COST CONTROL AS A MEANS OF SURVIVAL IN A DEPRESSED ECONOMY
(A CASE STUDY OF NIGERIAN BREWERIES PLC)
TABLE OF CONTENT
Table of Contents
1.1 Background to the Study
1.2 Statement of the Problem
1.3 Objectives of the Study
1.4 Research Questions
1.5 Scope of the Study
1.6 Importance of the Study
1.7 Statement of Hypothesis
1.8 Definition of Terms
- Literature Review 10
2.2 Definition of Cost Control
2.3 Needs for Cost Control
2.4 Cost Control System
2.5 Cost Type
2.6 Accounting Systems designed to Control Costs
2.6.1 Responsibility Accounting
18.104.22.168 Responsibility Centres
22.214.171.124 Controllable and Uncontrollable Costs
126.96.36.199 Budgetary Control
188.8.131.52 Flexible budget versus Fixed Budget
184.108.40.206 Standard Costing
220.127.116.11.0 Types of Standards
18.104.22.168.1 Ideal Standards
22.214.171.124.2 Basic Standards
126.96.36.199.3 Current Standards
188.8.131.52.4 Normal Standards
2.6.4 Cost Control through Stock Control
2.7 Accountant role in Cost Control
3.0 Research Methodology
3.2 Research Design
3.3 Area of Study
3.4 Pre-Test Survey
3.5 Types of Data Collected
3.6 Data Collection Tool
3.7 Sample and Sampling Techniques
3.8 Data Collection
3.9 Techniques for Data Analysis
4.0 Presentation and analysis of Data
4.2 Return of Questionnaire
4.3 Data Analysis of Research Question
4.4 Hypothesis Testing
4.5 Analysis through Chi-square
5.0 Summary, Conclusion and Recommendation
5.2 Summary of Findings
5.5 Recommendation for Further Research
1.1 BACKGROUND TO THE STUDY
The most prominent objectives of any business is to maximize profit for the purpose of operating in the future competitive and uncertain business environment. The reasons for relying on this vital goal centres on the fact that:
- No business hardly survive with a continuous business losses.
- Profit serves as an important catalyst of business growth.
- Growth serves as a major characteristics of survival and assists in reducing cost per unit.
From the preceding, the three interrelated objectives of any business in the world are profit business growth and to enhance the firm’s longrun competitive strength (i.e future business existence).
The objectives of growth and future business existence strongly depend on the level of profit earned by a firm. But profit depends on the gap between the total sales revenue and total cost. That is, profit is equal to Total Sales Revenue minus Total Cost. This implies that cost plus profit equate sales revenue.
There are many factors that affect firms from the realization of their profit motives. These hindrance show themselves in high rate of inflation, unsteady business environment and government policies. To maintain earnings in a depressed economy, many firms and industry like the brewery industry adopt means at controlling their costs or reducing their costs.
Survival is one of the business objectives. Thus a business is expected to continue in business, that is, continue to exist. Only an unfavourable condition like a depressed economy will make a business to cease to exist
In depression, recession merges into depression when there is general decline in economic activity. There is reduction in the production of goods and services, demand prices and so on.
Cutting cost is the simplest way to improve your bottom line. Introducing a cost control system can bring immediate savings and ensure that you remain competitive in the longer term. Cost control deals with both manufacturing and non manufacturing cost. Although there are numerous other control system within a typical organization for example, production control, quality control and inventory control, the cost Accounting System is the key financial control system (Terry Lucey 2004).
From the above analysis, the research study will examine the effect of cost control and as a means of survival in a depressed economy with reference to Nigerian Breweries Plc.
1.2 STATEMENT OF THE PROBLEM
Some manufacturing industries are operation in an unstabilized environment due to inflation, external threats internal weakness, government policies and many others. This hereby affect the profit and making it hand to survive in a competitive environment, giving them the option to wind up when they can’t cover their variable cost.
In order to control this adversity, the manager of the company adopt cost control as a means of survival, growth and increase in production level and profitability level.
1.3 OBJECTIVES OF THE STUDY
The broad objectives of this research is to study the effect of cost control and the impact in the survival of a manufacturing
company in relation to productivity. The specific objectives are to:
- study cost control
- identify the benefit of cost control
- identify the various classes of cost that can be control .
- ascertain the accounting system in cost control
- determine the relationship between cost control and survival of a company.
- RESEARCH QUESTIONS
The following research questions should be consider for the purpose of this research:
- What is the Cost Control?
- What is the relationship between Cost Control and Survival in Nigerian Breweries Plc?
- What is a depressed economy?
- What type of cost can be control?
- What accounting system are designed by a company to control cost?
1.5 SCOPE OF THE STUDY
This study would be restricted to cost centre and means of controlling it. It will also make to know the importance of cost control on the survival of a company.
This study will also be restricted to downswing in an economy and how it is difficult for an economy to survive.
This study will also be restricted to the period when recession occurs and most companies were affected by it but the companies in which their manager adopt cost control survive it which Nigerian Breweries was one of them.
1.6 JUSTIFICATION OF THE STUDY
One of the business objectives is survival and growth, thus a business entity is meant to continue to exist i.e the concept of “Going Concern”. In a depressed economy, the tendency for a company to survive is very low, this makes the manager to adopt cost control as an accounting policies to survive in a depressed economy.
An industry that can control their cost efficiently and effectively will not only survive in a depressed economy but will also increase in production. An increase in production in an industry will definitely affect the whole economy having positive impact on the economy as a whole.
This study will assist management to minimize wastage and eliminate wasteful activities and also reduces poor production quality.
This study will also assist the appropriate authorities to know the appropriate accounting policies that would be adopted to control cost and increase production.
1.7 STATEMENT OF HYPOTHESIS
The following are the Null and Alternative hypothesis that are tested in the study:
Ho: There is no significant relationship between cost control and survival of company (Nigerian Breweries Plc)
Hi: There is a significant relationship between cost control and survival of company (Nigerian Breweries Plc).
1.8 DEFINITION OF TERMS
1) Cost: The broad definition of costs is related to the economic resources (manpower, equipment, real facilities, supplies and all other resources) necessary to accomplish work activities or to produce work output. (Stewart, 1995).
2) Control: This is a means of limiting or regulating something.
3) Controllable Costs: These are costs that are influenced by a divisional manager.
4) Uncontrollable Costs: Costs that are not directly influenced by a departmental manager.
5) Budgetary Control: It provides means for continuous appraisal of departmental and over all performance. It evaluate performance by trying to establish companies on between the actual results and the budgeted figures.
6) Cost Control: Setting of standards and ensuring that actual results are in conformity with the planned figures.
7) Cost Centre: Production or service location, function, activity or item of equipment for which costs are accumulated (Iwarere, 2009).
8) Cost reduction: An attempt to bring cost down by eliminating waste and inefficiency.
9) Effectiveness: Producing an intended result.
10) Efficiency: It measured the relative amount of inputs used for accomplishing the actual output in a particular period.
11) Factor Overhead: These are indirect costs that are charged to the production or manufacturing account.
12) Manufacturing Company: A company that converts raw materials into finished goods through the utilization of labour and factory facilities (OMolehinwa, 1991).
13) Product Costs: These are cost that are changed to production or manufacturing cost account.
14) Profit Centre: A part of a business accountable for costs and revenue (Lucey 2004).
15) Responsibility Accounting: A system of accounting that segregates revenue and costs into areas of personal responsibility in order to assess the performance attained by persons to whom the authority has been assigned (Iwarere, 2009).
16) Responsibility Centre: Department organization function whose performance is direct responsibility of a specific manager (Iwarere, 2009)
17) Standard Costing: A costing techniques that uses standard cost and standard revenue for the purpose of performance evaluation through variance analysis.
18) Variance analysis evaluation of performance by means of variances whose timely reporting should maximize the opportunity for managerial action (chartered Institute of Management Accountants).
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