the effect of cost control on profit maximization (a case study of nigeria bag manufacturing company) plc, iganmu lagos state

THE EFFECT OF COST CONTROL ON PROFIT MAXIMIZATION (A CASE STUDY OF NIGERIA BAG MANUFACTURING COMPANY) PLC, IGANMU LAGOS STATE

ABSTRACT

The theme of this study considered the impact and efficiency of cost control system in corporate profitability (a case of the Nigeria Bag Manufacturing Company, Iganmu, Lagos 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.

THE EFFECT OF COST CONTROL ON PROFIT MAXIMIZATION (A CASE STUDY OF NIGERIA BAG MANUFACTURING COMPANY) PLC, IGANMU LAGOS STATE

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 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 comprise 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.

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 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 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.
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

This 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

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 increase 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 benefits derivable from cost control. Increase revenue will

subsequently boost infrastructures facilities.

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