1

AN APPRAISAL OF THE EFFICIENCY AND

IMPACT OF COST CONTROL SYSTEM ON
CORPORATE PROFITABILITY

(A CASE OF THE NIGERIAN BREWERIES PLC, ABA-ABIA STATE)

BY

ISU NNENNA MARIA

PG/MBA/07/46609

BUSINESS ADMINISTRATION
UNIVERSITY OF NIGERIA, ENUGU CAMPUS

MAY 2009
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TITLE PAGE

AN APPRAISAL OF THE EFFICIENCY AND IMPACT

OF COST CONTROL SYSTEM ON CORPORATE
PROFITABILITY
(A CASE OF THE NIGERIAN BREWERIES PLC, ABA-ABIA STATE)

BY

ISU NNENNA MARIA

REG. N0. 07/46609

BEING A RESEARCH PROJECT SUBMITTED IN

PARTIAL FULFILLMENT OF THE REQUIREMENTS
FOR THE AWARD OF THE DEGREE OF MASTERS
OF BUSINESS ADMINISTRATION (MBA) IN
ACCOUNTANCY
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CERTIFICATION

This work has been certified as meeting the requirement for the Award of Masters
of Business Administration (MBA) in Accountancy. The project committee certifies
that, this is the original work of the candidate who bears full responsibility for the
content of the work.

Isu Nnenna Maria Date

(Researcher)

Dr. (Mrs.) R. Okafor Date

(Project Supervisor)

Dr. (Mrs.) R. Okafor Date

(Head of Department)

Name Signature Date

External Examiner
 4

DEDICATION

I dedicated this work to the memory of my late parents, mostly to my mother late

(Mrs.) Agnes O. Isu who laid the foundation for my education and to my husband

Mr. Ukagu Robert Enang who have been a source of inspiration to me.

To God be the glory.

ACKNOWLEDGEMENT
First and foremost my gratitude goes to the Almighty God, redeemer for his

protection and kind gestures without which it would not have been possible for me

to do this work. Despite all shackles, he has made unattainable to become

attainable in my life.

To my supervisor, Dr. (Mrs.) R. Okafor, a woman endowed with many gifts, a big

thank you for her understanding, support and teaching throughout the period of
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writing this work. I also thank my accounting lectures for their support in ensuring

that this work is of standard.

I appreciate the efforts of my siblings, for their encouragement, I say thank you.

My gratitude goes to the brewery Manager and management staffs of my areas of

study for their in depth help and guide to the completion of this work.

My appreciation also goes to my husband, my friends and well-wishers for their

support- financially and otherwise.

I meticulously thank all who have contributed in one way or the other because

their help and support have been of immeasurable value.

ABSTRACT

The theme of this study considered the impact and efficiency of cost control
system in corporate profitability (a case of the Nigerian Breweries Aba, Aba State).
In the management set- up, cost control is used as an indispensable tool, which aid
organization to attain their corporate objectives of profit maximization. This study
reveals the cost structure in manufacturing type, cost control adopted to
minimize waste of resources. Critically, the opinions of those that occupy the key
positions of the organization such as the chief accountant, the logistic manager,
technical officers etc were sorted and it was of immense help to this study. For the
achievement of the objectives of this research, data were collected by use of oral
interview and questionnaires. Data collected were subjected through analysis using
simple percentage, frequency and histogram distribution while the stated
hypothesis were tested using chi-square (X2 ) to ascertain its reliability and
objectivity. The result of the research shows that the organizations adopt cost
control measures and this control accords management the opportunity to achieve
corporate performance and profitability. The management should emphasize more
on the training of employees on the application and measures of cost control and
enlighten them on the relationship, which exits between cost control and
profitability. Finally, the organization should try an embrace the technological and
economic trends in the society in order to have a vital edge over its profitability.
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LISTS OF TABLES AND FIGURES

Figures 2.1 A graphical representation of fixed cost assuming it is the same

throughout all the levels of production period.
Figure 2.2 Portrays fixed costs as what happens over a relevant range of
operation
Figure 2.3 Graphically depict variable cost
Figure 2.4 Graphically depict mixed cost
Figure 2.5 Diagrammatical illustration of manufacturing cost.
Figure e 2.6 Diagrammatic representation of management planning
through budgeting.
Table 4.1.1 Sex distribution of respondents.
Table 4.1.2 The distribution of service year of respondents.
Table 4.1.3 The organizational hierarchy of the company.
Table 4.2.1 Determining management reliance on cost control in making
decision.
Figure 1 Graphical representation of Table 4.2.1
Ta ble 4.2.2 How efficiently is cost control measures applied in your
company.
Figure 2. Graphical representation of Table 4.2.2
Ta ble 4.2.3 Does cost controls have a significant influence on the profit
marging of the organization.
Figure 3 Graphical representation of Table 4.2.3
Ta ble 4.2.4 How does the profit margin of this organization look like.
Table 4.2.5 Do you termed the profit of this organization high when cost is
efficiently controlled.
Ta ble 4.2.6 The precise objective of the organization is profit maximization.
Figure 4 Graphical representation of table 4.2.6
Ta ble 4.2.7 Does the organizations embark on cost reduction programme
so as to attain its maximal target.
Ta ble 4.2.8 Determining how cost reduction may be used to review the
reliability of cost control.
Figure 5 Graphical representation of Table 4.2.8
Ta ble 4.2.9 Does the organization set up a standard as a yardstick in its
operation.
Figure 6 Graphical representation of Table 4.2.9
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Ta ble 4.2.10 Is cost control used as a measure in facilitating corporate

performance of this organization.
Figure 7 Graphical representation of Table 4.2.10.
Ta ble 4.2.11 Does the organization normally meet up the set standard/
target.
Ta ble 4.2.12 Does management review its cost control system/ measures at
regular intervals.
Ta ble 4.2.13 variance analysis are the instrument used to compare those
found in the entity under review with those typically existing in
that sectors of the economy. Hence, variance analysis factors
can be identified that would not otherwise be apparent.
Figure 8 Graphical representation of Table 4.2.13
Ta ble 4.2.14 without standards, variance analysis would be largely
uninformative to all but the very skilled. But standards,
variance analysis can be interpreted and usefully applied to
satisfy the needs of the management.
Ta ble 4.2.15 Does cost control helps to compare the performance of one
company with that of another in the same industry.
Ta ble 4.3.1 General analysis of table for chi-square on test of hypothesis
number one.
Ta ble 4.3.2 Computation of chi-square (x2) statistics.
Ta ble 4.3.3 General analysis of table for chi-square on test of hypothesis
number two.
Ta ble 4.3.4 Computation of chi-square (x2) statistics
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TABLE OF CONTENT
Title page……………………………………………………………………. i.
Certification page…………………………………………………………..ii
Dedication page…………………………………………………………….iii
Acknowledgement……………………………………………………….…iv
Abstract ………………………………………………………………………v
Lists of table and Figures…………………………………………vi- viii

CHAPTER ONE
INTRODUCTION
1.1 Background to the study
1.2 Statement of the problem
1.3 Research questions
1.4 Objective of the study
1.5 Scope of the study
1.6 Research Hypothesis
1.7 Significance of the study
1.8 Definitions of terms
References
CHAPTER TWO
LITERATURE REVIEW
2.1 An overview of cost control
2.2 The relativeness of cost and cost control
2.3 The concepts of cost control and cost reduction
2.3.1 Approaches to cost reduction
2.3.2 Major difficulties with cost reduction
2.3.3 The techniques and methods of cost reduction
2.3.3b Methods of reducing labour costs
2.4 Classification of costs
2.5 Cost structure
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2.6 Classification of costs for control

2.7 The Economic value of cost control
2.7.1 Impact/Importance of cost control on corporate profitability
2.7.2 Problems of cost control
2.8 Variance analysis: An instrument of cost control
2.9 Historical background of the Nigeria Breweries Aba, Abia State
References.
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Scope of the study
3.2 Sources of data
3.3 Data collection
3.3.1 Design and Administration of Questionnaire
3.4 Sample size determination
3.4.1 Sampling Technique
3.5 Operational measures of variables
3.6 Data analysis Techniques
References
CHAPTER FOUR
PRESENTATION, ANALYSIS AND INTERPRETATION
4.1 Data presentation
4.2 Analysis and interpretation of data
4.3 Test of Hypotheses.
References
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CHAPTER FIVE
SUMMARY, RECOMMENDATION AND CONCLUSION
5.1 Summary of findings
5.2 Recommendations
5.3 Conclusion
Bibliography
Appendices

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND TO THE STUDY

The dynamic nature of our times has put so much on

business that their survival can no longer be taken for

granted but must be sort for. That a business strength

progressed or outpaced its competitors depends largely on

the quality and strength of its management. People always

make enquires pertaining to the issues that arouse their

interests-How, where, when, how and what it will cost to get

the necessary information, that will aid the attainment of

the organizational goals.

In all human transactions, we do talk of cost almost

each minute of the day. All our daily expenses are been

resolved in terms of cost-what cost, how cheap, how costly.

In our offices we passively talk of cost savings, cost of

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materials, overhead service cost, labor cost and many

others.

In an economist's point of view, we visually hear the

same song-marginal cost, opportunity cost, cost curve,

total cost and what else?

The above submissions attempt to suggest that cost

perhaps is a most important concept in our every day lives

and most diversely conceived.

Hence, the objective of every business organization is

charged with both financial and non-financial objectives,

which drive them towards the actualization of their set

organizational goals

According to Pandy, the financial motives of an organization

comprises of:

• Maximization of shareholders wealth

• Profit maximization and

• Service to customers.

While the non-financial objectives are

Making financing and career

development a priority.

Responsible to the community and

Developing cordial relationship with the host

community.
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Above all, profit maximization rank the most

prominent of the reason of going into business organization.

For business to attain its aim, it tends to cut across cost

reduction, thereby meeting its minimal cost budgets-profit.

However, Okafor (1983:142) opine that profit is the

ultimate measure of overall performance. When

management has planned, organized and controlled its

human and material resources properly, corporate activities

attain a level of effectiveness, which shows up in profit.

Probably, profits are acid test of the individual firms

performance.

In appraising a company we must first understand

how profit arise. The concept of profit maximization is very

useful in selecting the alternatives in making a decision at

the firm level. Profit forecasting is an essential function of

any management. It relates to projection of future earnings

and involves the analysis of the corporate behaviours, the

sales volume, prices and competitors strategies etc.

The main aspects covered under this area are the

nature and control strategies adopted by managerial

decision making as towards attaining corporate goals with

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its budget limit.

Cost control helps firms to improve its profitability and

competitiveness. Jhingan et el (2004:267) added that cost

control has a regulatory effect. For better performance and

better results certain means of control have been evolved.

Such cost instruments are budgetary control and standard

costing. Cost reductions are analyzed via variance analysis.

1.2 STATEMENT OF THE PROBLEM

This study is confronted with the view of discovering

whether organization especially manufacturing companies

adopts certain cost control measures in their products

marketing, as well as production processes, which

ultimately have an impact on their profitability and cash

flow analysis.

In this aspect of control, it incorporates cost reduction

processes and a cost reduction programme, initiated to take

the goal of bringing down the margin of business costs from

a current level perceived as not too safe, to a desired level,

with the ultimate intention of reaching a targeted profit

margin

1.3 RESEARCH QUESTIONS

For emphasis on the study, the following research question
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can be used to throw more light on the study;

1. What relationship exist between cost and control in

corporate profitability.

2. What cost control instruments are mostly used for

cutting down expenses thereby attaining maximum

profitability?

3. To what extent, if any, can cost be controlled by the

firm for the reasons of profitability?

4. What cost factors are relevant in controlling costs in

an organization?

5. What effect does the adjustment in the cost of an

organization exert on the profitability of a given

company.

1.4 OBJECTIVE OF THE STUDY

From the above stated problem this study shall look

into:

1. All the relevant aspects of a given cost control

measures, which have direct or indirect impact on the

profitability of an organization.

2. The relationship, which exists between, budgets, cost -

control, cost reduction and profitability of the firm.

3. To know the specific cost control measures which have

been adopted and applied in an individual firms.

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4. The degree of apportionment of the responsibility of

cost control measures in an individual firms and how

costs can be controlled for firm to attain its given

standard.

1.5 SCOPE OF THE STUDY

These research will reveal the essences of cost control

in manufacturing firm, the cost structure of the sector, cost

control measures adopted to minimize waste of resources

and invariably the major procedures embarked to ensure

that actual results are in line with the set standard; so that

waste are measured and appropriate action taken to correct

the activity.

The study will also envisage the nature of cost

accounting in use in the organization by the management. It

will also emphasize on the method of setting standard if the

firm adheres strictly to its standard and application of

deviations analyzed and reported.

The study shall be limited to the financial constraints, time

range and the availability of resources needed for the

actualization of corporate goals.

1.6 RESEARCH HYPOTHESIS

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H0 Inefficient application of cost control leads to a decline

in the profit level of an organization, when other

factors are constant.

H1 Efficient and adequate application of cost control leads

to increased in profit, while all other factors are constant.

1.7 SIGNIFICANCE OF THE STUDY

The result of this research work is expected to widen

the view held by potential managers and other corporate

bodies, who have been in one way or the other perhaps,

been have parochial view of the needs of cost control. It will

be of great benefit to manufacturing and processing

industry(s).

Potential stakeholders will firms they intend to extend

credit/funds to the company(s) because this will broaden

their view and knowledge on management projection.

The target audience will enjoy the increase in quality

product with corresponding reduction in prices.

Relevant industries will be exposed to determine the

increased level of demand, which invariably increase

profitability.

Tax authorities and auditors are not left out of the

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benefits derivable from cost control. Increase revenue will

subsequently boost infrastructures facilities.

1.8 DEFINITION OF TERMS

Cost: It is the amount of resources put into the production

of goods and or service. It's often expressed in monetary

terms and is also' seen as the expenditure resulting from

providing goods and services.

Cost Control: Control means compelling events to conform

to plan. Therefore cost control is the process whereby

management seeks to influence costs so as to keep them

within planned limits.

Cost Center: This is a desirable area of activity within a

business to which costs can be attributed. Such centers

incur expenses but do not directly generate revenue, for

instance the personnel department, accounting department,

public relation department etc.

Impact: This is the degree to which a particular

management policy and or measures yield desire result.

Budgetary Control: Is part of overall system of

responsibility accounting. Establishment of budgets for

each area of functional responsibilities so that the

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performance required in order that the objectives of the

business as a whole may be achieved. That is regular

comparison of actual with budgeted results.

Standard Costing: Standard costing is a method of

ascertaining costs whereby statistics are prepared to show;

• The standard cost

• The actual cost and

• The difference between variance.

Management: This is the process of combining and

utilization of organizational resource towards the

achievement of the common, or organizational objectives.

Efficiency: This explains the ratio of output to inputs. It is

the amount of output per unit of input, that is the amount

of resources used to produce a unit of output.

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REFERENCES

Lucey, T. (1984), Costing an instructional manual; London, DP

Publishers.
Meigs, W. B et at (1977), Accounting: The basis for business

Decisions Megraw Hill book company.

Okafor, F.O. (1983), Investment Decisions: Evaluation of project

and securities Gostak printing and publishing company Ltd

Okoye, P.V.C (1999), Cost and management accounting: Basis

concept Application and Issues; Enugu Sneap press Ltd.
Pandy, I.M (1999), Financial Management (8th ed), Delhi Vikas
House PVT Ltd.
Wilson, R.M.S (1975), Cost control Hand-Book, New York, USA,

John Wiley and Sons Inc.

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CHAPTER TWO

LITERATURE REVIEW

2.1 AN OVERVIEW OF COST CONTROL

Cost Control is the process whereby management

seeks to influence costs so as to keep them within planned

limits. Management sees cost control as a search for better

and more economical ways of completing each operation.

Cost control is simply the prevention of waste within the

existing environment. This environment is made up of

agreed operating methods for which standards have been

developed. These standards are expressed in the perspective

of budget and standard costs.

Cost control is the procedure whereby actual results

are compared against the standard so that waste can be

measured and appropriate action taken to correct the

activity. Cost control is defined as the regulation by

executive action of the costs of operating an undertaking.

Cost control aims at achieving the target of sales. Cost

control involves setting standards. Firms are expected to

adhere to the standards. Cost control emphasis is on the

past and present. It is applied on things, which have

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standards. It seeks to attain lowest possible cost under

existing conditions. Cost control involves the following steps

and covers various aspects of management.

These are:

i. Planning: Initially a plan or set of targets is established

in the form of budgets, standards or estimates.

ii. Communication: The plan is communicated to those

whose responsibility is to implement the plan.

iii. Motivation: After the plan is put into action, evaluation of

the performance starts. Costs are ascertained and

information about achievements is collected and

reported. The fact that, costs are being reported for

evaluating performance acts as a prompting force.

iv. Appraisal: Comparison has to be made with the

predetermined targets and actual performance.

Deviations are noted and corrective action taken.

v. Decision Making: Finally, the reported variances are

received. Corrective actions remedial measures taken or

set targets revised, depending on the management's

understanding of the problem.

The management and control of materials used by

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commercial organization leaves a great deal to be desired.

Waste is growing at an enormous rate that spawned a new

industry for recycling and extracting useful materials.

Materials are wasted in a number of ways such as effluents,

breakage, contamination, inefficient storage, poor

workmanship, low quality, pilfering and obsolescence. All

these, constitute an increase in material costs and can be

controlled via efficient working methods and effective

control.

Costs have been rising faster than ever before. The

business executives have refrained from the more vital task

of providing effective information to management for the

control and reduction of costs. The management and control

materials (or resources) used in most business firms leaves

a great deal to be desired. The increasing rate of waste has

variably increased costs in each of the prime factors.

- Material, labour, energy

Cost control is essential in the following main areas:

i. Labour

ii. Materials

iii. Sales
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iv. Overheads

v. Energy

Labour: Labour costs can be viewed in

three way viz

a. Higher basic pay or salary

b. Shorter working hours and

c. Reduced output

In terms of reducing labour cost, its some how difficult

task because it is not possible to reduce wage rates due to

the existence of trade unions and minimum wage

legislations. The policy of wage reduction is also a counter

productive for a management. However, to motivate

workers, wage rate should be on upward revise. The

reduction in labour cost is possible only if over time, the

rate of output per worker increases faster than the wage

rate increase. This will help to raise labour productivity.

Materials: The inappropriate use of materials is one of the

prime causes of increased costs. Wastage through poor

control and design has risen to such an extent that waste

recovery is now a major industry. Waste must be controlled

if cost are to be minimal. The cost of materials is affected by

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commodity markets. Appropriate purchasing of materials

can derive or attract some discounts.

Sales: Sales control requires making sure that the company

is not over spending to achieve its sales goals. In order to

sell, a firm maintains a sales force. Comprehensive sales

budgets are used for planning and controlling revenues for

firms. The principal budget factor is sales volume, so that

sales budgets are the primary budget from which the

majority of the other budget is derived. It requires upfront

strategic planning.

Overheads: Overheads means costs or expenses, factory

overhead involves any cost, which cannot be directly

charged as any other element of a product like labour or

material. Overhead costs are fixed costs; meaning they

remain the same at a given capacity or activity and do not

vary with output. A proper selection of capacity, a right

choice of equipment and its proper maintenance are likely

to keep overheads down. Overhead costs can be reduced by

means of effective absorption, allocation and apportionment

to cost units.
Energy/Power: Faulty designs result in excessive use of

power and materials. The increase in out-prices has shown

the very high levels of waste. The problem of energy

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conservation is attracting considerable interest because

high prices warrant some action.

2.2 THE RELATIVENESS OF COST AND COST CONTROL

The understanding of the importance of costs and how

cost behaves enables management accountant to advice

management on some strategic and ad hoc decisions. Thus

cost has been classified according to its importance of

management.

The Oxford Advanced Learners Dictionary (6th edition)

defined cost as "the amount of money that you need in

order to buy, make or do something". Chukwu (2002:63)

put it more succinctly that cost is the value of economic

resources used as a result of producing or doing whatever is

being costed. He portray(s) further that, it is the

expenditure required to produce some specified output or

benefit.

The researcher agreed in opinion with the views

postulated by Chukwu; because he sees cost as a

component of two elements - a quantity of the resources

and the price of the resource. Harper (1992:2) is also of the

opinion that "A cost is the value of economic resource used

as a result of producing or doing the thing costed. Virtually,

to an individual cost is what was paid for the acquisition of

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economic resources.

Ibemgbor (2006:3) defined cost as "The amount of

expenditure (actual or notional) incurred on, or attributable

to, a specified thing or activity. These definitions denote that

cost relates to past costs, which are the basis of cost

ascertainment. He is also on the same perspective with

Chukwu, that costs include two components - quantity

used and price. With this, we would device the equation as

below:
Cost = Usage X Price i.e

Cost = Quantity used X Price.

This is why Horngren, says it is "a sacrifice or giving

up of resource for a particular purpose, frequently

measured by the monetary units that must be paid for goods

and services.

According to Eyisi (2003:3), Cost means expenses or

overheads. Cost is money sacrifice either in cash or in

liability. In order to portray agreement with the above,

Okoye (1991:1) are of the view that cost is an amalgam of

quantity and monetary elements of a product. Cost in its

quantitative element comprises of two basic sub-elements,

namely; materials and labour hours whilst the monetary

 27

element is price. Though the expenses incurred in relation

to bringing the product to its saleable form, form the third

element of which all summed to the cost of the product.

The above will empower management to ascertain cost,

identify and analyze the element of cost (i.e. material, labour

and overheads), for effective cost control i.e cost saving and

cost compliance and a measure of profitability. A producer

or manufacturer must know the composition and trend of

his products costs - raw materials, wages, production,

equipment - in order to price profitably. Further more, costs

in so far as they can be estimated are the most relevant for

pricing decisions made today i.e. benchmark for the effective

operation or success of any industry.

In the aspect of control Adeniji (2008:2) defined it as

"the process of ensuring efficient performance to attain an

objectives. It process involves:

a. Establishing goals and standards

b. Comparing measures performance against the

established goals and standards.

c. Reinforcing successes and correcting shortcomings.

This shows that cost control entails striking a balance

 28

between expected behaviour pattern and actual notion.

Garrison (1976:245) opined that control involves the means

by which management assumed that all parts of the

organization function properly and attain the objectives set

down in the planning stage. In the same view Okoye

(1991:215) defined control as:

a. Plan for an objective

b. Table action to achieve the objective

c. Examine the extent to which actual results differ from

plan and take corrective measures. He added that it is

the process by which actual performance is directed to

conform to plan or targets or expectations. He also

viewed that the specific nature of control of any

organization is liken to a stimulus response situation

whereby a particular stimulus generates a desire

response.

The researcher craves to understand that control

embodies three elements – a plan, comparison and action.

The preparation of budgets and standard cost are the most

important techniques of costs control. The end result for

setting a standard cost is for cost planning and control

 29

through variance analysis i.e. the difference between the

actual performance and the standard set

2.3 THE CONCEPTS OF COST CONTROL AND COST

REDUCTION

Cost control should not be confused with cost reduction.

Most people misinterpret the two techniques or concepts.

Cost control regulates cost of operating a business and

basically concern with keeping costs within acceptable

limits. These limits will usually be specified as standard cost

or target cost limit in a formal operational plan or budget. It

is most expedient in application where actual cost differs

from planned cost by an excessive amount. It encourages

efficiency and cost consciousness in business.

In contrast, cost reduction is a planned positive approach to

reducing expenditure. According to the Chartered Institute

of Management Accountants (CIMA) its seen as "reduction in

unit cost of goods or services without impairing suitability

for the use intended"

Thus, managers of manufacturing firms such as the

Nigerian breweries ensures that the actual is the same with

the budgeted, by assuming that the current cost levels or

 30

planned cost levels, are too high, even though costs control

might be good and efficiency level high. Hence, the existing

standards are closely examined at the broad and detailed

levels with a view to improvement. To achieve or attain

success in cost reduction, the management must be

convinced of the need for cost reduction. It is a corrective

function. It is just as much conceived with the stoppage of

unnecessary activity as with the curtailing or cutting down

expenditure on that which is essential. This is possible only

when firms or manufacturing operation makes the optimum

utilization of resources by incorporating both internal and

external economies. This means that by minimizing the cost

of manufacture, add the overall factory overheads; the

average cost reduction may be achieved.

2.3.1 APPROACHES TO COST REDUCTION

The scope of a cost reduction should embrace the

activities of the entire company, which in a manufacturing

firm or company would span purchasing and distribution

and all levels within the organization from the shop floor

upwards. The following approaches could be adopted in

planning for cost reduction.

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a. Crash programmes to cut spending levels: This is

used in a situation where organization has problems

with its profitability or cash flow. Here the

management opts on an immediate programme to

reduce spending to a minimum. These might involve

abandoning some current project and capital

expenditures deferred. However, the absence of careful

planning might give such crash programmes the

characteristics of panic measures and authoritarian

dictatorship from top management. When this

approach is poorly planned, it might result in

decisions which will reduce the operation efficiency

without the effects being immediately noticeable;

invariably brings a decline in profitability.

b. Planned programmes to reduce costs: This

approach entails an introduction of a continual

assessment of an organizations entire product;

Production methods, services, internal administration

system etc. The management will focus on compiling

reports on the costs and benefits of different

alternatives and also on providing cost benefit analysis

 32

of the cost reduction schemes themselves.

2.3.2 MAJOR DIFFICULTIES WITH COST REDUCTION

Cost reduction does not happen on its own accord and

managers of manufacturing operations as well as those

responsible for selling and operational or distribution unit

should make positive decisions to reduce costs. They should

take cognizance of:

a. Employees resistance to pressure to reduce costs

mostly due to the nature and purpose of the

programme has not been properly explained to them.

They feel the programme or change might pose a threat

to them.

b. They may be limited to a small area of business with

the result that costs are reduced in one cost centre

only to reappear as an extra cost in another cost

centre.

c. Lack of information for instance about new materials,

products or processes.

d. Lack of ideas involve alternative solutions to match the

cost incurred to the benefit derived through creative

thinking.

e. Genuine but incorrect beliefs, that quantities are too

small to justify mass production techniques.

 33

f. Changed circumstances, for example a failure to take

advantage of better processes that are available.

g. Identification of the area for cost reduction exercise.

h. Matching the purpose of the cost incurred through

value judgment to the product value.

i. In the short term, only variable costs, for the most

part, are susceptible to cost reduction effects, many

fixed costs (e.g. depreciation, real wages and salaries)

are unavailable.
j. Some fixed costs are available in the short-term (e.g.

advertising or sales promotion expenditure). They are

termed discretionary fixed costs.

2.3.3 THE TECHNIQUES AND METHODS OF COST

REDUCTION

In improving efficiency and standards, one way of

reducing cost is to improve the efficiency of material usage,

the productivity of labour or the efficiency of machinery or

other equipment.

Techniques for reducing the cost, cover a wide range of

activities these are;

(a) Improved materials, where wastage is currently

high. Wastage might be reduced by one of the

 34

following methods.

i. Introducing new equipment that reduces wastage

in processing or handling material.

ii. Using a better quality of materials. Even though

more expensive, better quality materials might

save costs because there are less likely to tear or

might last longer.

iii. Changing the specifications for cutting the

materials.

iv. Identifying poor quality output at an earlier stage

in operational processes.

(b) Improving the efficiency of equipment usage these

might involve.

i. Making better use of equipment resources.

ii. Achieving a better balance between preventive

maintenance and machine downtime for repairs.

(c) Standardization of parts: Standardization of parts

and components might offer enormous cost reduction

potential for some manufacturing industries.

i. If a manufacturer has a fewer types of

components to manufacture, he will be able to

increase the length of production runs, and so

reduce production costs.

 35

ii. Customers may equally benefit from

standardization by having fewer items to buy and

stock. They can purchase in bulk~ and obtain

bulk purchase discounts. They will also have the

opportunity to buy standard part from more than

one supplier thereby making purchasing more

competitive.

(d) Improving store control and store costs: The

management should endeavour to know the concept of

the economic ordering quantity (EOQ) which is the size

of order that will minimize the combined costs of

ordering items for stock and stockholding costs.

Manufacturing firm should reduce holding costs by

dealing with problem of obsolesce deterioration of

items in store or pilfering. Just In Time should also

reduce storage costs.

(e) Using alternative materials: Cheaper substitute

materials might be available.

(f) Labour productivity can possibly be improved by the

following methods:

i. Introducing standards where they did exist

before.

ii. Changing work patterns or schedules so as to

 36

smooth out seasonal fluctuations over the year

and reduce the need for overtime payments as the

height of seasonal production. This can also

reduce non-conformance quality costs that is, the

cost off faulty goods produce under pressure

"during unrealistically high overtime periods.

iii. Giving pay incentives for better productivity.

Setting more challenging standards of efficiency,

to aim for standard ought to be tight but

achievable. If efficiency standards are too lax, it is

likely that the work force will put in the minimum

effort needed to achieve the required standards.

Given the right motivation among the workforce,

more challenging standards will encourage

greater effort.

iv. Improving the methods for achieving co-operation

between group or departments.

v. Changing methods to eliminate unnecessary

procedures and make better use of labour time.

2.3.3b METHODS OF REDUCING LABOUR COSTS

The labour cost of any manufacturing firm can be

reduced by:
 37

(a) Work-study: This means raising the production

efficiency (Productivity) of an operating unit by the re-

organization of work. Perhaps, the application of

systematic analysis to the work of men and machines

so as to improve methods and to establish proper time

values for that work. The main objectives of the work

study are

i. The most effective use of plant

ii. Most effective use of human effort

iii. A reasonable work load for those employed.

iv. The development of procedures for presenting to

management information about work

performance.

v. The economic evaluation and optimization of

alternative combination of personnel, materials,

and equipment.

vi. The establishment of work standards for

determining requirements in labour and

equipment, assessing performance, planning

operations, costing operation and products and

paying workers.

Manufacturing organization that uses the above will

produce a tangible result guide and it can be used to

 38

increase efficiency throughout the organization.

(b). Organization and Methods (O&M): Organization and

methods are defined as, "The systematic examination of

activities in order to improve the effective use of human and

other material resources. "It is generally accepted to be

concerned with examining clerical, administrative and

management procedures and organization to effect

improvement. These include the following activities.

i. Organization analysis

ii. Activity analysis i.e. integration of functional activities

office layout"

iii. Information analysis

iv. Flow charting

v. Methods of procedures and documentation, the design

of forms.
vi. Collection and use of work measurement data to

provide valid standards of performance, fair work

allocation, economic staffing and incentives.

This method ensures that standard times for work are

established i.e. the efficient methods of getting work done.

These will increase efficiency and productivity, and so

importantly reduce cost.

 39

2.4 CLASSIFICATION OF COSTS

Generally costs are expenses, overheads that are incidental

to production Administration selling and distribution etc.

The classification of cost involves the grouping of costs in

their nature, and the purpose to be fulfilled. Cost could be

grouped in so many ways in respect of the decision making

needs of management for ease and convenience of control,

cost classification could be categories into:

(1) AS ELEMENT OF PRODUCT: Here, cost are grouped as

product cost, that is, the principal or integral component of

any product which comprises materials cost, labour cost

and overheads.

(a) Material Cost: Material here depicts raw material, the

input transformed in any manufacturing process. They

could be the raw material input, semi-finished goods

and the finished goods. They stand for the primary

substance in any production or manufacturing unit.

Its further sub-divided into.

i. Direct material cost: These are those cost of material

that are directly traceable or identifiable to a particular

job unit, process or department. Cost of grains used in

processing drinks etc.

ii. Indirect Material Cost: This cost involves cost of

 40

materials, which are not traceable to any particular job

unit) process Or department. They are co~ which are

spread across various units in the organization. In a

manufacturing operation) for instance) the cost of

lubricating oil and services in the organization.

(b) Labour Cost: These are human efforts engaged in

manufacturing both mental and physical efforts)

skilled or unskilled exacted in production. Labour cost

could be traceable or non traceable to a particular job

unit. For instance) the job of machine operator and

foreman and the job of the administrative manager.

(c) Overhead: This means expenses or cost) it includes

all the direct material cost, indirect labour cost and all

other cost which are not direct but could be incidental

to the production floor. It could be fixed or variable.

(2). PRIME COST AND CONVERSION COSTS

This kind of cost has a significant influence or

relationship to production.

Prime cost are those cost which must feature before

any production processes, take place i.e. they are

absolutely necessary in any manufacturing or

production. It could be direct or indirect in production.

Conversion costs) as the name suggests) implies those

 41

cost needed to transformed raw materials or inputs

into finished product. They are the cost of direct

labour and factory overheads in production.

(3 ) LINE AND STAFF FUNCTIONAL COSTS

In an organization there are various functional units.

Here cost is grouped following the organizational

structure of the firm. i.e. the functions areas

(departments) such as the financial cost, marketing

cost, production cost, administrative or personnel

cost. These cost are incurred in the line and staff

department of an organization.

(4) RELATIONSHIP TO ACTIVITIES LEVELS:

Costs here are classified as how they relate to the

volume of production either by their constant nature

or varying nature (increase or decrease).

These are:

a. Fixed cost: The official handbook of CIMA defines

fixed cost thus: A cost which is incurred for an

accounting period, and which, within certain output or

turnover limits tends to be unaffected by fluctuations

in the level of activity of output or turnover.

 42

Fixed cost is sometime called period cost because it is

charge relating to a time period, i.e. time related and

incurred for certain out level. For control purposes, fixed

cost could be viewed as "committed" or Volume

discretionary cost e.g. rent rod rates, Figure 2.2 fIXed
cost.
advertising etc. Fixed costs remain the

same at both, full or below capacity. Such cost includes

depreciation cost. So these changes are not volume

For the fact, that fixed cost (FC) does not changed because

of activity level, is represented graphically thus:

Cost assume to be constant Cost

Output
Cost
Over all levels of output
Range
under
consideration

Volume
Volume
me
Figure 2.1 Fixed cost Figure 2.2 Fixed cost

Figure 2.1 has shown fixed cost very unrealistically as if

fixed cost is the same throughout all the levels of production

period. On the other hand figure 2.2 is far dynamic, as it

portrays fixed cost as what happens over a relevant range of

 43

operation.

Fixed cost can be represented algebraically:

+
Cost = a

Where “a” is a constant. The volume (v) of through put is not

associated with this constant ‘a’. It is not driven by activity

level.

b. Variable cost: This is the times of costs, which tend to

vary in direct proportion to changes in the volume of

output of the cost centre to which they relate. It is the

cost element, which tends to maintain a perfect

relationship with the activity levels or cost that react

proportionately to movement within the level of

activity. The level of activity is normally depict by an

activity base or activity driver eg. material cost are

clearly variable cost.

Lecey (2002:277), variable costs are costs, which vary with a

measure of activity. Garrison (1976:35) added that it vary in

direct proportion to changes in the volume of activity. It varies

in total but is constant in Unit basis. Managers should take

cognizance of the various variable costs depending if its

dependent on the measures of activity.

Graphically depict
 44

Cost

Volume of output

Figure 2.3 Variable cost

c. Semi-Variable Costs or Mixed cost

These types of cost are those cost which contain both

fixed and variable components and which is thus partly

affected by fluctuations or change in the level of

activity. This means that these costs vat)', however not

in the same proportion to the changes in volumes. They

operate as a mixed pattern. Example of mixed cost is

the cost of utilities.

Variable region
Cost
Fixed region

Volume of output
Figure 2.4. Semi variable cost
 45

Mixed cost = Total fixed cost (TFC) + Total variable cost

(TVC)

(5) CONTROLLABLE AND NON-CONTROLLABLE COSTS

Managers controls costs in any organization to a

minimum. However certain costs are controllable but

some are not controllable. Controllable costs are those

cost that can be controlled, meaning those variable

cost which management control or influenced by

increase or decrease its capacity utilization i.e. volume

of production. The operating or plant managers are

responsible for the use of materials in their

organization. They have a significant influence or

control on material cost. Therefore those costs are

controllable.

For instance, a foreman or supervisor used his

authority on workers to produce goods and services in

his workshop. But he does not have the authority to

recruit or transfer workers. His concern only to the

utilization of workers working hours which under his

control.

Non-controllable cost includes all the fixed cost,

 46

which are beyond the decision range of management

ie, cannot be influenced or manipulated by any means

2.5 COST STRUCTURE

Manufacturing costs are classified into three - Adeniji

(2008:38)

Viz:

a. Direct materials costs

b. Direct Manufacturing labour costs

c. Indirect Manufacturing Cost

This can be depict

Non- manufacturing Total Cost
cost
- Administration i.e full cost
- Selling &
Distribution
Finance Plus
MANUFACTURING FULL COST OR
OVERHEAD
Non-
FULL
- Material
PRODUCTION Manufacturing
- Labour
- Expense
COST
ie. Prime cost
DIRECT COST plus
- Materials Manufacturing
- Labour PRIME COST overheads
- Expenses

FIGURE 2.5 MANUFACTURING COSTS GRAPH

 47

DIRECT MATERIAL COSTS

These are cost which are directly and physically traceable

to the production of a product. They are the acquisition

costs of materials, which are identifiable part of the cost

object. It could be work in process (WIP) or finished goods.

These direct costs become part of finished product

that can be traced or identified to the cost object in an

economically feasible way. The control of cost for material

starts from the cost of acquisition to storage. These

acquisition costs for direct materials include-freight-in

charges, sales taxes and custom duties.

DIRECT LABOUR COST

Direct labour cost includes all the labour cost or

compensation of all manufacturing labour that can be traced

to the cost object in an economically feasible way. Examples

include wages and fringe benefits like leave Encashment,

incentives, over time etc paid to machine operators and

assembly line workers. These could be analyzed or controlled

by assessing the manpower requirement, job description and

period performance evaluation.

 48

INDIRECT MANUFACTURING COSTS

These are all manufacturing costs that are considered part

of the cost object, arts finished or in process but cannot be

attributed to any cost object. Examples include power,

supplies, indirect materials, indirect manufacturing labour,

plant rent, plant insurance, property taxes on plants, plant

depreciation and plant and plant managers compensation.

CLASSIFICATION OF COSTS FOR CONTROL

Allocation of costs to products does not allocate costs to

specific individuals who should be hold accountable for

such costs is structured.

For effective management and actualization of

corporate goal, the following cost control measures are

adopted by manufacturing firm:-

a. Responsibility accounting

b. Marginal costing

c. Standard costing

d. Budgeting and Budgetary control

RESPONSIBILITY ACCOUNTING

This is a system of cost control whereby costs are allocated

to individuals are held accountable for this incurrence. It

involves identification of individual areas of responsibility as

 49

specified on the organizational framework, and each center

is held responsible for its performance. It traces variances to

the person who has control over the cost.

Adeniji (2008:182) is of the opinion that each manager

is responsible for its operational performance. Accounting

reports are provided and managers are made aware of all

the items that are within his areas of authority so that he is

in a position to explain them.

Responsibility accounting system revolves around:-

i. Cost centre

ii. Profit centre

iii. Investment centre

COST CENTRE: This is where costs may be ascertained and

related to cost units for control purposes. Here, a manager

is held accountable for costs under his control.

PROFIT CENTRE: It is a segment of a business entity where

managers are accountable for both revenue and expenses

and therefore the profit of these centres. A manager

responsible for a profit centre should have control over both

the sales policy and the production facilities e.g. a branch

manager.
 50

INVESTMENT CENTRE: This is a centre where managers

are held responsible for their product performance, in

relation to the level of capital invested in the centre. The

centre manager has responsibility for costs, revenues and

assets or capita1 employed.

Responsibility accounting calls for effective and

efficient cost control in an organization. In a situation

whereby performance evaluation on sales and expenditure

of an organization where not monitored, they maximum

profitability is at stake.

Chukwu (2002:213) opine that, it's recognition of

individual areas of responsibi1ity as specified in the firms'

organization structure and provides reports that compare

budget performance with actual performance.

MARGINAL COSTING

Marginal costing is a procedure of costing where

variable production costs of products and services are

separated from the fixed cost and also a costing mechanism

for showing the effect of profit on changes in volume of

output. It's a system of presenting cost information to

management to help facilitate managerial decision-making

and effective cost control.

 51

Peter (1992:223), It is the prime cost plus variable overhead

and regards as out of cost or additional cost incurred in

producing one more unit.

The marginal costs are therefore charged to the

products and inventory. The fixed costs are charged to the

period's expenses account.

Thus, marginal costing techniques are an important

tool in the accountant's tool- Kit for analysis. The marginal

costing of a product is its variable cost i.e. it includes direct

material, direct expenses and variable overhead cost thus:

Direct Material cost Plus Variable

Direct labour cost Overhead cost

Direct Expenses Marginal cost

Marginal costing is a system of costing rather it’s a cost

control measure which present management with

information enabling it to measure the profitability of an

under-taking by considering the behaviour costs, Anyaogu

(2002: 179) Adeniji (2008:70) added that it is “The

accounting system in which variable costs are charged to

cost units and fixed costs of the period are written off in full

against the aggregate contribution. Its special value is in

 52

decision-making. These denote or highlighted another key

concept of marginal cost i.e the concept of contribution (The

difference between sales value and the marginal cost). It

could be unitized or aggregate, thus:

Sales Revenue- Marginal cost = Marginal

Contribution

USES OF MARGINAL COSTING

Marginal costing is a management information technique for

effective and efficient decision making it is used in the

routine cost accounting system for the calculation of costs

and the valuation of stocks. Lucey (1996:302) the costs of

productions are calculated.

Direct Material X

Direct Labour X

Prime Cost X

Manufacturing Overhead XX

Total Management Cost XX

It is advantageous in the following ways Peters (1992: 223)

- The marginal cost of a product does not vary from one

period to another but when fixed cost per unit is used a

fall in the volume of output will result in greater cost unit.

 53

- It techniques affords the segregation of fixed cost and

variable cost which provides adequate means of

controlling production and selling costs and volume of

sales/output.

- Attention is drawn to the relative contribution which

each product makes towards the recovery of fixed

overheads.

- It aids in providing information to management for

planning and short-run decision-making. Such

decisions imparting on volume or capacity changes

with their reaction on cost change.

- It is also used in inventory valuation where fixed cost

written-off to expenses account.

- It sport lights the interrelationship between selling

price, costs and volume of production.

- It discloses not only where sales efforts have to be

concentrated but also where the greatest profit can be

made.

- It serves as a guide to management in the

manufacturing of a product from outside sources.

-
 54

DISADVANTAGES

The separation of fixed cost and variable cost cannot

convince management alone about the progress of the

organization but the calculation of variances may give more

information than that.

A concern basing its selling price (SP) on marginal

costs (MC) without regards to the size and nature of fixed

cost (FC). Any decision based on marginal cost will be

regarded as misleading and unsound policy.

Using marginal cost in valuating working-in-progress

(WIP) and finished goods for balance sheet purposes will

indicate an under valuation when compared with absorption

costing. The principle does not only tend to lower the worth

of the assets but also reduces the value of the working

capital.

STANDARD COSTING

Eyisi (2003: 182) defines standard cost as "a

predetermined or planned cost established under a set of

working condition against which actual cost incurred for

material, labour and overheads are compared". Formally, a

predetermined calculation of this cost of specific working

conditions.
 55

In all, standard costing involves among others, the setting

standards; measuring actual performance; comparing

actual and standards to establish variance (if any),

Investigating the course of variance and necessary actions

to be taken. It is a techniques used for cost control and cost

accounting system used in ascertaining the cost for a unit of

product or services.

According to Sizer (1969:60) it is a fair yardstick for

evaluating or judging performance. It starts with an

estimate of what a product should cost during a future

period given reasonable efficiency.

Standard costs are established by bringing together

information collected from various sources within the

company. These degrees of success' are measured

comparing actual standard (performance) and the standard

performance. For example If the standard material input for

a unit of production is N500 and the actual cost is N475

then the variance of N25 is the measure of performance

which shows that the actual performance is an

improvement over the standard. It helps in fixing

responsibility for non-standard performance and will focus

 56

attention on areas in which cost improvement should be

sought by showing the source of loss and efficiency.

TYPES OF STANDARD COSTING

i. Basic Standard: These are long term standard which

would remain unchanged over the years, It shows

trends over time for such items as material prices,

labour rates and efficiency and the effect of changing

methods

ii. Ideal standard: This is a standard, which represent

high level of efficiency it anchored on the assumption

that favourable conditions will prevail and

management will be at its best

iii. Expected standard: This involves setting a standard

based on averages of the business cycle, which

equilibrates the fluctuations caused by the seasonal or

cyclical nature of the business. It is of a long duration

iv. Current standard: This is a standard set for use over

a limited period to reflect current conditions.

THE BENEFITS OF STANDARD COSTING

- Standard costing provides a consistent platform

whereby performance may be measured on the basis of

what an item cost or how much should have been

 57

produced, on the basis of the expected levels of

activity.

- It provides a basis or method whereby labour and

overheads can be consistently recovered and charged

into stock.

- It provides a recognizable basis for budgeting,

forecasting and planning.

- It provides basis of control for buying, usage and

efficient work levels.

- In setting up standards, management can reappraise

activities to ascertain if they are being done in the

most cost-effective and efficient way.

- It allows for the application of management by

exception.

- It helps management in establishing a yardstick with

which the efficiency of performance is measured that

helps to exercise control.

- It aids decision making by providing prediction of

future cost.

- It assists in setting targets and in the evaluation of

managerial performance. It is a recognizable method of

 58

performance monitoring through variance analysis

motivating investigations into causes of short fall and

improving methods and procedures for the future.

LIMITATIONS

- Application of standard costs is quite difficult in

practice.

- Frequently, standards become rigid over time and do

not keep pace with changes in conditions.

- If the standards set are higher than reasonable, they

act as discouraging factor.

- Negative attitude of the operating manager against the

established standards.

- Problem of identifying specific needs of consumers.

BUDGETING AND BUDGETARY CONTROL

In the accountant view, 'A budget is a plan quantified in

monetary terms prepared and approved prior to a defined

period of time, usually showing planning income to be

generated and or expenditure to be incurred during that

period and capital to be employed to attain a given objective.

In management, perspective it is a formal expression of

managerial plans in quantitative and in financial terms

 59

encompassing different phases of business operations and

aimed at helping management towards the attainment of

organizational objective.

Eyisi (2003:227) From the definitions, the researcher

agrees that budget serve as a control tool used by

management to ensure that organizational goals are

achieved through cost planning ie setting a target. It is a

detailed commitment to a plan of action.

Budgeting refers to the act of preparing budgets ie a

system adopted by management for effective cost planning

and control. Management adopt these system so as to

enhance the effective and efficient use of the available

resources, thereby achieve the corporate goal profitability

without much waste of the economics.

Lucey (1993:346) portray(s) that budgeting is all about

planning for the future, implementing the plans and

monitoring the activities to ensure conformity. with the set

plan. Here, the researcher posits that budget is a

predetermined management objective within an operating or

accounting period.
 60

Below shows a diagrammatic representation of

management planning through budgeting:

Planning Operations Control Actual

Designed Feed Actual activities Planning
Objectives and forward transformation performance
Goals, Strategic, of resources compared
Tactical

Feedback
Re-planning

Figure 2.6 management planning chart

It includes the aspects of budget preparation, coordinating

the departments and establishment or responsibility(s),

comparing actual performance with the budgeted and acting

upon results to achieve maximum profitability.

TYPES OF BUDGETING TECHNIQUES

This is the mechanics adopted by management

in preparing budgets.

1. Zero based budgeting (ZBB): These techniques is used

to re-evaluate business activities each time a budget is

prepared. It brings in nothing of the past in preparing

the yearly budget.

 61

2. Planning- programming Budgeting (PPBS) System:

This method of budgeting preparation lays emphases

on a particular programme to be executed for the

period before its budget preparation.

3. Continuous / Traditional Budgeting: This is a

technique that makes reference from past data or an

activity that is believing the previous data exist it

becomes a basis for the next budget preparation.

4. Objective of expenditure budgeting: This lays

emphasis on the objectiveness of expenditure to be

included in the budget. ie any activity to be budgeted

for must serve a useful purpose towards the

achievement of organizational goal.

5. Performance budgeting: This method concern on the

performance of a given period before embarking on a

new budget. It states that budgets are prepared based

on the performance of previous budgets.

BENEFITS OF BUDGETING

- Formal way in which organization objectives are

translated into specific plans, takes and objectives

related to individual managers and supervisors.

 62

- It serves as a medium of communication for

organizational plans and objectives and the progress

towards meeting those objectives.

- It provides a basis for comparing actual results

recorded by the organization or company with the

planned target.

- Compels all members of management to participate in

establishment of goals and plans.

- Removes the cloud of uncertainty that exist among

level of management, in terms of company objectives.

- Help management to save management time through

the use of exception principle, which is at the heart of

budget my control.

- Help to achieve co-ordinations between various

departments and functions of the organization.

LIMITATION OF BUDGETING

- Variances are fast as frequently due to changing

circumstances and poor forecasting as due to

managerial performance.

- The existence of well-documented plans may cause

inertia and lack of flexibility in adapting to change.

 63

- Budgeting are developed round existing organization

structures, which may be in appropriate for current

conditions.

BUDGETARY CONTROL

According to Eyisi (2003:228) budgetary control

system is the use of budget for assigning responsibilities,

planning and controlling performance and guiding

managerial and other activities towards the achievement of

organizational goals. It pinpoints any deviation between

budgeted standards and actual achievement. It involves

among others:

a. Establishing budget for each area of functional

responsibility, identifying the performance required in

order that the objective of the business as a whole may

be achieved.

b. The regular comparison of actual with budgeted

results in other to identify variances from the budgeted

standard.

c. Action resulting from this comparison, either to secure

adherence to the defined objectives or to agree some

modification of the original plan.

 64

d. It targets and brings together all activities of the

organization right from planning to control .

e. It provides a yardstick against which actual results

can be compared.

f. It provides a clear definition of the objectives and

policies of the concern.

g. It is a useful tool in profit planning and helps to

eliminate or reduce unproductive activities and

minimizing waste.

h. It makes everyone accountable for his work, as it

defines the responsibility for performances.

i. It acts as a basis for internal audit by providing a

method of continuous appraisal of performance.

However, budgeting system gives a picture of expenditure

made in the past.

Since business firm are more interested in cost

reduction and control, the accounting manager is required

to be less interested in past history but more conscious of

the future. The budget is a plan for the future and as such

it bases for cost control in the long run.

 65

2.7 THE ECONOMIC VALUE OF COST CONTROL

For effective or successful operation of the business,

cost control or analysis is vital. Budget ensures cost

control, by defining the equipment, material personnel etc,

needed for the job. This helps ensuring cost compliance or

reduction and measurement of performance.

Budget as an integral part of planning involves future

projection which mandates managers to sit down and

articulate what they want to achieve, and what they need to

do to achieve their business objectives.

Here, the management search for better and more

economical ways of finishing each operation, thereby

improve profitability.

2.7.1 IMPACT/IMPORTANCES OF COST CONTROL ON

CORPORATE PROFITABILITY

Cost control measures provides useful information on

cost variance to management and it helps to improve

company's profitability and competitiveness.

In the absence of cost control, profits may be

drastically reduced despite a large and increasing sales

volume.

It is an indispensable tool for achieving greater

 66

productivity and a designed cost control measures helps

management to minimize waste in use of resources.

If the price of the product is stable and reasonable, it

can maintain higher sales and thus employment of work

force.

It set direction for everyone in the organization and

simplify design and manufacturing process.

It improves customer receptivity by using standards;

thereby reduce the likelihood of product rejection by the

customers.

2.7.2 PROBLEMS OF COST CONTROL

Cost control is associated with some problems in spite

of all its effectiveness. These may mar success of the

business operation.

Cost control measures are impeding by communication

gap between the top management and the 5hop floor

managers. Ineffective flow of information around the

organization keeps some operational managers in the dark

about the standard set.

The high rate of taxes and levies may distort the

smooth running of cost control measures.

 67

2.8 VARIANCE ANALYSIS: AN INSTRUMENT OF COST

CONTROL

As earlier stated variance is the difference between

standard cost and actual cost. It's the end result for setting

a standard cost for cost planning and control through

variance analysis.

Variance analysis evaluation performance by

mean of variance, whose timely reporting should

maximize the opportunity for managerial action. This

means that managers and operational heads works within

the circuit of attaining the profitability level of the

organization through an effective and efficient control of

standard set.

For effective evaluation or cost control many firm

embark on the computation of the operation profit

variances as follows:

(a) Operating profit variance: This represent the

difference between actual profit and budgeted profit i.e.

OPERATING PROFIT VARIANCE

Selling and Dist.

Cost variance Sale margin
Production variance
cost variance
 68

It enables managers to make early placement of purchase

order from the suppliers and take corrective action if

deviation occurs.

This paper aimed at reviewing costs, its behaviour,

its efficiency and impact on cost control measures It

snows that control and standard setting is a yardstick for

profitability.

This is obtained by comparing actual performance of

the organization at regular intervals with the cost targets,

analyzing any variance, its causes and the possible

corrective action applied.

2.9 HISTORICAL BACKGROUND OF THE NIGERIAN BREWERIES

ABA ABIA STATE

Nigerian Breweries PIc, the pioneer and largest brewing

company in Nigeria, was incorporated in 1946 and recorded

STAR lager beer rolled off the bottling lines in its Lagos

Brewery in June 1949. This was followed by Aba Brewery,

Kaduna Brewery in 1963 and Ibadan Brewery in 1982. In

September 1993, the company acquired its fifth and sixth

brewery sited at Ama in Enugu State.

The Aba Brewery tends to be the biggest brewer in

Nigeria and the most modem in the world. Thus, from its
 69

humble beginning in 1946, the company now has five

operational breweries from which its high parts of this parts

of this great country.

The Aba brewery has over three hundred and eighty

junior staffs and sixty two senior and management or

operational staff.

It daily outputs were about hundred and six thousand

crates. To ensure this they establish a research and

development centre so that product are always in conformity

with world class standards. This enhance, they brewering

and marketing operation

 70

REFERENCE

Adeniji, A.A (2008), An insight into: Management Accounting,

Printed by EL-TODA Ventures Ltd Lagos

Anyaogu,C.M (1992), Management Accounting: A Financial

Approach, Tony Ben Publishers Owerri

Chukwu, V.C. (2002), Accounting and Finance terminologies.

Desmond, G.(1980), Finance and Accounts for Managers, Great

Britain Hazell Watson and Viney.

Eyisi,S.A. (2003), Cost Accounting, theories and Practice Published

by Valso (W.A) Ltd Enugu.

Frank, Wood and Alan Sangster (1999), Business Accounting 2

Britain:Pitman.

Ibemgbor, A. (2006), Cost and ~Management Accounting: An

Integrated Approach,Elkay Printers Lagos.

Jhingan, M.L. and Stephen, J.K. (2007), Managerial economics

Vrinda Publication Ltd Delhi.

John Sizer (1969), An insight into Management Accounting:

Britain Richard Clay.

Lucey, T (1992), Cost Accounting Ibadan Gbabeks publisher.

Lucey, T (2002), Costing: Lexington Avenue New York.

Malz Adolph et al (1990), Cost Accounting Planning and Control,

 71

New York South Western.

http://en. Wikipedia org/wiki/cost management cited on

31/01/2009.

http://www.astm.orgcitedon 15/08/2007.

http://www.manufacturing.comlbackground cited on

05/03/2009

http://www.nbplc.comlourcompanyprofile cited on

05/03/2009.

Millichamp, A.H (1984), Foundation Accounting, Britain Guernsey

Press.

Ngwakwe, C. C. (1999), Introduction to cost and Management

Accounting Creative Education Management, Consultant

Owerri.

Okoye, P.V.C (1999), Cost and Management Accounting, Basic

Concept, Application and Issues (the ABC) approach.

Published by Snap press Ltd. Enugu.

Peters, M.O. (1992).Cost Accounting Ibadan Gbebeks Publishers.

Warren, R.F. (1997), Financial and Management Accounting 5th

Edition,South Western College Publication Company

Cincinnati.
 72

CHAPTER THREE

RESEARCH METHODOLOGY

3.1 SCOPE OF THE STUDY

The purpose of this chapter is to present the

methodology adopted by the researcher in carrying out this

project. The scope of this research work will cover the

collection of data from all the organizational hierarchy and

levels of management of the company. The rationales

behind the efficiency and impact of cost control measures

on corporate profitability will be explored. The data collected

would assist the researcher to establish whether the

organization has an adequate analysis or control in the

operation of the organization or company for the efficient

attainment of the corporate goal. To achieve this, the

researcher would adopt good methods of data collection,

analysis and interpretation of the research through the use

of chi-square.

3.2 SOURCES OF DATA

The selection of data is based on good insight on the

operations of the company programme. This is done by the

application of oral interviews and the administration of the

research questionnaires. Hence, the selection of data will

cover the data from the organizational hierarchy of the

 73

company. They group is just a typical of policy makers in

the company. However, the nature of this research covers all

the important sources of data to arrive at clear empirically

verifiable information. For this reason, the sources of data

for this research work were basically

1. Primary Data

2. Secondary Data

PRIMARY DATA

The primary data were collected through oral

interviews and personal administration of the research

questionnaire. This entails on how cost is controlled by

having personal contact with all the respondents during the

distribution of the questionnaire and or on collection and

return of the completed questionnaire. However, the level of

response was impressing, the personnel's in the various

functional units of the company was expected to give reliable

and accurate information. Therefore, Good quality primary

data was collected accordingly with the use of the research

instruments.

SECONDARY DATA

Secondary data is processed information, which is

 74

ready for use, for inference or for other uses where it is

relevant was available by recognized areas of cost and

management, and product costing. These were collected

from Newspapers, Journals, Textbooks, Seminars

Magazines, Encyclopedia, Organizational profits, Lecture

notes relating to cost control as aid in obtaining corporate

profitability.

3.3 DATA COLLECTION

The questionnaires are designed to deal with the

impact of cost control in administration of corporate

programme as par in decision-making and attainment of

corporate target. There are few-open-ended questions, which

needed the respondents to supply all they know about the

organization. These open-ended questions were intended to

enable the respondents' express their views in their own

words to unveil some facts undisclosed by the questionnaire.

Finally, Yes or No questions were added and these required

the respondents to tick the appropriate answers that may

appeal to them. The interview list for the operators and

decision makers was used to elicit views on their perception

on the need and usefulness of cost control as an aid in

 75

corporate profitability.

3.3.1 DESIGN AND ADMINISTRATION OF QUESTIONNAIRES

In this section, the researcher described the research

design adopted and ways in which it was administered.

According to Kerlinger, research-design is the plan,

structure and the strategy of investigation conceived so as

to obtain answer to research questions and control

variance. Therefore, a research design is a blare print that

guides the researcher in conducting this study.

Thus, the main research instrument adopted for this

study is the questionnaire supplemented with some other

secondary data. The questionnaires were only administered

to some personnel's in finance department, sales

department (i.e. purchasing and stores unit) logistics and

technological controller who are supposed to have a good mastery

of cost control.

3.4 SAMPLE SIZE DETERMINATION

The questions were drafted and administered in such a way that

the respondents felt at ease and relax to give their best to the

questions presented to them.

In a bid to establish a high degree of reliability and validity

 76

of the responses, the total sample was fifty-five (55) management

staff of the areas of study was drawn from the various hierarchies

of management of the company. To be precise, these was

computed using the Yaro- Yamane formula method to obtain the

random sampling thus:

n = N

1 + N (e) 2

Where n = Sample size

N = Population of area of study

e = Estimated margin of error

I = Theoretical constant

e = 9% or 0.09

Therefore,

n = 100

1 + 100(0.09)2

n = 100 = 100 = 100

1 + 0.81 1.81
1 + 100 (0.0081)

n = 55.248 = n = 55
 77

3.4.1 SAMPLING TECHNIQUE

To ascertain the number of respondents that would

form the true representative of the decision makers of the

selected company did not constitute any problem. The

number of respondents who either filled and returned the

questionnaire were drawn from the members of the top-

management and related departments involved in the cause

of controlling costs such as the finance department

production/and processing department, selling and

distribution department etc.

The researcher applied the non-probability sampling

techniques or design in drawing up the respondents. While

the random sampling was used in distribution of

questionnaires and efforts were built to ensure that sample

obtained were valid representative of the population

3.5 OPERATIONAL MEASURES OF VARIABLES

An in built technique for validity control was

introduced into the design of questionnaire; a deliberate

attempt was made to repeat some questions in different

ways. The intention here was to forestall mechanical

completion or filling of the research instrument. The

 78

explanation is that any lack of consistency in answers

supplied is regarded an invalidity in the responses.

To further ensure validity of response only the top

management staff of the company was qualified for oral

interview and administration of the questionnaire.

3.6 DATA ANALYSIS TECHNIQUES

The methods of data analysis used by the researching

student are: Percentages, frequency distribution and

histogram, in the empirical test of hypothesis, the

researcher made use of advance statistics of Chi-square.

The general characteristics of the respondents such as sex

and position occupied in the organization were analyzed

using percentage:

1. Percentage: The idea of using percentages was to

simplify the problem of comparisons. Percentages are

useful instrument for comparative analysis of figures

and periods. They help to put quantitative

characteristics into numerical comprehension Harper

(1976:77).

2. Frequency and Histogram: The impression received

by inspecting large mass of figures gives no sharp and

 79

class meaning to the configurations. In a bid to get a

quick understanding of the approximate sample size

the frequency distribution table is used. This is the

statistical tool used to clarify complicated mass of

figures.

The use of frequency distribution tables by the

researcher in analysis of data is to give a very much

quicker and more accurate idea of the data collected

by the researcher. The fastest method of pictorial

presentation of statistical data is the use of

histograms. It gives a concise general impression of the

characteristics of mass of statistical data.

Laying out a horizontal scale representing the class

boundary and essentially plotting frequency on the

vertical axis makes histogram. We then draw a vertical

column on each class base equal in height to the

frequency for the class, Harper (1976:77).

3. Chi-square Technique: In applying the chi-square

distribution, the researcher will calculate a statistical

known and designated as X2 based on the discrepancy

between observed frequencies in the collected data

 80

collected and expected frequency. The value of chi-

square (X2) is calculated using the formula

Chi-square (X2) = (0 _ E)2

Where: 0 = Observed frequency. This is derived from the

responses to the question of our concern in the

questionnaire.

E = Expected theoretical frequency of an event under the

null hypothesis-

The figure for this is derived by employing the formula:

(E row) (E column)

Grand Total

0- E = The absolute value of the difference between the

frequency.

That is the derivation. (0 - E)2 = the deviation square and

weighted. E

(O-E)2 = sum of all the derivations squared and weighted.

In obtaining the tabled chi-square the degree of

freedom and levels of significance are considered very

 81

important. The components of chi-square, which are free to

very randomly and independently once the boarder totals,

have been specified and referred to as the degree of freedom

(DF). This is calculated by the use of the formula:

DF = (r –1) (c -1).

Where r = the number of rows in the particular table of our

concern.

C = the number of columns in the table of our concern. The

levels of significance (E) are given in the chi-square table.

The researching student will use 0.05 and 0.09 levels of

significance. This will be determined. The table chi-square

will be found by taking the value, which corresponds, to the

particular degrees of freedom and levels of significance.

 82

REFERENCES

Aham, Anyanwu (2002), Research Methodology in Business and

Social Sciences, Canun publishers Nig. Ltd.

Osualu, E.C. (l987)~ Introduction to research Methodology. New

Ed.African Feb Publishers.

 83

CHAPTER FOUR

PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA.

4.1 DATA PRESENTATION

This chapter focuses on the validity of the data

collected. These are tested and analyze with respect to the

objective set out in chapter one of this research work. A

critical analysis of data cannot provide the requisite

answers to the question rise by the research hypothesis

rather; the necessary collection of qualitative data can aid to

provide the necessary framework for answering the

questions.

The main entity for discussion in the research work

shall be the Nigeria Breweries, Aba in Abia State.

Thus, out of 100 questionnaires, only 55 were

randomly sampled and were tested for validity and

reliability. It is this 55 that is used for the analysis.

TABLE 4.1-1

SEX DISTRIBUTION OF RESPONDENTS

S/NO Response Frequency Percentage (%)

1 Male 35 64
2 Female 20 36
Total 55 100
Source: Field survey 2009
 84

Table 4.1-1 depicts that out of 55 respondents of the staff of

the company, 35 respondents representing 64% were male

while the remaining 20 represent 36% were female.

Table 4.1.2

THE DISTRIBUTION OF SERVICE YEAR OF RESPONDENTS

S/NO Response Frequency Percentage (%)

1 Below yr1 18 33

2 1-5yrs 20 36

3 6yrs & above 17 31

Total 55 100

Source: Field survey 2009

Table 4.1.2 shows that out of 55 respondent that 18

representing 33% of them were below one year of service, 20

representing 36% served between 1-5 years and 17

representing 31% were 6 years and above in the service.

Table 4.1.3

THE ORGANIZATIONAL HIERARCHY OF THE COMPANY.

S/NO Response Frequency Percentage (%)

1 Administrative 12 22
Staff
2 Management Staff 20 36
3 Operational staff 13 24
4 Others 10 18
Total 55 100
Source: Field survey 2009
 85

Table 4.1.3 depicts that out of 55 respondents that 12

representing 22% were administrative staff, 20 representing

36% were management staff, 13 representing 24% were

operational staff and 10 representing 18% were other

member of the company. From the data collected the

management is hold to a very great esteem in the

implementation of the corporate policies.

4.2 ANALYSES AND INTERPRETATION OF DATA

Table 4.2.1

DETERMINING MANAGEMENT RELIANCE ON COST

CONTROL IN MAKING DECISION

S/NO Response Frequency Percentage (%)

1 Yes 53 96.4

2 No 2 3.

Total 55 100

Source: Field survey 2009

Table 4.2.1 explains that 53 respondents representing

96.4% of the respondents agree that management rely on

cost control information they get in making they corporate

policy, while 2 representing 3.6% did not agree that

management rely on such facts.

 86

In conclusion, 96.4 acknowledge that management relies on

cost control information in setting up corporate policy. This

is in alliance with the oral opinion of the management staff

and other key personnel when interviewed.

Y - axis (%)
100
96.4%
80

60

40

20 3.6%
0 X - aixis
Yes No
Figure 1: A Histogram distribution

Figure 1 above is the graphical representation of the

response.

Table 4.2.2

HOW EFFICIENTLY ARE COST CONTROL MEASURES

APPLIED IN YOUR COMPANY?

S/NO Response Frequency Percentage (%)

1 Most Efficiently 35 64
2 Fairly efficiently 13 24
3 Inefficiently 6 13
Total 55 100
Source: Field survey 2009
 87

From table 4.2.2 above, 35 respondents representing 64%

are in support that the company applied cost control

measures most efficiently. However 13 representing 24%

confirmed that it is fairly efficiently while 7 representing

12% affirms that the measures are inefficiently applied.

In conclusion, the researcher affirms this based on the

field gathering that the application of budgetary control

responsibility accounting and standard costing have

contributed much on the company(s) profitable. The Chief

accountant also confirmed this by saying that since the

inception of the application of cost control that profits have

been on its peak.

Y – axis
100
96.4%
80

60

40
24%
12%
20
0 X - aixis
Most Fairly Inefficiently
efficiently efficiently
 88

Figure 2: A Histogram distribution

Figure 2 above shows a graphical representation of the

response.

TABLE 4.2.3

DOES COST CONTROL HAVE A SIGNIFICANT INFLUENCE ON

THE PROFIT MARGIN OF THIS ORGANIZATION?

S/NO Response Frequency Percentage (%)

1 Yes 50 91

2 No 5 9

Total 55 100

Source: Field survey 2009

From table 4.2.3, 50 respondents representing 91% are in

support that cost control aid to boost the corporate profit

with the assertion that it tends to cut down expenditures

and waste thereby increasing profit while 5 representing 9%

did not agree.

 Y – axis
89
100
91%
80

60

40

20 9%
0 X - aixis
Yes No

Figure 3: A Histogram distribution

Figure 3 shows a graphical representation of the response.

Table 4.2.4

HOW DOES THE PROFIT MARGIN OF THIS ORGANIZATION

LOOK LIKE?

S/NO Response Frequency Percentage (%)

1 High 40 73

2 Moderate 12 22

3 Low 3 5

Total 55 100

Source: Field survey 2009

From table 4.2.4, 40 respondents representing 75%

confirms that the company’s profits are high when costs are

controlled, 12 representing 22% of the total number of the

respondents indicates that they are moderate while 3

representing 5% viewed that it is low.

 90

TABLE 4.2.5

DO YOU TERMED THE PROFIT OF THIS ORGANIZATION

HIGH WHEN COST IS EFFICIENTLY CONTROLLED.

S/NO Response Frequency Percentage (%)

1 Yes 55 100

2 No 0 0

Total 55 100

Source: Field survey 2009

Table 4.2.5 shows that 55 respondents representing 100%

of the total respondent affirmed that profit are high when

costs are controlled while none holds a contrary view to this.

In affirmation, the chief accountant confirmed this that

profit is higher when cost is efficiently controlled.

TABLE 4.2.6

THE PRECISE OBJECTIVE OF THE ORGANIZATION IS

PROFIT MAXIMIZATION, TRUE OF FALSE?

S/NO Response Frequency Percentage (%)

1 True 40 73

2 False 15 27

Total 55 100

Source: Field survey 2009

 91

In table 4.2.6, it can be observed that 40 respondents

representing 73% of the total respondents of the company

are on the agreement that the sole aim of any corporate

organization is to make profit. However, this is in

accordance with the chief executives opinion, that for any

business to remain in operation and meet its challenges, it

must devise means to ensure that its profit realization is

high and above its equilibrium. While 15 respondents

representing 27% are of the negative view on the aim of

business. The researcher draws the conclusion that

business organizations are for profit motives, except those

established by government for humanity purpose e.g. the

VVF center established in Ebonyi State by their Governors

wife.
Y – axis
100
73%
80

60

40
27%
20
0 X - aixis
True False
A histogram distribution

Figure 4 depicts a graphical representation of the response

 92

TABLE 4.2.7

DOES THE ORGANIZATION EMBARK ON COST-REDUCTION

PROGRAMME SO AS TO ATTAIN ITS MAXIMAL TARGET?

S/NO Response Frequency Percentage (%)

1 Yes 40 37

2 No 5 9

3 No idea 10 18

Total 55 100

Source: Field survey 2009

Table 4.2.7 depicts 40 respondents representing 73% of the

total respondents affirmative that the company attain its

target by embarking on cost reduction, 5 representing 9%

have a negative view while 10 representing 18% of the total

respondents said that they have no idea of this cost

reduction and standard.

The researcher interprets that organization attain its target

by adjustment in the various phase of production processes,

so as to cut-down waste and attain its target at a minimal

cost.
 93

TABLE 4.2.8

DETERMINING HOW COST REDUCTION MAY BE USED

TO REVIEW THE RELIABILITY OF COST CONTROL

S/NO Response Frequency Percentage (%)

1 Greatly 36 65

2 Fairly 19 35

Total 55 100

Source: Field survey 2009

In table 4.2.8 shows that 36 respondents representing 65%

of the total respondents in the company indicates that cost

reduction is a suitable tool to determine the reliability of

cost control, while 19 representing 35% is of the view of

uncertainty. However this is in reference to what the

executive manager said that cost reduction enables

organization to have a full knowledge of the organization’s

use of its resources.

Y – axis
100 94

80
65%
60

40 35%

20
0 X - aixis
True False

Figure 5: A Histogram distribution

Figure 5 above describes a graphical representation of the

response.

TABLE 4.2.9

DOES THE ORGANIZATION SET UP A STANDARD AS A

YARDSTICK IN ITS OPERATION?

S/NO Response Frequency Percentage (%)

1 Yes 45 82

2 No 0 0

3 No idea 10 18

Total 55 100

Source: Field survey 2009

Table 4.2.9 above shows that 45 respondents representing

82% of the total respondents of the company that standards

are used in the organization as a guide, none of the

respondents did not agree, while 10 respondents

 95

representing 18% have no idea about the existence of

standard in the company.

The researcher draws the conclusion mostly from the

discussion had with the chief executives that standards

help the company to eliminate unknown money and above

all it helps the organization to maintaining product quality,

reliability and performance.

Y – axis
100
82%
80

60

40 18%

20
0%
0 X - aixis
Yes No No idea

Figure 6: A Histogram distribution

Figure 6 depicts a graphical representation of the response.

 96

TABLE 4.2.10

IS COST CONTROL USED AS A MEASURE IN FACILITATING

CORPORATE PERFORMANCE OF THIS ORGANIZATION?

S/NO Response Frequency Percentage (%)

1 Yes 40 73

2 No 15 27

Total 55 100

Source: Field Study 2009

From table 4.2.10, 40 respondents representing 73% of the

total responses agree that cost control is a veritable tool

used to enhance, corporate profitability and performance

while 15 representing 27% where on the contrary.

In interpretation, cost control helps to alleviate the

performance of the organization.

Y – axis
100
73%
80

60

40 27%

20
0 X-axis
True False
Figure 7: Histogram distribution
 97

Figure 7 above shows a graphical representation of the

response.

TABLE 4.2.11

DOES THE ORGANIZATION NORMALLY MEET UP THE

SET STANDARD OF TARGET?

S/NO Response Frequency Percentage (%)

1 Yes 48 87

2 No 0 0

3 No idea 7 13

Total 55 100

Source: Field Study 2009

From table 4.2.11 above, 48 respondents representing 87%

of the total respondents said that the company meets up

with the set standard. None is on the contrary while 7

representing 13% have no idea about the set standards of

the company.

However the research concludes that Nigerian Breweries,

Aba in Abia State meets up with its standards.

 98

TABLE 4.2.12

DOES MANAGEMENT REVIEW ITS COST CONTROL SYSTEM

MEASURES AT REGULAR INTERVALS?

S/NO Response Frequency Percentage (%)

1 Yes 55 100

2 No 0 0

Total 55 100

Source: Field Study 2009

According to table 4.2.12, the total respondents 55

representing 100% reveals that management review the

company(s) cost control measures/system at regular

intervals while none did not agreed.

However these are in line with the researchers discussion

with the chief executive of the company, that cost tends to

be controlled o reviewed. Due to the floatation in the

economy, exchange market and incessant changes in

technology.
 99

TABLE 4.2.13

VARIANCE ANALYSIS IS THE INSTRUMENT USED TO

COMPARE THOSE FOUND IN THE ENTITY UNDER REVIEW
WITH THOSE TYPICALLY EXISTING IN THAT SECTOR OR
THE ECONOMY. HENCE, VARIANCE ANALYSIS FACTORS
CAN BE IDENTIFIED THAT WOULD NOT OTHERWISE BE
APPARENT. TRUE OR FALSE?
S/NO Response Frequency Percentage (%)

1 True 46 84

2 False 9 16

Total 55 100

Source: Field Study 2009

According to table 4.2.13, out of 55 respondents of the

company 46 respondents representing 84% indicates that

variance analysis enables management to identify the

magnitude of variation while 9 respondents representing

16% are on the contrary.

In interpretation, it is viewed that variance analysis aids the

chief executives to identify the department on which the

responsibility of the variance are laid.

Y – axis
100 100
84%
80

60

40
16%
20
X-axis
0
True False

A Histogram distribution

The above figure shows graphical representation of the

response.

TABLE 4.2.14

WITHOUT STANDARDS, VARIANCE ANALYSIS WOULD

BE LARGELY UNINFORMATIVE TO ALL BUT THE VERY
SKILLED. BUT WITH STANDARDS, VARIANCE ANALYSIS
CAN BE INTERPRETED AND USEFULLY APPLIED TO
SATISFY THE NEEDS OF THE MANAGEMENT TRUE OR
FALSE?
S/NO Response Frequency Percentage (%)

1 True 50 91

2 False 5 9

Total 55 100

Source: Field Study 2009

The table above depicts that 50 respondents representing

91% indicates that variance analysis is a vital tool that

 101

facilitate cost control. While 5 respondents representing 9%

did not agree.

TABLE 4.2.15

DOES COST CONTROL HELPS TO COMPARE THE

PERFORMANCE OF ONE COMPANY WITH THAT OF
ANOTHER IN THE SAME INDUSTRY.
S/NO Response Frequency Percentage (%)

1 Yes 28 51

2 No 16 29

3 No idea 11 20

Total 55 100

Source: Field Study 2009

The above table 4.2.15 depicts that 28 respondents
representing 51% of the total respondents can compare the
cost control of the company with others of other industry via
performance; 16 respondents represents representing 29%
cannot compare such performance and 11 respondents
representing 20% claimed to have no idea.
The researcher concludes that cost control works in
pari per suo with performance evaluation

4.3 TEST OF HYPOTHESIS

The testing of hypothesis Number 1
H0: Inefficient application of cost control leads to a decline
in profit level.
 102

H1 Efficient and adequate application of cost control leads

to increase in profit.
To test the above hypothesis, the data on table 4.2.3 and
4.2.5 are used.
General analysis of the table for chi-square
Table 4.3.1
Options E1 E2 Total

Yes 50 (52.5) 55 (52.5) 105

No 5 (2.5) 0 (2.5) 5

Total 55 55 100

Note: The figure E1 and E2 are from table 4.2.3 and 4.2.5
The figures before the parenthesis represent the

observed frequencies while those in the parenthesis

represent the expected frequencies. The expected

frequencies are calculated below.

E = Row total x Column total

Grand Total

Note: E’s represents Expected frequencies

E1 = 55 x 105

110 = 52.5

E2 = 55 x 5

110 = 2.5
 103

COMPUTATION OF CHI-SQUARES STATISTICS

Table 4.3.2

0 E 0-E (O)-E)2 (O-E)2/E

50 52.5 -2.5 6.25 0.12

55 52.5 2.5 6.25 0.12

5 2.5 2.5 6.25 2.5

0 2.5 -2.5 6.25 2.5

5.24

From the table 4.3.2 above calculated X2 (5.24). To

determine the tabular X2

Degree of freedom (DF) is used; thus: (r-1) (c-1)

Where: r = number of rows in table 4.3.1

c = number of columns in table 4.3.1

Therefore: (2 – 1) (2 – 1)

DF = 1(1) = 1

As stated earlier, the level of significance is assumed to be

0.05 (5%) and 0.95 (95%).

The level of confidence =1

Therefore degree of freedom we have 3.841.

 104

DECISION RULE.

Accept Ho if calculated X2 is less than the tabular X2 and

Reject Ho if calculated X2 is less than the tabular X2.

That is, Accept H0 < X2

Reject Ho > X2

CONCLUSION

From the workings above, it is observed that calculated X2

(5.24 > 3. 841).

Therefore, the researcher rejects the Ho and accepts H1,

which states that Efficient and adequate application of cost

control leads to increase in profitable margin of an

organization.

TESTING OF HYPOTHESIS NO. 2

Ho: Cost control is not used as a measure in facilitating

corporate profitability and performance.

H1: Cost control is used as a measure in facilitating

corporate profitability and performance.

To test the above hypothesis, the data on tables’ 4.2.1 and

4.2.10 are use

 105

Table 4.3.3

0ptions V1 V2 Total

Yes 53 (46.5) 40 (46.5) 93

No 2 (8.5) 15 (8.5) 17

Total 55 55 110

Note: The figure V1 and V2 are from table 4.2.1 and

and 4.2.10. The figure before the parenthesis represents the

observed frequencies while those in the parenthesis

represent the expected frequencies.

V3 = 55 X 93

110 = 46.5

V2 = 55 X 17

110 = 8.5

COMPUTATION OF CHI SQUARE STATISTICS

Table 4.3.2

O E O-E (O-E)2 (O-E)2/E

53 46.5 6.5 42.25 0.91
40 46.5 -6.5 42.25 0.91
2 8.5 -6.5 42.25 4.97
15 85 -6.5 42.25 4.97
11.76
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From the table above calculated X2 (11.76) to determine the

tabular X2 degree of freedom (DF) is used thus: (r – 1) (c –1)

Where r = number of rows in table 4.3.1

C = number of columns in table 4.3.1

Therefore: (2 – 1) (2 – 1)

DF = 1 (1) = 1

Level of significance = 0.05(5%)

The level of confidence = 1

Therefore degree of freedom we have 3.841

DECISION RULE

Accept Ho if calculated X2 is less than the tabular X2 and

Reject Ho if calculated X2 is greater than the tabular X2

That is, Accept Ho ≤ X2

Reject Ho ≥ X2

CONCLUSION

The working above shows that calculated X2 is greater than

the tabular X2 (11.76 ≥ 3.841). Therefore, the researcher

rejects the Ho and accepts H1, which states that cost control

is used as a measure in facilitating corporate prorate

profitability and performance.

 107

REFERENCES
Akachukwu C.O (2002), Statistical Analysis for Business, Val son
(WA) Ltd Enugu
Aham, A (1994),Data Collection and Analysis, Avan Global
publishers, Okigwe
 108

CHAPTER FIVE

SUMMARY, RECOMMENDATION AND CONCLUSION

5.1 SUMMARY OF FINDINGS

This study considered the impact and efficiency of cost

control system in corporate profitability. In other to attain

the objective of this research, a critical analysis of data and

material relevant to the study was conducted; and the

research questions answered. The following were revealed

during the study:

1. Cost control provides information, which aids the

management of the firm in making decisions

concerning business operations,

2. Cost control has been of great help to the management

of most firms towards the attainment of its objectives -

profit maximization,

3. Most business cannot exist profitably without the use

of cost control and reduction in their daily decision-

making.
4. Cost control was seen as a good exercise or

management tool in house keeping by avoiding

wasteful use of valuable resources, an encouraging

efficiency and cost consciousness.

5. The Study revealed that standards have a positive

 109

impact on corporate profitability because it simplify(s)

the design and manufacturing process, thereby set the

direction for everyone in the company.

6. The use of standards and cost control has fetched the

organization the opportunity to enter into markets where

other competitors could not meet the standards,

7. With the relationship, which exists between cost

control and profitability, profit has been on shoot up

due to effective and efficient control of cost from the

acquisition of material till production level.

8. With the use of cost control measures such as

standard costing, budgetary control responsibility

accounting etc the company has been able to measure

performance.

9. The organization establishes committees with

representation from different departments of the firms

for effective decision concerning the welfare of the

company.

10. Cost control can be used to bring to fore certain

hidden facts of ordering and store recording.

11. With the aid of variance analysis the management was

able to compare the actual performance with the

 110

budgeted.

12. In the absence of cost control, profits may be

drastically reduced despite a large and increasing sales

volume.

13. It was discovered that it is indispensable for achieving

greater productivity.

14. If the price of the product is stable and reasonable, it

can maintain higher sales and thus employment of

work force.

15. Cost control is essential in the following areas, Labour,

materials, sales, overheads, Energy etc.

5.2 RECOMMENDATIONS

Based on the findings above, the researcher

recommends the following to aid facilitate effective cost

control in the organization.

1. The organization should try an embrace the

technological and economic trends in the society.

These will be achieved by making its system elastic

that is change with the environment.

2. The technological controller who ensures that the

products meet its norm should emphasis much on the

 111

quality of the product. This will invariable improve the

level of productivity and profitability.

3. The management of the organization should encourage

the use of local raw materials. Using the local made

materials will lower the total cost of material usage,

thereby making cost control more efficient and

effective.

4. The management should also encourage the

employment of home expertise. Adequate education

and training should be given to them so as to enhance

their ability and enable them fit-in, in the organization

these could be through workshop or seminars at

regular intervals.

5. Grant them the opportunity to harness and harmonize

the cost control systems adopted by the organization.

This accord them the ability to ensure that it conform

with set plan.

CONCLUSION

This study revealed that the purpose of control is to

ensure that operations and performance conform to plan.

Therefore, cost control is a buy product of profitability.

 112

The impact and implication of this, shows that effective

and efficient control of cost yields a remarkable increase in

corporate profitability and performance. Finally, from the

foregoing management achieved its target by adopting the

steps of cost control, cost reduction programme and

recommendations set out in this study, infact it was

effectual.
 113

BIOGRAPHY
Adeniji, A.A (2008), An insight into: Management Accounting .

Printed by EL-TODA Ventures Ltd Lagos.

Aham, A (1994), Data Collection and Analysis, Avan Global

Publishers, Okigwe.

Aham, Anyanwu (2002), Research Methodology in Business and

Social Sciences Owerri Canun Publishers Nig.

Ltd.

Akachukwu, C.O (2002), Statistical Analysis for Business, Val

son (WA) Ltd Enugu.

Anyaogu C .M (1992), Management Accounting: A Financial

Approach, Tony Ben Publishers, Owerri.

Chukwu, C.C (2002), Finance and Accounts for Managers, Great

Britain Hazell Watson and Viney.

Eyisi, S.A. (2003), Cost Accounting, theories and practice,

Published by Val son (WA) Ltd Enugu.

Frank Wood and Alan Sangster (1999), Business Accounting 2:

Britain Pitman.

Ibemgbor, A. (2006), Cost and Management Accounting An

Integrated Approach Elkay Printers Lagos.

Jhingan,M.L and Stephen, J.K (2007), Managerial Economics

Vrinda Publication Ltd Delhi.

John Sizer (1969), An insight into Management Accounting,

 114

Britain Richard Clay

Lucey, T. (1984), Costing an instructional Manual, London Dp

Publishers.
Lucey, T. (2002), Costing Lexington Avenue New York.

Malz Adolph et at (1990), Cost Accounting Planning and Control New York:

South Western.

Meigs, W.B. et al (1977), Accounting: the basis for Business Decisions,

Megraw Hill book Company.

http://en. Wikipedia Org/Wiki/Cost Management Cited on 31/01/2009

http:// www.Astm. Org Cited on 15/08/2009

http://w\vw.Manufacturing.Com/background Cited on 05/03/2009

http://www.nbplc.com/ our company profile Cited on 05/03/2009

Millichamp. A.H (1984 ), Foundation Accounting, Britain Guerney press.

Ngwakwe. C. C (1999), Introduction to cost and Management

Accounting Creative Education Management, Consultant
Owerri.
Okafor, F.O (1983), Investment Decisions: Evaluation of project and
secuntJes Gostak printing Publishing Company Ltd.

Okoye P.V.C (1999), Cost and Management Accounting, Basic

Concept,Application and issues (the ABC) approach,

Published by Snap press Ltd, Enugu.

Osuala, E.C (1987), Introduction To Whom It May Concern:Rsearch

Methodology New Ed African Feb Publishers.

 115

Pandy,1. M (1999), Financial Management (8thed) Delhi Vikas House

PVT Ltd.

Peters, M.O (1992), Cost Accounting Ibadan Gbabeks Publishers.

Warren, R..F (1997), Financial and Management Accounting

5thed Western College Publishing Company Cincinnati.

Wilson, R.M.S (1975), Cost Control Hand Book, New York,USA

John Wilrey and Sons Inc.

 116

APPENDIX A

CRITICAL VALUES OF X2 FOR VARIOUS LEVELS OF

SIGNIFICANCE

Degree of freedom

0.09 0.05 0.0.1

1 .00393 3.841 6.635

2 .103 5.991 9.210

3 .352 7.815 11.345

4 .711 9.488 13.277

5 1.145 11.070 15.086

6 1.635 12.592 16.812

7 2.167 14.067 18.475

8 2.733 15.507 20.090

9 3.325 13.919 21.666

10 3.940 18.307 23.209

 117

School of Post Graduate Studies

Department of Accountancy
University of Nigeria, Enugu
Campus
15th January 2009.

Dear Sir /Madam,

INTRODUCTION LETTER

I am a student of the above named department and

University. I currently engaged in conducting a research on "An

appraisal of the impact and efficiency of cost control system on

corporate profitability (A case of selected manufacturing firms).

The research is purely an academic work as part of the

requirements for award of Masters of Business Administration

(MBA) in Accountancy. Your operation is rightly needed, as all

information given would be treated in strict confidence.

I appreciate your co-operation.

Yours faithfully,

NNENNA MARIA ISU.

 118

APPENDIX B

1. Sex distribution of respondents

(a) Male (b) Female

2. The distribution of service year of respondents

(a) Below yr 1 (b) Between 1-5yrs

(c) 6yrs and above

3. The organization hierarchy of the company

(a) Administrative staff (b) Management staff

(c) Operational staff (d) Others

4. Does management relay on cost control in making decision?

(a) True (b) False

5. How efficiently are cost control measures applied in this

company?

(a) Most efficiently (b) Fairly efficiently

(c) Inefficient

6. Does cost control have a significant influence on the profit

margin of this organization (a) Yes

(b) No

7. Does cost have a co-related influence in corporate

performance and profitability? (a) Excellently

 119

(b) Greatly (c) Fairly

8. How does the profit margin of this organization looked like?

(a) Very High (b) High (c) Moderate

(d)Low

9. Do you termed the profit of this organization high when cost

is controlled? (a) Yes (b) No

(c) No idea

10. The precise objectives of the organization is

(a) Profit maximization and increasing owners wealth

(b) Managerial efficiency and effectiveness

(c) Providing service to the people

(d) All of the above

11. Does the organization embark on cost reduction programme

so as to attain its maximal target? (a) Yes (b) No

(c) No idea

12. Is cost control used as a measure in facilitating corporate

profitability and performance of this organization? (a) Yes

(b) No

13. If yes to question “12” to what extent has cost control

helped in determining the progress in this organization.

(a) Greatly (b) Fairly

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14. Determining how cost reduction may be used to review the

reliability of cost control. (a) Greatly (b) Fairly

15. Does the organization set up standard as a yardstick in its

operation. (a) Yes (b) No (c) No idea

16. Does the organization normally meet up the set standards

or target? (a) Yes (b) No (c) No idea

17. Is this organization computerizes in the course of its

activities. (a) Yes (b) No

18. Does management review its cost control system/measures

at regular intervals (a) Yes (b) No

19. Does the organization used cost reduction in reviewing the

reliability of cost control. (a) Yes (b) No

(c) No idea

20. Who is responsible for setting standards in this

organization?

(a) Finance department

(b) Production department

(c) Personnel and department heads

(d) All of the above

21. Variance analysis are the instrument used to compare those

found in entity under review with those typical existing in

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that sector of the economy. Hence, variance analysis factors

can be identified that would not otherwise be apparent true

of false? (a) True (b) False

22. Without standards, variance analysis would be largely

uninformative to all but the very skilled. But standards

variance analysis can be interpreted and usefully applied to

satisfy the needs of the management. True or false?

(a) True (b) False

23. Does cost control helps to compare the performance of one

company with that of another in the same industry.

(a) Yes (b) No (c) No idea