ABSTRACT
This research investigation is focused on the “impact of cost control and cost reduction in manufacturing firms” using Nigeria breweries plc as the case study. Cost control and cost reduction are techniques in management accounting which are employed in the reduction and control of total production cost in a manufacturing firm. Examples of theses methods are economic order quantity (EOQ), variance analysis, budgeting etc. The primary objectives of any firm is to maximize its profit and the way by which the management can achieve this motives is by keeping cost at its lowest level by applying these techniques,. The researcher made use of both primary data and secondary data, structured questionnaires were methods used in collection of primary data. Secondary data were also collected from text books and from various research materials. CHI square was used as statistical tool for analyzing the data. From the finding of this research, it was discovered that profit maximization of Nigeria breweries plc depends of the existence of cost control and cost reduction techniques. Also the existence of cost control and cost reduction techniques would help in decision making and growth of the firm. This research was concluded that cost control and cost reduction techniques are very vital which the firm cannot do without for its effective and efficient application would help in achieving profit maximization. The research also recommends that in order to maintain a good cost control and cost reduction system, the quality of staffs should be considered in other words the firm would have to recruit qualified staffs.
TABLE OF CONTENTS
Title Page i
Approval Page ii
Dedication iii
Acknowledgement iv
Abstract ix
Table of Contents x
CHAPTER ONE: INTRODUCTION
- Background of the study 1
- Statement of the Problem 7
- Objective of the study 9
- Research Questions 10
- Formulation of Hypotheses 11
- Significance of the Study 13
- Scope/ Delimitation of the Study 14
- Limitation of the study 15
- Definition of Terms 17
CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1 Cost Control 20
2.2 Cost Reduction 21
2.3 Cost Control Methods 22
2.4 Cost Reduction Techniques 53
References
CHAPTER THREE: METHODOLOGY
3.1 Research Design 68
- Area of the Study 68
- Population of the study 69
- Sample and sampling Procedure 69
- Instrument for Data Collection 70
- Validation of the Instrument 71
- Reliability of the Instrument 71
- Administration of the Instrument 72
- Method of Data Analysis 73
CHAPTER FOUR: DATAPRESENTATION AND RESULT
4.1 Data Presentation and findings 74
4.2 Discussion of Findings 94
4.3 Summary of Findings 96
CHAPTER FIVE: CONCLUSIONS AND RECOMMENDATIONS
- Conclusion 97
- Recommendation 98
- Suggestions for Further Research 99
Bibliography
Appendix
CHAPTER ONE
1.0 INTRODUCTION
1.1 Background of the Study
The purpose of this research is modes of attempt to verify the discriminate increase in the prices of commodities produced by manufacturing organization in the part of the country which has attracted the attention of many citizens, especially those who know the implications of this continuous rise in prices on the people and on the nation’s economy.
This rapid increase in price of manufactured goods can be attributed to cost of production of goods and it is for this reason that the need for the control arise. Moreover, in compliance with the current drive towards Structural Adjustment Programme (SAP), these organizations are now caught up in the need to control their production costs.
This research paper will, therefore, attempt to give a comprehensive account of the control of costs in the field of production with particular emphasis on manufacturing organizations. The feature of every organization is the pursuit of a goal and this goal or objective exists in different dimensions. It is evident, therefore that every manufacturing organization, whether sole, partnership, corporation, among others, must have an objective and the primary objective of these organization is to maximize profit. Any other objective such as social service is purely secondary and generally dependent on profit.
Profit is the excess of total income over total expenditure during a specific period of time. It follows therefore, that for organizations to make profit, they must have control over the cost of their production and services.
Manufacturing is the transformation of raw materials into finished goods through the use of labour and factory facilities. It is clear that currently, the price of materials is so exorbitant to the extent that manufacturing companies are in a serious profit squeeze. They are struggling to maintain satisfactory earnings in a situation where costs are rising but some industrialist contend that profit increase are becoming more difficult to obtain ever at less proportionate degree to costs. Foreign and domestic competition as well as governmental efforts to prevent further inflation put serious restraints on additional increase. In addition to these are governmental (both state and federal levels), stabilization measures aims at restructuring and improving the economy and their attendant cost effect. some of these measures like the second tier foreign exchange market (SFEM) and structural adjustment programme (SAP) have had effects of not only causing increased prices as a result of increased cost of inputs, but have gone further to multiply in-built imported inflation by the incremental exchange rate of the naira against the convertible currencies that are used in importation.
These governmental structural re-adjustment measures have contributed greatly in rendering most profit seeking long range plan of companies ineffective. Thus, most of these companies are compelled by the prevailing economic circumstances to be more interested in research and development for the expansion of profit margins of already existing products. This will as well help them to avoid diversification. This quest for increased profit margin in the light of the near fixed nature of revenues implies that the achievement of same depends wholly on products management of costs.
To maintain the level of earnings or to increase earning following these situation, many companies are taking strong steps to control cost, if not reduce costs, do away with waste and increase productivity. The industrial resolution, which brought about improvements in technology techniques do help to control and reduce costs but are in most cases not adequate.
The members of management board of most companies are putting pressure on their organizations at every point. Jobs are being timed and standards set in manufacturing department where timing and standards did not exist previously. These procedures have also been extended into office operations. Budgets are being made more detailed, they are tighter, religiously adhered to and are controlled more vigorously.
These developments are typical of a current emphasis in Nigeria business. In the other words, the manufacturing organizations are not left out. In order to ensure survival and also to create more positive impacts on the economic growth, many methods of cost control and cost reduction are being utilized.
The purpose of this research work therefore, is to examine critically the various cost control and cost reduction measures being used by manufacturing organization using Nigeria Breweries Plc as a case study. The consequences of these measures (long range as well as short range) and to purpose alternative courses of action if necessary with more promising long range results. The Nigeria breweries Plc was chosen as the case study because it is large outstanding company which has embarked on the manufacturing of many products in this country, and because of the indiscriminate rise in prices of their products which is attributed to the cost of productions.
1.2 Statement of the Problem
This study entitled “the impact of cost control and cost reduction in manufacturing firms”, a case study of Nigerian breweries plc goes to suggest how the application of cost control and cost reduction techniques has helped in achieving its objectives and also in making rational decision to ensure its growth and survival.
Since the main objective of most manufacturing companies i.e. (profit maximization) is undisputable, it becomes imperative to make possible attempt that will control if not reduce the production cost of the firm from time to time. To achieve this, some components of the operational cost which usually constitute or absorb greater proportion of the organization’s working capital must be given efficient and effective control. Production cost constitutes of expenditures such as cost of raw materials, labour cost and overhead cost.
The principal constituent of total operational cost is production cost. in other words, the ability of the management to effectively control these items (production cost) will keep actual production cost in line with the budgeted or realistic standard thereby eliminating unnecessary and avoidable variance between both, the inability to do this could lead to business inefficiency and failure.
The challenges facing management in any organization may include the following:
- The management is faced with the problem of how to make use of available scarce resources in order to achieve the objective of the profit maximization.
- Shortage of fund to buy the needed raw material etc.
It is therefore, the option of the researcher that study of production cost control in Nigeria Breweries plc, manufacturer for many products, would provide an insight to the best way of controlling overall production cost in manufacturing industry.
1.3 Objective of the Study
The research will be focused on some of the objectives which include the following;
- To know the extent to which cost control and cost reduction techniques has been applied in Nigeria Breweries plc.
- To evaluate the extent to which the use of cost control and cost reduction techniques has helped in achieving the profit maximization of Nigeria Breweries plc.
- To evaluate the extent to which the use of cost control and cost reduction has helped in the effective decision making and growth of Nigeria Breweries plc.
- To evaluate the extent to which the use of cost control and cost reduction has helped in reduction of production cost.
1.4 Research Questions
In this study “Impact Of Cost Control and Cost Reduction In Manufacturing Firms” (A Case Study Of Nigeria Breweries plc.) the following research questions come to mind. They are:
- Has cost control and cost reduction techniques been applied extensively in Nigeria Breweries plc?
- Has the application of cost control and cost reduction techniques helped in achieving the profit maximization of Nigeria Breweries plc?
- Has the application of cost control and cost reduction techniques helped in the decision-making and growth of Nigeria Breweries plc?
- Has the application of cost control and cost reduction techniques in Nigerian breweries plc helped in reduction of production costs.
1.5 Formulation of Hypotheses
The hypothesis to attest to the questionnaire belief that cost control and cost reduction techniques can be used as a management tool for profit maximization can be tested as follows:
H0: Cost control and cost reduction techniques are not extensively applied in Nigeria Breweries plc.
H1: Cost control and cost reduction techniques are extensively applied in Nigeria Breweries plc.
H0: The application of cost control and cost reduction techniques has not helped in achievement of profit maximization of Nigeria Breweries plc.
H2: The application of cost control and cost reduction techniques has helped in achievement of profit maximization of Nigeria Breweries plc.
H0: Cost control and cost reduction techniques have not helped in the decision making and growth of Nigeria Breweries plc.
H3: Cost control and cost reduction techniques have helped in the decision making and growth of Nigeria Breweries plc.
H0: The application of cost control and cost reduction techniques has not helped in the reduction of production cost of Nigeria Breweries plc.
H4: The application of cost control and cost reduction techniques has helped in the reeducation of production cost of Nigeria Breweries plc.
1.6 Significance of the Study
This study “Impact of Cost Control and Cost Reduction in Manufacturing Firms” (A Case of Nigeria Breweries Plc.) will education the entire public on how cost control and cost reduction techniques can be applied by managers in profit maximization of their firms.
It is a fact that production cost constitutes the major proportion of operating cost in manufacturing organizations.
Therefore, for such manufacturing company to survive, grow and payback its shareholders by making reasonable profit, the effective and efficient control of such a cost by management become very vital.
When cost is not managed properly and maintained by ensuring that actual results are in alignment with predetermined standards, it could result in higher operating cost, lower profit margins and finally dissatisfaction among owners and prospective owners. It is quite natural that no manufacturing company can afford to invest its scarce resources in areas in which it has no latitude to control, it is then clear that the importance of studying the methods of controlling production costs cannot be over emphasized.
1.7 Scope and Delimitations
This topic “The Impact of Cost Control and Cost Reduction in Manufacturing Firms” (A Case Study Of Nigeria Breweries plc) should have intended to cover all the Nigeria Breweries located in different states of the federation but the researcher intends to limit this topic to only 9th Mile Depot Enugu State due to time constraints, distance and financial handicap. The study of Nigeria Breweries plc 9th mile Depot Enugu shall also serve other states of the federation since the same techniques are applied in other depots. Therefore, the research will rely heavily on the Nigeria Breweries plc, 9th mile Depot since they have adequate information data relevant to the study.
1.8 Limitation of the Study
This study scrutinized the production cost control of Nigeria Breweries plc, 9th Mile Depot Enugu, like any meaningful attempt at studying the cost elements and their control in any manufacturing organization. This was an examination that ran through all the sections of the organization which incurred any form of cost that formed part of the cost in question i.e. production cost (direct material cost, direct labour cost and manufacturing overheads.)
Under these heading, financial data for past 3 years (2000-2002) were analyzed for adherence to various theoretical cost control models. The procedures for incurring, recording these costs was of unnecessary cost such as the incidence of scraps, spoilage, reworks and so no, were examined. The methods of accumulating and apportioning overhead amongst production department were considered. Also the subsequent absorption of the allocated apportioned overheads by the cost units production departments.
In summary, all such areas that pertained to production cost, all techniques for their control, that is the use of predetermined level of activity- overhead, direct labour and material cost etc, through the use of established standard and budgets their soundness, weakness were examined against standard theoretical provisions. The researcher, while trying to obtain information from respondents encountered certain drawbacks which hindered data collections.
The reluctance of some official to grant audience during the course at this study was a stumbling block in the way of an in-depth study of the production cost control. The refusal of a key officer to release all the information that required figures, which he took to be a sensitive secret and confidential, posed a limitation to the scope of the study. It was intended that this study will be based on 7 years financial data as stated in the study, but only 3 years data were provided.
1.9 Definition of Terms
– Cost Centre: A centre is defined as “a location, person or item of equipment (or group at these) in respect of which costs may be ascertained and related to cost units”. It is one of the activities or department within a budget centre containing one or more operative or items of machinery which incur costs.
– Cost: The amount of expenditure (actual or notional) incurred on or attributable to, a specified thing or activity.
– Cost Unit: A quantitative unit of product or service in relation to which costs are ascertain.
– Control: Control is the monitoring of activities to see that organizational goals and objectives are achieved as planned. It is the measurement of the set out goals of a firm to achieve an aim or objectives in order words, the provision of a system whereby responsibility for deviations from the plan can be assigned to individuals.
– Manufacturing: Manufacturing is the transformation of materials into other goods through the use of labour and factory facilities.
– Manufacturing Organization: It can be defined as the industry that turns primary products into manufactured goods.
– Budgetary Control: This is the establishment of department budgets relating the responsibilities of executives to the requirements of a policy and continuous comparison of actual results with budgeted results either to secure by individual action the objectives of that policy or to provide a firm basis for its revision. Budgetary control is a technique, which embraces all activities of the business and serves to support the key aspect of the management control process.
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