Impact of Cost Control and Cost Reduction on the Profitability of Manufacturing Company
Chapter One
OBJECTIVES OF THE STUDY
The general objective of the study is to appraise the impact of cost control and cost reduction on the profitability of manufacturing companies in Nigeria.
Other specific objectives are as follows;
- Understand the basic concepts of Cost, Cost Control, and Cost Reduction.
- To determine the relationship between effective cost reduction measures and profit performance of Nigerian manufacturing firms.
- Identify the role of costing as an instrument for expressing the company’s policy or program.
- To ascertain the accounting systems which are designed to control costs.
- Appraise various cost control techniques and their impact on Nigeria manufacturing firms.
- Investigate whether cost control and reduction can be used as a competitive strategy for survival tools in the Nigeria business industry.
- Ascertain the effect of adjusting the cost of an organization on the profitability of a manufacturing company.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
Introduction
Cost and profit in business undertakings form part of what determines the financial position of a business concern. Since management is concerned with profitability, which is a measure of business performance, especially in a manufacturing concern, the need for higher sales will arise and this will facilitate the need to increase production capacity, which in turn brings about an increase in cost. Brumbaug (2008) thought that corporate bodies should watch the cost and the profit will take care of itself. The implication is that cost should be controlled rather than embarking on unscientific cost reduction that may translate to lowering the quality of the product. Management is normally forced to adopt various methodologies and techniques to regulate (control) rather than reduce cost. Cost increases as various production activities are embarked upon and the need to keep cost in check arises because standards for production will be set and actual production will be made thereby bringing about variances that can only be reduced or eliminated through effective cost control. Sikka (2003) thought that a cost control system consists of methods and procedures that help to regulate the cost of operating an undertaking and ensure that costs do not go beyond a certain level. As profitability amongst others is the essence of any business, there will be the need to incur reasonable costs and management is to ensure careful and efficient use of resources to achieve the set standard or target. Cost control is operated by setting standards and maintaining performance according to standards because, as management aspires to increase productivity for more profit, there will be increasing costs, and collection of costs will be made by each area of responsibilities. This study aims to discuss how cost control could be effectively administered to regulate expenses to bring about increased returns in terms of profitability and not diminish it Nowadays management of companies are becoming increasingly cost-conscious and are constantly searching for new ways of controlling cost and eliminating wastages. One of the objectives of cost accounting is to achieve cost control. It is not enough if costs are worked out and presented regularly to the management, the effectiveness of cost accounting is judged primarily by the extent to which it has been able to bring about control over the manufacturing and other costs, Sikka (2003). CIMA in its terminologies of cost accountancy defined cost control “as the guidance and regulation by executive action of the costs of operating an undertaking, particularly where such action is guided by cost accounting” Anthony, et al (2005) regard cost control as cost management or cost containment and defined it as a broad set of cost accounting methods and management techniques to improve business cost efficiency, by reducing costs or at least restricting their rate of growth.
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought to examine the impact of cost control and cost reduction on profitability of manufacturing company
Sources of data collection
Data were collected from two main sources namely:
(i)Primary source and
(ii)Secondary source
Primary source:
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.
Secondary source:
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
Population of the study
Population of a study is a group of persons or aggregate items, things the researcher is interested in getting information for the study impact of cost control and cost reduction on profitability of manufacturing company 200 staff of selected manufacturing firms was randomly selected as the population of the study.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain the impact of cost control and cost reduction on profitability of manufacturing company.
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of cost control and cost reduction in manufacturing company.
Summary
From the findings of this research, it is evident that cost control has a positive impact on business profitability and that element of cost, such as materials, labor and overhead cost and workers’ behavior could be strategically controlled with measures like responsibility accounting, data collection and data reporting. The absence of behavioral control, either through motivation, incentives and the rest will short change the effect of cost control on profit growth, but if with all the conditions and measures management is able to focus on enlightening and motivating workers on the true purpose of cost control, then greater profitability is assured.
Conclusion
The relevance of this research is to analyze the importance of cost control and cost reduction techniques on organizational performance in a highly competitive environment. For an organisation to ensure more profit growth by producing quality goods and services with available resources on the ground there is a need to control cost and reduce cost to the acceptable limit as regard to control and reduction on wastage and loss. In the course of this research, it was discovered that cost control and cost reduction techniques seen to be very essential to the growth and survival of any organisation in a highly competitive environment ranging from practical planning and setting standard, monitoring the standard till it is achieved and also strategically reducing cost expended during business activities. This all of this proves the essential need of cost control and cost reduction on organizational performance in a highly competitive market if well considered. From the finding of this research, it was evident that cost control has a positive impact on organizational performance. In order to make it a success, there is a need for organisation to apply cost control and cost reduction scheme in their operation and worker should be carried along and they must be motivated to achieve the desired goals and objectives. The absence of behavior control such as motivation, incentives and so on among employees will affect the success of cost control and cost reduction strategies in an organization. Element of cost such as material, labor and overhead cost worker behavior could also be strategically controlled. Also, budget must be used to monitor the operation in the organization in order to make sure that money and resources are not being wasted. Challenges of effective cost control and cost reduction could be solved by direct observation and supervision by management by taking note of the key non-performance indicator in any section or departments having challenges and as a result, finding ways of improving on it. As a result of this, if all the condition and measures can be taken significantly, organization can afford to overcome its competitors by producing quality product at lower price and become a market leader.
Recommendations
Haven completed the study, the researcher recommends that cost control and cost reduction scheme must be properly administered in an organization by setting realistic standard Cost control should be operated in every department in an organization especially the production department in other to make sure that the numbers of finished goods are properly accounted for. Target and standard should not be vague set as this will be unrealistic in the course of comprising planned cost in an organization. For effective cost control to be achieved there should be proper data collection, data analysis and control administration. The target fixed cost in an undertaken should not be treated as permanent form. They should be reviewed whenever necessary and should be revised when conditions change.
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