An Analysis of Cost-volume-profit and Profitability Target (a Case Study of Guinness Nigeria Plc)
Chapter One
OBJECTIVE OF THE STUDY
This research study will be focused on cost-volume-profit analysis and profitability target. The main objective of this study are as follows:
- To determine the effect of sales value on the profitability in firms.
- To know the relationship between sales value and total cost of firms.
- To make provision for the incorporation of sales value in investment decision of firms.
- To justify the need for adequate financial data for cost and profit analysis in firms.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
OVERVIEW OF COST–VOLUME–PROFIT ANALYSIS
The relation between costs of production, volume of production will result in profit the organization will make. Because the relationship is stable, it is then possible for it to be analyzed to enable for decision making. The relationship between cost and profit must be an inverse one, the higher the cost, the lower the profit. Profit is the financial benefit of gain which a firm realizes from its transactions and business dealings. Profit is an important factor in any business transaction. The main motive of engaging in any business is to make profit. There is the necessity, therefore, to understand the exact nature of this relationship in order to:
[i] Control the Level of Costs and
[ii] Manipulate Volume These Cost – Volume – Profit analysis is a study of the inherent relationship between Cost and Profit at various level of volume of activity. Nweze, [2004: 212] said that Cost – Volume – Profit relation is “a planning device that considers the inherent relationship between Cost, Volume of production and the profit that is made”.] It asks such question as: why, how and what and tries to give solution to them. Pierre, [1987:254] defined Cost – Volume – Profit analysis as “a technique for evaluating the effect of changes in Cost and Volume on Profit”. Cost includes Variable and Fixed Costs that are expenses of the period, Volume represents the level of sales activity either in units or Naira and Profit for the firm may be net income of operating income. Morse and Roth [1986:288] also stated that in Cost – Volume – Profit analysis, the word “Cost” is restricted to cost that are deducted from revenues to determine profit. Normally these deductions are called “expenses”. Consequently all product Costs are charged against revenues in the period they are incurred. Ray, [1991:207], also stated that an overview of Cost – Volume – Profit analysis begins with the study of cost behaviour patterns with the contribution income. The contribution income statement has a number of interesting characteristics that can be helpful to the manager in trying to judge the impact on profits of changes in selling price Cost or Volume. One of the characteristics includes the facilitation of profitability analysis by management of an organization. Behaviour means attitude that is what is likely to happen, so cost behaviour means attitude of cost including pattern that cost behaviour follows a particular pattern which can be predicted. Cost is not synonymous with expenditure. In government, its services are measured by equating it in Naira. In accounting, cost cannot be incurred unless there is necessity. Before incurring cost, there must be a necessity. Cost is meant, resources necessarily expended in pursuant of a defined objective. The based idea behind cost includes: objectivity, expenditure of resource and necessity. There are at least three different ways in which cost behaves viz: Variable, fixed and mixed or semi-variable.
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 An Analysis of Cost-Volume-Profit and Profitability target. ( A case study of Guinness Nigeria Plc).
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 an Analysis of Cost-Volume-Profit and Profitability target. 200 staff of Guinness Nigeria Plc, Lagos state was selected randomly by the researcher 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 An Analysis of Cost-Volume-Profit and Profitability target.( A case study of Guinness Nigeria Plc). 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-Volume-Profit and Profitability target
Summary
This study was on An Analysis of Cost-Volume-Profit and Profitability target.( A case study of Guinness Nigeria Plc). Four objectives were raised which included: To determine the effect of sales value on the profitability in firms, to know the relationship between sales value and total cost of firms, to make provision for the incorporation of sales value in investment decision of firms, to justify the need for adequate financial data for cost and profit analysis in firms. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of Guinness Nigeria Plc, Lagos state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made accountants, technical officers, senior staff and junior staff were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies
Conclusion
Enterprises that must survive, and grow in these times must consciously plan to do so. As the clichés goes, a failure to plan for success is a plan to fail. While indeed planning is important for success. It is more important that plans address the very pertinent factors that influence success. For no matter how serious management may be in its planning efforts, it may still not compete effectively today if its decisional tools are archaic and antiquated. Management should then realize that good analysis does not necessarily have to follow the traditional classification of costs into production and non-production and of profits into gross or net. The modern tool, important in today’s decision analysis requires a different understandably of these relationships: relevant and irrelevant items; variable and fixed cost; avoidable and unavoidable cost etc. It is important to emphasize the fact that the Cost –Volume – Profit analysis in an organization is a necessity for such an organization to know if they are surviving and growing much as we agree that for an organization to be profitable, it must seek to obtain as much revenue as possible. A well organized industry should have an effective costing system so that proper costing of its material, labour and overheads can be easily effected, so as to determine the actual cost of production based on the analysis carried out.
Recommendation
Since the demand for the above mentioned product are high relative to the demand to their other products. There will be savings in the cost of production because fixed cost is not restricted to any unit of production. In other hand Guinness Nigeria plc should also learn the concept of Cost – Volume – Profit analysis. They should increase the quantity of their product so that they will maximize their profit. The Industry should avoid the wastage of raw material during production process. These will also reduce cost of production and increase profit. Guinness Nigeria plc should practice the batch costing in its true meaning for effective control. This means that cost should be ascertained, analyzed and controlled among other characteristics at each batch level. With adequate Cost Control, it will go a long way to reducing the production cost of the company and increase profit. The company should intensify its local raw material substitution drive so as to reduce the imported content of its raw materials.
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