ANALYSIS AND CONTROL OF COST OF PRODUCTION IN A MANUFACTURING FIRM (A CASE STUDY OF INNOSON COMPANY NIGERIA LIMITED)
ABSTRACT
The topic of this research project entitled “Analysis and control of cost of production in manufacturing firms” cannot be over emphasized in this modern scientific and technological era. Companies and individual firms are engaged in the production. The goals and objectives of these organizations are to maximize profit and to pay wages and salaries to their employees for their service rendered. These goals and objectives can be achieved only by means of controlling unit cost of production. Ineffective control of cost of production has a negative effect on the profitability of the firm. For instance, the purchase of wrong quality and / or quantity of materials or the use of wrong labour services can affect production adversely in this research project, efforts were made to assess that relevant of control of cost of production to management, partners and owners of sole proprietorship firms who are involved in the production process. Cost of production as used here consist of those cost (expenses) incurred in the process of producing a particular product/products. However, the researcher has taken pains to draw data from the works of many authors. Such works include test-books in all forms, magazines and encyclopedias. Besides the extensive use of literature, other methods of data collection were also incorporated. Such methods include observations, interviews and questionnaires – observation was done in different manufacturing firms within Enugu metropolis. Interviews were also carried out with businessmen and management of Innoson Nigeria limited. Also the questionnaire were designed for officers in management Cardre in both public and private manufacturing firms.
TABLE OF CONTENT
Title page - - - - - - - - -
Approval - - - - - - - - -
Dedication - - - - - - - - -
Acknowledgment - - - - - - - -
Abstract - - - - - - - -
Table of content - - - - - - - -
CHAPTER ONE
1.1 Background of study - - - - - - -
1.2 Statement of problem - - - - - -
1.3 Objective of the study - - - - - -
1.4 Hypothesis - - - - - -
1.5 Significance of study - - - - - -
1.6 Scope and Limitations of study - - - - -
1.7 Definition of term - - - - -
References - - - - -
CHAPTER TWO
2.0 Review of literature - - - - - - -
2.1 Natures and classification of cost concept of cost -
2.2 Cost control - - - - - - -
2.3 Production cost - - - - - - -
2.4 Accounting for elements of production cost - -
2.5 Accounting for material cost - - - - -
2.6 Accounting for labour cost - - - - -
2.7 Accounting for Overhead cost - - - - -
2.8 Controls - - - - -
2.9 Inventory controls - - - - -
2.10 Production cost control - - - - -
2.11 Material cost control - - - - -
2.12 Labour cost control - - - - -
2.13 Cost control methods - - - - -
2.14 Budgetary control system - - - - -
2.15 Standard costing system - - - - -
2.16 Variance - - - - -
Reference - - - - -
CHAPTER THREE
3.0 Research design and methodology - - - -
3.1 Research design - - - -
3.2 Source of data - - - -
3.3 Population and sample size determination - -
3.4 Description of respondent - - - -
3.5 Method of investigation - - - -
CHAPTER FOUR
4.0 Presentation, Analysis and Interpretation of data -
4.1 Analysis of data - - - -
4.2 Test of hypothesis - - -
CHAPTER FIVE
5.0 Findings Conclusion and Recommendations - -
5.1 Summary of findings - -
5.2 Conclusions - -
5.3 Recommendations - -
References - -
Appendix - -
PROPOSAL
This work is proposed to investigate the analysis and control of cost of production in a manufacturing firm with specific reference to the costing instructional manual and Innoson Company Nigerian Limited. Determining the relevance of cost control, production cost, production control, classification of cost, and elements of cost in a manufacturing firm with particular reference to costing instructional manual necessitate this research.
Analysis and control of cost of production in a manufacturing firm have been known to influence manufacturing firm and co-operative organization in particular. The analysis and control of cost of production in a manufacturing firm which has no much positive influence in the world market today has also contributed to the undoing of many manufacturing companies and co-operate organizations.
There fore this research shall attempt to determine the analysis and control of cost of production in a manufacturing firm, whether or not it has enhanced and improved the service rendered by the control of cost of production. It shall also determine the various ways of cost control methods, and how they contributed to the growth of a manufacturing firm in an economy of a nation.
In this research both primary and secondary methods of data collection shall be employed to collect data for possible solution of the problem. The total population space to be covered in this research shall include both the personnel (Area or Branch Manager) and some eligible workers in a manufacturing firm like Innoson Company Nig Ltd.
The tools of this study is mainly that of questionnaires, other statistical instruments may be employed too without neglecting oral communications as a means of arriving at the solutions to the research which I have set out to do.
Finally depending on the outcome of this study, recommendation shall be made as ways of improvement to the analysis and control of cost of production in a manufacturing firm like Innoson Nig Ltd and manufacturing companies in Nigeria in particular
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The primary objective of every business organization is to maintain efficient and effective management in order to achieve growth. But the task of achieving this objective is not attainable in a manufacturing firm where there is poor control of production cost.
Manufacturing firms in West Africa, particularly in Nigeria have experienced various set books due to poor control of cost of production. It is against this back drop that this subject entitled “Analysis and control of cost of production in manufacturing firms” is of interest to the researcher. The study is limited to manufacturing firms, for the relevance of production management otherwise known as control of cost of production in these establishments.
During the military rule, the federal military government imposed a ban on the importation of some essential raw materials and other items. This ban made most Nigerian manufacturing firms to search for new forms of production patterns that will provide a hedge against our turbulent and dynamic economic environment. Prior to this era, majority of our manufacturing firms have wasted valuable resources as a result of lack of interest in the area of control of production cost. It is hence, not surprising that waste and other vices that characterized the oil boom era are still prevailing in most of our manufacturing establishments.
Wasting, fine and Gary (1979:4), emphasized that the efficiency of nay business in predicated upon having adequate material supplies equipment available in the right quantity or quality at the proper time, place and price.
Ineffective control of production cost has a direct negative effect on the profitability of the firms. For instance, the purchase or supply of wrong quantity or quality of materials or even wrong delivery of materials can affect profitability adversely.
Hence for any manufacturing establishment to be functioning accurately, it must take adequate measures towards analyzing and controlling cost of production in order to ensure that the interest of their customers and organization goals are met. Profit maximization is recognized as one of the objectives of these manufacturing firms. Profit is recognized as excess of total revenue over total cost during a specific period of time. To achieve this profit making objective, control must be exercised over cost of production. Today, most manufacturing firms are in serious profit squeeze. They struggle to maintain satisfactory earning in a situation where costs are increasing. Government stabilization measures which are aimed at re-structuring and improving the economy are not helping matters, rather causing increase in price of commodities as a result of increase in cost of inputs. To maintain a stable production system in the face of these conditions many manufacturing establishments are taking bold steps to control if not reduce cost, eliminate waste and increase profitability (Productivity) automation and improved technological techniques are helping to control and on reduce cost, but not sufficient to mention.
Therefore, the motive of this researcher is to critically examine and analyze various production components with great emphasis on control measures being used by manufacturing establishments, using Innoson company (Nig) limited, Enugu as a case study.
1.2 STATEMENT OF PROBLEM
Analysis and control of cost of production is a very important aspect that lead not only in the sustenance of manufacturing firms but also help in the improvement and achievement of growth and higher profitability. Marketing environmental forces such as price, customers, competitors, suppliers political, legal, social, natural and economic forces have been some of the nagging problems facing manufacturing firms. According to Okafor (1995:19) these are uncontrollable elements that make difficult the attainment of a firms objective. Lack of material control system is also a problem factor production management in manufacturing firms. Most Nigerian manufacturing firms do not have good materials control system. The negative effect of this is that wrong quantity and quality of materials can be purchased at a higher price, thereby increasing the cost of production. More so, most manufacturing establishments operating in Nigeria have a poor labour control system. The personnel and production unit of most manufacturing establishment are not functional.
Equally, the inability of management of most of these manufacturing firms to effectively control operational cost had resulted in variance between actual production cost and budgeted production cost which could lead to inefficient manufacturing or business failure.
In line with the foregoing situations, the researcher believes, affect the profitability of the business, which is the child of effective and efficient manufacturing. Attention will be paid in this study to materials and storage space, which must be adequate according to the nature of materials purchased and shored. Assigning the onus of material procurement to a specific department within the organization and proper materials inspection by responsible department.
Also, the research aimed at finding out good cost control measures in manufacturing firms determining the organizational structure of the business according to its operation in terms of production of goods and services.
1.3 OBJECTIVE OF THE STUDY
As mentioned earlier, the goal of every business is (or should be) profit maximization, the management of most Nigeria manufacturing establishments, exist primarily for this motive hence, the concern otherwise known as objectives of this study is as follows:
i. To evaluate the internal control system of manufacturing establishments in order to come out with realistic and feasible proposal on how idle capacities, both in labour and materials could be eliminated.
ii. To find out inherent deficiency involved in production management and recommend approaches to proper design, installation and operation of an adequate and good cost/production management system.
iii. To ascertain whether the present level of performance of manufacturing firms are adequate for their existence.
iv. It is also hoped that the study would be a guide for future decision-makers and serve as a benchmark for future research students in the field of production cost control.
1.4 RESEARCH HYPOTHESIS
As regards the research, the writer has put forward these hypotheses.
H0: Careful purchase, handling and storage of materials do not lead to efficiency in the workflow in manufacturing firms.
H1: Careful purchase, handling and storage of materials lead to efficiency the work flow in manufacturing firms
H0: Effective and efficient analysis and control of cost of production does not lead to higher profitability in manufacturing establishments.
H1: Effective and efficient analysis and control of cost of production lead to higher profitability in manufacturing establishments.
H0: The problem of failure in the management and control of cost of production is as a result of bad management.
H1: The problem of failure in the management and control of production is not as a result of bad management.
1.5 SIGNIFICANCE OF THE STUDY
Since production cost constitutes a major proportion of manufacturing firms operating cost, the study interded to be of benefit to manufacturing establishments and to Innoson company (Nig) limited in particular. It is hoped that, it will go a long way to enhance the effective and efficient control production cost so as to enable management to stay in business. Following the completion of this work and the result made available to management of the manufacturing firms will be in a position to reduce production cost to the minimum level in order to achieve their desire profit motive. In addition, the study will be of benefit to other decision makers and future research scholars carrying on research work on related or the same problem.
1.6 SCOPE AND LIMITATIONS OF THE STUDY
Analysis and control of cost of production is a very vast area of study that time and space would not allow one to carryout a detailed study of the whole. Hence, attention is paid only to manufacturing firms with special reference to Innoson Company (Nig) Ltd Enugu.
These firms deals with the procurement of raw materials for further production. These materials have to be effectively and efficiently planned for, procured and controlled if the company wants to succeed as a going concern. Since, the study is intended to underlining the basic need and benefit derived from maintaining good cost and control system by manufacturing firms, it is better we look at the issue from the point of view of production management.
Generally, all such areas that pertain to production cost, all techniques for their control and the use of established standards and budgets, their soudness and weakness would be examined.
Actually, research of this nature cannot be carried out without encountering some limitations in the process. Certain limitations posed a great deal of problems to the research, and restructure nature of the company’s policy to visitors on sensitive areas of production hundred an in-depth study of the production cost control.
1.7 DEFINITION OF TERMS
Cost:
This is the actual or normal amount of money spent in buying a commodity or services. It is also a sacrifice made in order to obtain another thing.
Cost Control:
Cost control is a logical structure of activities designed to analyze and evaluate how expend are managed during a given period of time controls are methods or measures instituted by management to ensure that performance do not fall below standard.
Cost Reduction
This refers to the process of lowering current costs, especially those that may be in excess of what is necessary.
Labour
Labour is all human effort of any kind, manual or mental, skilled or unskilled, used in the productive process that attracts some form of rewards.
Materials
These are the principal substances required in any production process. They represent those tangible and touchable items, which are employed in the production process before production can take place.
Manufacturing Firms
These are establishments that combine men materials and machinery in an effective and efficient manner with the aim of producing goods for human consumption.
Overhead
Overhead is the aggregate of indirect materials, indirect labour and other factory expenditures that cannot be traced to the finished product.
Production Cost:
This is the aggregate of direct materials, direct labour and factory overhead cost that have been accumulated by some natural classification and allocated so as to reflect the cost involved in the production of an item.
Production Control:
This is the function of management which involved planning directing and controlling of materials supply and processing activities of an enterprise, so that specified product are produced by specified methods to meet the approved production objective.
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