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THE PROBLEM OF COST CONTROL IN THE MANUFACTURING SECTOR

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THE PROBLEM OF COST CONTROL IN THE MANUFACTURING SECTOR

ABSTRACT

The present day powerful global competition and the nature of the technological environment have led to the existence of uncertainty in demand forecast. In addition to these factors, other pressures from the associated scare resources have signaled danger for tomorrow survival while modern business is becoming more complex as a result of the complexities that surround our business world, according to Douglass (1999)

The primary source of data and secondary sources of data are used in gathering information use for this research work.

Based  on the findings, it recommended that; Another ways by which cost can be controlled is by taking supplier quotation from the suppliers themselves instead of from the staffs in the organization. This is because  at times prices on the quotation can be increased by the staff who collected the quotation from the suppliers but if the suppliers give it to the management price inflation will be reduce  which lead to an effective cost control system in the organization.

The management can set up purchasing and logistic department which will help greatly in checking cost both internally and externally for cost reduction. The company involved i.e (Nigeria Bottling Company Plc) can established a budget monitoring and review committee. This will help to improve the poor budgetary control.

TABLE OF CONTENTS

Title

Certification

Dedication

Abstract

Table of Contents

CHAPTER ONE

  •          Introduction

1.1     Background of the Study

1.2     Statement of the Problem

1.3    Objective of the Study

1.4     Research Questions

  • Statement of Research Hypothesis 5

1.6     Significance of the Study

1.7     Scope and Limitation of the Study

1.8     Definition of Terms

CHAPTER TWO

2.0     Literature Review

2.1      Definition and meaning of Cost Control

2.2     Historical Background of Nigeria Bottling

Company of Nigeria

2.3     Theoretical Framework of Cost Control Method                

2.3.1  Cost Revenue Control

2.3.2  Financial Control

2.3.3  Investment Cost Control

2.3.4  Work Measurement

2.3.5  Operating Costing Method

2.3.6  Budget Techniques

2.3.7  Value Analysis

2.3.8  Quality Control

2.3.9  Quality Control Environment

2.3.10         Cost Reduction Scheme

2.4     Cost Control System

2.5     The Reduction Cost

2.6     Importance of Cost Control and Cost Reduction

2.7     Benefit of Cost Control

2.8     Concept of Standard Costing

2.9     Objective of Standard Costing

2.10   Costing System and Cost Control

2.11   Similarities between Budget Cost and Standard Costs

2.12           Difference between Budget Cost and Standard

2.13   Steps in Cost Control System

CHAPTER THREE

3.0     Research Methodology

3.1     Sources of Data Collection

3.2     Area of Study

3.3     Population of the Study

3.4     Sampling Procedure

3.5     Data Analysis Techniques

3.6     Assumptions

CHAPTER FOUR

4.0     Data Analysis and Presentation

4.1     Data Presentation

  • Data Analysis

4.2.1  Contingency Table Analysis

4.3     Discussion of Results

 

CHAPTER FIVE

5.0       Summary, Conclusion and Recommendation

5.1       Summary of Findings

5.2       Conclusion

5.3       Recommendations

References

Questionnaire

CHAPTER ONE

  •          INTRODUCTION

1.1     BACKGROUND OF THE STUDY

The present day powerful global competition and the nature of the technological environment have led to the existence of uncertainty in demand forecast. In addition to these factors, other pressures from the associated scare resources have signaled danger for tomorrow survival while modern business is becoming more complex as a result of the complexities that surround our business world, according to Douglass (1999)

Manufacturing refers to the series of interrelated activities and operation involving the design, the materials selection, the planning, the production and the quality assurance of the product by (Chisholim 1998). The product development cycle consists of  a combination of manufacturing activities resulting in a product. Production is the act or process of actually physically making a product from is material constituents by (Chisholum 1990).

The manufacturing sectors in many countries is in a state of transition. Growing in emerging economics shrinking but becoming more productive in advanced economics. The new manufacturing giants with low wages economics tend to complete on cost, the established player prefer to move up the manufacturing value chain to complete on technology and innovation CIMA sector report

However, cost can be defined as 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 1985).Cost usually expressed interims of unit of currency. Therefore are the amounts of money representing the resources spent for the production of output. Also cost control is defined as a process of setting standards by the regulatory executive and ensuring that actual cost incurred can form with the set standards.

Cost control can also be defined as a profit controlling system. by (Sam 2000). That is the way in which planning, controlling and monetary are coordinated is considered as a system.

Under cross control system the efficiency of operation is measured in terms of variance is deviation achieved. Iwarere(2007). The variance is favorable where the efficiency supersedes the target. And it is adverse, if otherwise. Now, the critical question is now can the regulatory unit ensure that cost. Standard are not overstated in this regards the set standards should be in line with what operates in the industry.

 

So, in brief, cost control is the minimization and optimization of cost based and established standard of performance by company actual achievement against the planned target and as well as taking corrective action if there is significant deviation from target.

Cost control problem are not particularly to manufacturing sectors only, but also extends to other sectors such as armed forces, government parasitatals, non governmental organization (NGOS) etc but for the sake of this research work, I shall limit myself to only manufacturing sector by taking Nigeria bottling company plc branch office at Ikeja, Lagos as my case study.

1.2     STATEMENT OF THE PROBLEM

According to the back ground of problem or study which could be discussed in chapter two of my project, the society thought, it will be wise for every manufacturing company to improve on the product in this regards, the manufacturing industries have to introduce cost control system in order not to exceed their budget or run the business as a loss because of inability to control cash in their organization.

Nonetheless, the concrete reason for the problem of cost control in manufacturing industries are as follows;

  1. a) The regulations of government on business policy.
  2. b) Business competition is increasing and this has led to the reduction in the quantity demand
  3. c) The inputs cost are increasing, but it is not possible to reflect the cost increase in a product price
  4. d) The high quality product (s) having unit cost produced by the company is not longer favored by majority of the consumers in view of the economic melt down
  5. e) The fast technological improvement drastically lowers product unit cost.

1.3    OBJECTIVE OF THE STUDY

The general objective of the study is to make official review, identify and analyze the problem of cost control in a manufacturing company with reference to Nigeria Bottling company plc Ikeja Lagos.

The specific objectives are

  1. To identify the cost control system, the steps and methods used in Nigeria Bottling company plc.
  2. To determine the importance and benefit of cost control in a manufacturing organization or sector such as NBC.
  3. To make detailed explanation of the steps involving

 

1.4   RESEARCH    QUESTIONS

As the topic implies, ‘The problem of cost control in a manufacturing sector’ the following are the research question

  1. How can cost control affect the manufacturing industry?
  2. What are the importance and benefits of cost control in a manufacturing sector such as the one in Nigeria Bottling company plc?
  3. What are the steps involved handling cost in Nigeria Bottling company plc?
  4. How effective are the cost control system in Nigeria Bottling company plc?
    • STATEMENT OF RESEARCH HYPOTHESIS

For the purpose of this research work the following research hypothesis have been formulated in order to have more understanding of the topic.

HYPOTHESIS I

HO:    The cost control system, the step, and method used in Nigeria Bottling plc are of high standard and quality.

Hi:     The cross control system steps and method use in Nigeria bolting plc are not of high standard and quality.

HYPOTHESIS II

Ho: Cost control has no negative effect on the manufacturing company

Hi: Cost control has negative effect on the manufacturing company.

HYPOTHESIS III

Ho:     Cost control has importance and benefits in manufacturing sector such as Nigeria Bottling company plc.

Hi:     Cost control has no importance and benefit in manufacturing sector such as in Nigeria bottling company plc.

1.6     SIGNIFICANCE OF THE STUDY

The study is aiming at putting management in a position control cost by providing them with appropriate information for making good and right decision and ensure that necessary cost information is made available to the right entity that needs them at the right time and in proper form.

Since these decisions are considered with future events, this research work is significantly prepared to furnish the management with information expected future and revenue. However, it should be noted that that information on plan cost and revenues are not of the study.

Also the study will enable the management of Nigeria Bottling company plc know the area of weakness and produce adequate solution for it.

It also has the significance to give to give complete analysis on how standards costing and budgeting control are used in cost control phenomenon. The study will also help to contribute fully suggestion means and methods towards gainful utilization of control over cost.

1.7     SCOPE AND LIMITATION OF THE STUDY

It is the responsibility of management to ensure that business establishers planning and implement control to its operational activities in order to achieve their stated objectives.

This also covers different types of cost control system and techniques, effectiveness and efficiency, as well as the benefits to the Nigeria bottling company plc. In conjunction to that, the importance cost reduction which is concerned in improving the budget or standards figure even when an operation is efficient and the company standard is already set. However, emphasis will be led on the possible means of maximizing profit and minimizing cost which are the optimum goals, objectives of every business organization or firms.

Similarly, due to the concentration of the study on one sector of the economy. The research is restricted to manufacturing sector which prevent studying of work dept i.e. other sectors of the economic are not considered.

  1. CONSTRAINTS: Apart from the mentioned, there are other factors that effects the study, such constraints are mentioned below.
  2. TIME CONSTRAINT: The time limit given for the research of this project is not enough, compare with work load to be carried out on the study. Therefore, the information or date gathered on this work is limited due to the time given for the project.

iii       FINANCIAL CONSTRAINT: the financial constraint has to be emphasized, due to this constraint, just one branch of a manufacturing industry will be considered for the project work. This is because, the cost involve in production of questionnaires and the cost of transportation to the industries for personal interview. Therefore the research work of this project may be reduced to some extent.

iv       Lack of problem statistical Data: proper and suitable data to analyze the research work is also a constraints. The respondents are not operating in getting facts needed for the research work. This a crucial factor which may negates the competition of the project, if proper measure is not put in place if such situation arises.

1.8     DEFINITION OF TERMS.

BUDGETS: budgets are estimated future plans of an organization usually in naira terms.

COST: The amount of expenditure (actual or nominal) incurred or attributable to a particular product, goods and services.

CONTROL: The steps taken by the management to ensure that the objective that are set attained and ensure that all part of the organizational policies are followed.

COST UNIT: A unit of quality of product service or time or combination in relation to which cost may be ascertained or expressed.

COST CENTER: This is any location, person or item or equipment for which cost may be ascertained and used for the purpose of cost control. Iwarere (2000).

DIRECT COST SALES: The sum of direct material consumed. Direct wages, direct expenses and variable production overhead. This can also be referred to as direct production cost of sales. Iwarere (2005).

ECONOMIC ORDER QUANTITY: It is known as re-order quantity. It is use in calculating the minimized balance of cost between carrying cost and ordering cost made on quantity of material to be ordered which take into accounts the optimum combination of ordering cost carrying cost order delivery period time. Iwarere (2005).

LEAD TIME; The time between goods were ordered and delivered to the company.

MAXIMUM LEVEL: This is the level that indicates the maximum quantity of materials that should never be expected at any time otherwise over stocking will occur. Iwarere (2005).

PRODUCT COST: It means manufacturing cost or cost of inventory produced for resale.

RE-ORDER LEVEL: this is the level of stock at which the materials in store are to be replenished.

SELLING COST: Cost incused in commission and traveling expenses.

 

 

 

 

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Updated: September 17, 2018 — 5:53 am

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