Impact of Cost on Profitability of Firms: A Case Study of Selected Block Industries, Kubwa Abuja
Chapter One
OBJECTIVE OF THE STUDY
This research study is directed towards enabling management of Selected block industries to know the importance of cost control and its impact on profitability. It provides the management with the following;
- To examine the relationship that exist between cost and control in profitability.
- To examine the cost control instruments mostly used for cutting down expenses thereby attaining maximum profitability.
- To examine the extent to which cost can be controlled by the firm for the reasons of profitability.
- To examine the cost factors relevant in controlling costs in an firm.
- To ascertain the impact of the adjustment in the cost on the profitability of a given company.
CHAPTER TWO
LITERATURE REVIEW
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 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:
- Planning: Initially a plan or set of targets is established in the form of budgets, standards or estimates.
- Communication: The plan is communicated to those whose responsibility is to implement the plan.
- 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.
- Appraisal: Comparison has to be made with the predetermined targets and actual performance. Deviations are noted and corrective action taken.
- 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 commercial firm 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.
CHAPTER THREE
RESEARCH METHODOLOGY
RESERCH DESIGN
This study was employed a descriptive research design method. The scope of this research work will cover the collection of data from all the firmal hierarchy and levels of management of the company. The rationales behind the efficiency and impact of cost control measures on profitability will be explored. The data collected would assist the researcher to establish whether the firm has an adequate analysis or control in the operation of the firm 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.
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 firmal hierarchy of the 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
- Primary Data
- 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 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, Firmal profits, Lecture notes relating to cost control as aid in obtaining corporate profitability.
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 firm. 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 profitability.
CHAPTER FOUR
PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA.
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 Selected block industries, Kubwa in Abuja.
CHAPTER FIVE
SUMMARY, RECOMMENDATION AND CONCLUSION
SUMMARY OF FINDINGS
This study considered the impact and efficiency of cost control system in 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:
- Cost control provides information, which aids the management of the firm in making decisions concerning business operations,
- Cost control has been of great help to the management of most firms towards the attainment of its objectives – profitability,
- Most business cannot exist profitably without the use of cost control and reduction in their daily decision-making.
- 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.
- The Study revealed that standards have a positive impact on profitability because it simplify(s) the design and manufacturing process, thereby set the direction for everyone in the company.
- The use of standards and cost control has fetched the firm the opportunity to enter into markets where other competitors could not meet the standards,
- 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.
- With the use of cost control measures such as standard costing, budgetary control responsibility accounting etc the company has been able to measure performance.
- The firm establishes committees with representation from different departments of the firms for effective decision concerning the welfare of the company.
- Cost control can be used to bring to fore certain hidden facts of ordering and store recording.
- With the aid of variance analysis the management was able to compare the actual performance with the budgeted.
- In the absence of cost control, profits may be drastically reduced despite a large and increasing sales volume.
- It was discovered that it is indispensable for achieving greater productivity.
- If the price of the product is stable and reasonable, it can maintain higher sales and thus employment of work force.
- Cost control is essential in the following areas, Labour, materials, sales, overheads, Energy etc.
RECOMMENDATIONS
Based on the findings above, the researcher recommends the following to aid facilitate effective cost control in the firm.
- The firm 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.
- The technological controller who ensures that the products meet its norm should emphasis much on the quality of the product. This will invariable improve the level of productivity and profitability.
- The management of the firm 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.
- 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 firm these could be through workshop or seminars at regular intervals.
- Grant them the opportunity to harness and harmonize the cost control systems adopted by the firm. 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.
The impact and implication of this, shows that effective and efficient control of cost yields a remarkable increase in 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 impactual.
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