Cost Management and Financial Performance of Selected Listed Manufacturing Firms in Nigeria
CHAPTER ONE
Objective of the Study
The broad objective of this study intends to investigate the effect of cost management and financial management of manufacturing firms in Nigeria.
- To quantify the extent of cost of inventories on return on asset of the organization
- To measure the degree of cost of labor on return on equity of the organization
- To determine impact of cost of sales/distribution, cost of labor and cost of inventories on size of the organization.
CHAPTER TWO
CONCEPTUAL FRAMEWORK AND LITERATURE REVIEW
Conceptual Framework
Cost Management
Cost management often refers to cost cutting and it’s commonly approached that firm managers use to respond to the decreasing sustainable profitability (Anderson, 2007). The most important managerial tools are cost management strategies (Zengin and Ada, 2010), and cost management strategies are considered as critical factors to increase revenue for the success of manufacturing companies (Kumar and Shafabi, 2011). According to Drury (2004), Cost management focuses on cost reduction and continuous improvement and change rather than cost containment. The term cost reduction could be used instead of cost management. Whereas traditional cost control systems are routinely applied on a continuous basis, cost management tends to be applied on an ad hoc basis when an opportunity for cost reduction is identified. Also many of the approaches that are incorporated within the area of cost management do not necessarily involve the use of accounting techniques. In contrast, cost control relies heavily on accounting techniques. Cost management consists of those actions that are taken by managers to reduce costs, some of which are prioritized on the basis of information extracted from the accounting system. Although cost management seeks to reduce costs, it should not be at the expense of customer satisfaction. Ideally, the aim is to take actions that will both reduce costs and enhance customer satisfaction. Cost management has become an essential emphasis in today’s highly competitive business environment.
However, over the past 25 years, we have seen a significant shift in the cost accounting and management accounting (Maher and Deakin, 1994, Günther 1997 and Götze, 2004). This shift is the result of an increasing competitive environment due to the introduction of new manufacturing and information technologies, the focus on the customer, the growth of worldwide markets, and the introduction of new forms of management organization (Blocher et al, 1999). Productivity and quality are the watchwords of today’s business competitions. Companies are not only measuring productivity and insisting on improvements but also insisting that quality means to bring to market products that satisfy customers, improve sales and boosts profits. With greater competition the banking environment defined by cost, quality and time issues, there exists a prevalent conviction that conventional accounting based measures of organizational performance are outdated (Nixon, 1998). Hence, there are moves to adopt newer techniques due to greater needs to be more responsive to investor and customer needs. It is urged that the traditional approaches of the managerial accounting have limited evidence of technical development in response to the major changes in manufacturing technology. Management accounting was confined to financial reporting. Consequently, there was a need for developing a management accounting project oriented towards the strategic accounting rather than the management control process. The idea of cost efficiency of a production unit was first introduced by Farell (1957), under the concept of “input oriented measure”.
CHAPTER THREE
RESEARCH METHODOLOGY
Introduction
This section provides details on how this study was carried out. It covers a number of sections including research design, target population and collection of data, model specification, and method of estimation and description of variables.
Research Design
This research work utilizes a descriptive research design which is ex-post facto nature, relying on secondary data obtained after the occurrence of the event which the researcher has no control over. Both inferential and descriptive statistics are relied on to examine cost management on Financial Performance of manufacturing firms in Nigeria. Descriptive statistics helped to describe and understand the characteristics of the variables used in the study while inferential statistics assist in establishing a causal relationship between the variables of study namely: Cost management proxies and Financial Performance proxy. This work will use panel data (time series and cross sectional) covering four years (5) from 2014-2018 which will be gathered from the financial statement (Comprehensive income statement and statement of financial position) of the selected manufacturing firm quoted on the Nigeria Stock Exchange.
CHAPTER FOUR
DATA ANALYSIS AND INTERPRETATION
Introduction
This chapter depicts the descriptive statistics of variables used in this study to explain the individual behavior of each variable and how they are distributed. it also presents the pooled, fixed and random effect models which will assist in making inference under the test of hypotheses and arriving at a conclusion.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Summary
The study investigated into the effect of cost management on financial performance of manufacturing firms in Nigeria. The specific objectives include to examine the cost of inventories, cost of labour, and cost of sales on performance. The study will be relevant for investors, management board and regulatory bodies.
Thhe study employed the descriptive research design. The study employed panel data covering four (4) years 2014-2018 which was gathered from the financial statement of selected manufacturing firm. The study employed the pooled regression analysis for the study in testing the hypothesis.
The study conceptual framework of the study covered the following concept; cost management, cost management strategies and financial performance. The theoretical framework includes; Cost management& Efficiency Theory, Theory of constraints and Transaction cost Economics Theory.
The study revealed that cost of inventories has positive insignificant effect on return on equity. Cost of labour has negative significant effect on return on asset. Cost of inventories, cost of labour, and cost of sales has negative insignificant, negative insignificant and positive significant effect on size (performance).
Conclusion
The study revealed that cost of inventories has positive insignificant effect on return on equity, which depicts that cost on inventories have a positive influence of the going concern of the organization in terms of profit, but it should not be given the utmost importance has the only cost relevant components in the organization that can enhance performance. The cost of labour will increase performance but could be detrimental if money spent on the labour is taking a larger percentage on the overall profit component of the organization.
The cost sales in an organization should be given attention because the higer the turnover the higher the profit or performance to a large perspective.
Recommendation
- The organization should make sure well accountable cash or gain are spent on the labour component of an organization, so has to improve the return on equity of the major shareholders.
- The organization should spend more expenses on the sales component in the organization knowing fully well that money or gain spent in this area will be re-coped back through turnover.
REFERENCES
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