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THE IMPACT OF COST CONTROL SYSTEM IN MANUFACTURING INDUSTRY
INTRODUCTION
INTRODUCTION
BACKGROUND OF THE STUDY
The competitive nature of today’s business world coupled with the need for persistent cost reduction and continuous profitability have made it imperative for an organization to be aware of its cost components. This is to ensure that it products are made and sold at least possible price and this is where cost control come into act as a compass to the managers in their daily endeavors of achieving the corporate objectives of the organization and those of the shareholders.
Cost control is the practice of managing and or reducing business expenses. Cost control starts by the business identifying what their costs are and evaluate whether those costs are reasonable and affordable. The, if necessary, they can look for ways to cut costs through method such as cutting back, moving to a less expensive plan or changing service providers.
The analysis involves the study of certain specialized cost concepts such as fixed and variable costs, control cost, differential cost, replacement cost, sunk cost, inventorial cost etc.
The concept of cost control has to do with various means by which management ensures that their cost element do not get out of hand.
According to Malomo (1999), control in the management sense is the “process by which managers ensure that resources are obtained and used effectively and efficiently in the production or manufacturing of goods and services.
Thus, cost control or cost minimization is something that must be going on at all times.
Buttressing this facts Drury (1948), says for cost control to be of greatest utility “it must be in continuous operation so that as waste and efficiency enters the picture, hat are spotted it once before losses have had a chance to accumulate.” Cost control system is really an indispensable tool for an organization to pursue it cost minimization and control objectives and obtains the best fit within its competitive business environment
STATEMENT OF THE PROBLEM
For an effective and efficient internal and cost control, the management of every production firm is usually concerned with the setting up of rules and regulations including policies which are comprehensive enough to cover or apply to all functional areas of the organization which consists of cost reduction function carried out by the generality of the employees on a day to day basis. Hence, for any limited resources available to produce a higher output for the profit maximization and to be able to compare their actual cost to the budgeted cost.
Therefore, viewed from the above angle, one can see to be an obvious agreement between outlined management movable asset physical cash, inventory salary payment, Banking services, other assets and daily management routine. Related problems which face them are being associated with the following shortcomings:
The sources and application of fund mishandling
Inefficient cost control system
Management weakness or inefficiencies cost allocation to the various sectors concerned
poor motivation of employees
the above effect the profitability, growth and smooth running of most production sectors and at the end of this research study the management of any producing sector shall be able to know the effect of proper cost control system in any field of their business focus.
1.2 OBJECTIVES OF THE STUDY
The objective of this research is to investigate the impact which an effective and efficient cost control system could have in drastically reducing lapses which could be costly to the enterprise if taken for granted.
The main objectives of the study are as follows:
To know how effective cost control are being administered during each production
To determine the actual and budgetary cost control on every product of each production
To ascertain the costing system in the production sector
To determine the costing inventories
To identify some of the factors militating against effective cost control system and make necessary suggestions for the improvement and effective cost control system.
1.3 RESEARCH HYPOTHESIS
The following three hypotheses were tested in this study:
Let HO: Null hypotheses
HI: Alternative hypotheses
HO: cost controlling information does not ensure cost consciousness and profit mindedness.
HO: the current cost reduction policies of Mighty God investment are not very effective in enhancing the profitability of the organization
HO: separate cost controlling department/unit is not desirable for cost management
HI: separate cost controlling department/unit is desirable for effective management.
1.4 SIGNIFICANCE OF THE STUDY
It is obvious that this research study is of great importance not only of Mighty God investment but also to all production/manufacturing concerns in Nigeria because of the cost control involved. The lack of education and general awareness undoubtedly could be pointed out as one of the reasons for this unpleasant scenario in our economy today. Hence, he study becomes inevitable as:
It will help the Nigerian production sector to know the importance of cost reduction scheme and control in their business
It will sensitize them on how best cost control can be achieved
It will expose the consequence of an enterprise without efficient and effective cost control
It will educate both the management and staffs on the importance of cost control.
It would also correct erroneous notion that the cost control system is not too vital in the profit making process of any sector
SCOPE AND LIMITATIONS OF THE STUDY
At this point it is very necessary to define the scope of this study, especially what the study centers around:
Mighty God investment
Only those areas of cost control concerned with the cost management and cost minimization
Appraisal of the costing policies of the organization under study with the aim of ascertaining its efficiencies and effectiveness
1.3 RESEARCH METHODOLOGY
RESEARCH DESIGN
The study research design method was employed to conduct the research because in survey elements of the study population cannot be subjected to control situation. (adamu and Tinuke 1985)
SAMPLING, DESIGN AND PROCEDURE
Stratified random sampling method was used to draw the sampling size of the study because the populationwas non-homogeneous.
DATA COLLETION INSTRUMENTS
The following data collection instruments were used
Questionnaire
Oral interview
Observation
SOURCES OF DATA
The study made extensive use of both primary and secondary data
PROCEDURES FOR PROCESSING COLLECTED DATA
The researcher made use of table, comparative percentages in additions to chi-square test in processing and analyzing the data collection for this study.
DEFINITION OF TERMS
Cost control system like any other course has it own peculiar terms. Some of the terms are as follows:
Cost management: this consist of those actions that are taken by managers to reduce costs, some of which are privatized on the basis of information extracted from the cost system. Drury (2000)
Cost consciousness: this is continuously being aware of cost implication of any managerial decisions or actions.
Cost of inventories: these are the costs incurred in the process of obtaining or ordering raw materials components or parts from suppliers
Competitive: these are goods that are cheaper than similar goods
Profit-mindedness: this is the continual focusing on profits as the only factor for the survival of a business in the long run
Strategic planning: this is the process of setting long term survival policies and targets of an organization
Fixed cost: this are cost items that will always remain constant and unchanged regardless of the level of activities
Variable cost: this is the cost item that moves or varies in direct proportion with the level of activities
1.8 PLAN OF THE STUDY
This research work has been planned to cover Mighty God investment, chapter one is the introduction part that gives insight for the reader and chapter two is literature review carried out.
The research is a case study of Mighty God investment and it will be in chapter three that the data analysis, data collection is chapter four while summary, conclusions and recommendations is chapter five.
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