Appraising the Impact of Costing Techniques on Profitability
CHAPTER ONE
OBJECTIVES OF THE STUDY
The objectives of the study are to find out the following;
- i) To examine if the impact of costing technique aid in the profitability of an organization.
- ii) To find out if the appropriate costing technique is being adopted by Mosmann Water Company Limited.
- To determine whether costing techniques help in the ascertainment of costs of a specified thing.
- To find out the problems associated with the application of costing techniques in an organization.
- To make useful recommendations based on research findings.
CHAPTER TWO
LITERATURE REVIEW
Theoretical Framework
Clark’s Dynamic Theory of Profit (1991), suggest that profit is a residue, the difference between price and costs, due to the reductions in the cost effected by changes in the economy such as population increase (this reduces wages), increased capital supply (this reduces the interest rate charged and hence the cost of capital comes down), innovations (reduces costs), higher inventory (windfall profits occur when the cost of production remains the same but the price shoots up perhaps due to inflation or higher demand), forms of organisation (reduces costs), technological improvements (reduces the costs). This theory is also known as windfall theory of profits. This theory treats profits as a residue in price after deducting costs, hence it is a residual theory of profits. The static economy is one in which the things do not change significantly or remains unchanged. Such as, the population and capital remain stationary, goods continue to be homogeneous, production process remains unchanged, and the factors of production enjoy freedom but does not move because the marginal product in each industry remains the same. Also, there is no uncertainty and risk. On the contrary, the dynamic economy is characterized by the generic changes such as an increase in population, improvement in production techniques, change and increase in the consumer demands, changes in the organizational forms, increase in capital. The major function of an entrepreneur is to work in a dynamic economy to take the advantage of these changes and promote his business, reduce costs, and expand sales (Horngren, 2005). 9 lark believed that those entrepreneurs who successfully take the advantage of these changes in he dynamic economy make the pure profit, which is in addition to the normal profit. Pure profits ~re short lived because, in the long run, the competitors imitate the changes initiated by the eader. As a result, the demand for the factors of production increases, thereby increasing the [actor prices and the overall cost of production. On the other hand, with an increase in the output, the price of a product declines for a given level of demand as a result of which the pure profits iisappears (Kellerman, 2010). Thus, according to Clark, the profit is an elusive amount which can be grasped, but cannot be held by an entrepreneur as it slips through the fingers and bestows itself to all the society members. Clark’s dynamic theory of profit should not be misinterpreted as, the profits in the dynamic economy remain for a short period of time and then disappears forever. But, however, generic changes take place frequently, and the manager or entrepreneur through his foresight must capitalize on it and continue to make a profit in excess of the normal profit (Shrank, 2001).
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain appraising the impact of costing techniques on profitability. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of appraising the impact of costing techniques on profitability
Summary
This study was on appraising the impact of costing techniques on profitability. Six objectives were raised which included; To examine if the impact of costing technique aid in the profitability of an organization, to find out if the appropriate costing technique is being adopted by Mosmann Water Company Limited, to determine whether costing techniques help in the ascertainment of costs of a specified thing, to find out the problems associated with the application of costing techniques in an organization and to make useful recommendations based on research findings. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from CBN. Hypothesis was tested using Chi-Square statistical tool (SPSS).
Conclusion
If the principles and costing techniques is being adopted and practiced in organization, it serves as a tool for improvement of profitability. This sis so because it enhances adequate planning, control and decision making processes in the company. It should be noted that there is a dire need to keep proper accounting record in the company so as to measure the extent to which standard costing improves profitability. The findings of this research shows that when the principles and techniques of standard costing are consistently applied in the company, it aids in the decision making process of the management, helps in achieving greater profits, it extremely helps in cost control, helps in the elimination of unprofitable products, and also strengthens the relationship between costing techniques and profitability in manufacturing companies. It can also be out rightly concluded based on the findings of this research that the application of standard costing has greater effects on the profitability of companies and that the principle of standard costing and standard costing techniques are being adopted and practiced in Nigerian companies.
Recommendation
That the company should provide a cost unit to take the responsibility of standard costing.
That the cost unit should exclusively be responsible for providing standard costing information in the company.
That the managers who object to standard costing should be educated on the relevance of costing technique to the company.
Adherence to the costing techniques information should be practiced by the top management as it is a tool for the improvement of profit in the company as concluded in this chapter
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