address the following research questions.

1. Whether the adoption of cost-volume – profit analysis cumbersome and create problem?
2. Does cost-volume-profit analysis adequately apply in manufacturing firms?
3. Is there any advantage that emanates from the application of cost volume charts and ratio in decision making of the manufacturing firms?
4. Is there any limitation on the amount of information cost- volume-profit analysis can provide in a multi-product operation?
5. Is combination of these three forces which is cost, volume and profit very difficult in achieving the objective of the firm?
6. Does the introduction of cost-volume-profit analysis give the management a fresh and refreshing insight into the progress of the firm?

1.5   RESEARCH HYPOTHESIS

Cost – volume-profit analysis is an important tool in corporate planning. It is also mathematical accounting model. In view of the research problem, the following hypothesis is hereby formulated.

1. Hi: The adoption of cost – volume – profit analysis in the manufacturing firms would be cumbersome and create problems?
2. Ha: The convergence, of cost – volume- profit analysis in the manufacturing firms would be cumbersome and create problems.
3. Ho: The appraisal of cost-volume – profit analysis will not produce or increase quality decision making in the manufacturing firm.
4. Ha: The appraisal of cost-volume – profit analysis improves quality decision making in the manufacturing firm?

1.6   SIGNIFICANCE OF THE STUDY

The significance of this study highlights the following.

1. The inadequacies in the application of cost-volume-profit analysis of manufacturing firms in Nigeria and problems associated to such adequacies .
2. The benefits accrued to a manufacturing firm if it adequately applying the cost-volume – profit analysis.
3. Recommendations that will make an increase in the survival and efficiency of manufacturing firms in Nigeria.

1.7 SCOPE OF THE STUDY

This research work is narrowly based on the benefit of Cost-Volume-Profit Analysis or its demerits if not applied as one of management tool for decision making in Obika industry.

1.8 LIMITATION OF THE STUDY

The researcher encounters some challenges in the course of writing the project work. Some of the challenges are stated below;

1. TIME: The time duration for this project work was short because the researcher was facing academic activities, at the same time writing this project report.
2. FINANCE: The researcher encountered some financial challenges in the course of writing this project work; the researcher have to travel from time to time, to the place of the case study, to distribute questionnaire and research work itself is cost involving.
3. Another challenge is difficulty in getting information from the respondent among others.

1.9 DEFINITION OF THE TERMS

Profitability:     Ability of a firm to make profit.

BUSINESS:      It is all profit directed economic activities that are organized towards providing goods and service to mankind.

BREAK – EVEN – POINT: The point of activity where total revenue is equal to total expenses.

BUDGET: Annual estimation of revenue and expenditure for a given organization in a given time either in a qualitative or quantitative structure.

PROFIT: It is a prime motivator of all economic activities engaged in by all entrepreneurs.

FIXED COST: (FC) Fixed cost are those cost that do not change in amount with changes in activity.

VARIABLE COST (VC): These are cost incurred in production which tends to change as output changes.

CONTRIBUTION: This is the difference between selling price and variable cost (VC). It is also regarded as marginal contribution.

C.V.P: Cost-volume-profit analysis

Margin of safety[MOS]:This is the difference between the actual sales and the sales at the breakeven point.  It is also the excess of production over the breakeven out put

DOWNLOAD COMPLETE WORK

DISCLAIMER: All project works, files and documents posted on this website, eProjectTopics.com are the property/copyright of their respective owners. They are for research reference/guidance purposes only and some of the works may be crowd-sourced. Please don’t submit someone’s work as your own to avoid plagiarism and its consequences. Use it as a reference/citation/guidance purpose only and not copy the work word for word (verbatim). The paper should be used as a guide or framework for your own paper. The contents of this paper should be able to help you in generating new ideas and thoughts for your own study. eProjectTopics.com is a repository of research works where works are uploaded for research guidance. Our aim of providing this work is to help you eradicate the stress of going from one school library to another in search of research materials. This is a legal service because all tertiary institutions permit their students to read previous works, projects, books, articles, journals or papers while developing their own works. This is where the need for literature review comes in. “What a good artist understands is that nothing comes from nowhere. The paid subscription on eProjectTopics.com is a means by which the website is maintained to support Open Education. If you see your work posted here by any means, and you want it to be removed/credited, please contact us with the web address link to the work. We will reply to and honour every request. Please notice it may take up to 24 – 48 hours to process your request.