APPRAISING THE IMPACT OF COSTING TECHNIQUES ON PROFITABILITY

Abstract

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).

 

Chapter one

Introduction

1.1Background of the study

An increase in manufacturing costs and reduced sales revenue which has added to reduced profitability in the Manufacturing sector has produced the need for me to address the problem through this research. Mapakame (2014) reported that businesses and in particular the manufacturing companies are finding it difficult to increase their profits and sales volumes due to various factors. In an economy where consumer’s disposable incomes are very low, a few companies are experiencing any meaningful increases in market share or sales volumes. Reduced growth prospects are being accompanied by increased costs. Generally, the costs of production and other operational costs in this economy are very high as noted by Lynton-Edwards Securities (Mapakame, 2014, p. 4). Reduced sales volumes and high cost of production has led to reduced profitability in these industries. Faced with limited sales growth prospects, companies have to focus on costs which are a major determinant in profitability level. Costing techniques have had and need to be used in manufacturing companies to control and reduce costs to such levels which aid profitability (Mapakame, 2014).

Bloch (2014) reported on how the manufacturing sector has declined with many enterprises ceasing operations and others downsizing production levels. Factors which contributed to this decline since 2008 include rampant hyperinflation, which consequently led to increased production costs, reduced consumer disposable income and minimal availability of investment. Bloch (2014) reported that, although there has been improvement after dollarization, inflation was combated and an „upward surge in manufacturing costs‟…immense surges in wages and salaries, materials and other costs‟ were main contributors to increased costs. There is no doubt that increased costs affect negatively the operations, profitability and performance of an enterprise (Bloch, 2014).

 1.2    STATEMENT OF THE PROBLEM

The rapid increase in competition among organizations has brought about an increase in awareness of profitability and the cost associated with the delivery of products and services.

These bring into question the relevance of traditional accounting information for decision making, conventional and managerial accounting information is largely driven by the procedures of the organizations reporting system which provides information that is to be aggregated and used. The problem is how to use this information to be planning and controlling of decision, vis avis profitability.

1.3    OBJECTIVES OF THE STUDY

The objectives of the study are to find out the following;

1. i) To examine if the impact of costing technique aid in the profitability of an organization.
2. ii) To find out if the appropriate costing technique is being adopted by Mosmann Water Company Limited.
3. To determine whether costing techniques help in the ascertainment of costs of a specified thing.
4. To find out the problems associated with the application of costing techniques in an organization.
5. To make useful recommendations based on research findings.

1.5    RESEARCH HYPOTHESES

HYPOTHESES 1

HO:    There is no significant difference between costing techniques and profitability in an organization.

Hi:     There is a significant difference between costing techniques and probability in an organization.

HYPOTHESES 2

HO:    Costing techniques does not help in the ascertainment of a specified thing.

Hi:     Costing techniques do help in the ascertainment of a cost.

1.6    SIGNIFICANCE OF THE STUDY

The ultimate goal of any industry or organization is to maximize profit. The goal can be achieve in the manufacturing or production company like Mosmann Water Company Uyo, through costing techniques on the probability of an organization.

The study is necessary because it would enable the employer and employee of Mosmann Water Company Limited to improve on the ethical behaviour in the management of the company.

It would be of immense benefits to investors who want to invest in the company and the shareholders of the company to earn more profit. It would also serve as a reference material (source) to researchers who might want to further studies in similar topic.

1.7    SCOPE OF THE STUDY

This study centered on appraising the impact of costing techniques on probability with a particular reference to Mosmann Water Company Limited, Uyo.

1.8    LIMITATION OF THE STDUY

This study is limited to the following ways;

• TIME CONSTRAINT: The period within which the study is conducted is short for through research study; hence, gathering adequate information becomes very difficult.
• FINANCE: This is one of the limitations to the scope of this study as the researcher is facing financial constraint to meet all the needed educational requirements including this research work. This caused the researcher to restrict her research work to one organization for possible study.
• LACK OF MATERIALS: Lack of materials to topic is also another limitation to this research work, hence the researcher resolved to seek friendly approach in order to obtain the needed materials or information from the establishment under this study through the administration of questionnaire and oral interview.

1.9    DEFINITION OF TERMS

• COST: According to CIMA defined cost as the amount of expenditure (actual or national) incurred on, or attributable to a specified thing or activity.
• COSTING: Costing is defined as collecting, recording, classifying and allocating expenditure to ascertain the cost of product or service for planning and control purpose by indicating points where corrective action is required (Anuolam 1997).
• TECHNIQUES: This is a method of achieving something or carrying something out especially one requiring some skill or knowledge (investopidia.com)
• PROFITABILITY: This is the quality or state of being profitable.
• STANDARD COSTING: This can be defined as preparation of standard costs and their use to clarify the financial results of a business particularly by the measurement of variations of actual costs from standard costs and analysis of causes of the variations for the purpose of maintaining maximum efficiency by executive action (Batty, 2006).

COSTING SYSTEM: This method is to be adopted by an organization depends upon the nature of productive being under taken by the organization (Kingsley, 2003).

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