The Effect Of Cost Reduction Techniques And Productivity In Manufacturing Firm

Project and Seminar Material for Accountancy / Accounting

Abstract

This work was carried out to appraise the Cost Reduction Techniques and Productivity in a Manufacturing Firm. Cadbury Nigeria Plc. was chosen as a case study. The researcher is assessing the Cost Reduction Techniques and Productivity of Manufacturing Firm. Organization is faced with myriad of challenges. Some of these challenges are unexpected; others are complex issues that must be dealt with at various times in the business cycle. Regardless of whether it is unexpected or a regular challenge, each challenge will include variables that will require creative methods of navigating the complex challenges.

In today’s competitive world corporate and businesses are struggling to maintain profits and healthy bottom lines. Cost of production, fuel, raw material and human resources is rising each year. These developments have prompted people to look for Cost reduction Ideas & methods. Those who have opted for focused cost reduction strategies have survived those who could not managed have perished. In recent economic down turn it becomes more important to make cost reduction program a major initiative in industry. Companies are finding it difficult to retain people and are laying off people which are un – precedence in recent history of industrial recession. Companies have to develop its own cost reduction program for savings without cutting jobs.

This research is primarily carried out to identify cost reduction techniques and productivity in manufacturing firms. Furthermore the study will identify factors that inhibit the accuracy of inventory which results in production shortages, premium freight, and often inventory adjustments.

The major issues that inhibit productivity in a firm are incorrect bills of materials, inaccurate cycle counts, un-reported scrap, shipping errors, receiving errors, and production reporting errors.

Information on the subject matter was obtained through extensive review of literature by different authorities and scholars who have carried out similar researches. Survey research design was used to carry out the study. Three hypothesis differences were postulated.

A sample of fifty (50) respondents was randomly selected from the pool of employees in Cadbury Nigeria Plc. they were administered questionnaires from which data was obtained. This data was-analyzed and the three hypotheses were tested. Tables were used for data presentation, simple percentage was used to analyze the data and the chi – square technique was used to test the hypotheses.

Chapter One

Introduction

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 whatelse?

The above submissions attempt to suggest that cos 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

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 reduction helps firms to improve its profitability and competitiveness. Jhingan et el (2004:267) added that COST reduction 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.

Statement of the Problem

This study is confronted with the view of discovering whether organization especially manufacturing companies adopts certain COST reduction 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

Research Questions

For emphasis on the study, the following research question can be used to throw more light on the study;

What relationship exist between cost and control in productivity in manufacturing firm.
What COST reduction instruments are mostly used for cutting down expenses thereby attaining maximum profitability?
To what extent, if any, can cost be controlled by the firm for the reasons of profitability?
What cost factors are relevant in controlling costs in an organization?
What effect does the adjustment in the cost of an organization exert on the profitability of a given company.

Objective of the Study

From the above stated problem this study shall look into:

All the relevant aspects of a given COST reduction measures, which have direct or indirect impact on the profitability of an organization.
The relationship, which exists between, budgets, cost – control, cost reduction and profitability of the firm.
To know the specific COST reduction measures which have been adopted and applied in an individual firms.
The degree of apportionment of the responsibility of COST reduction measures in an individual firms and how costs can be controlled for firm to attain its given standard.

Scope of the Study

These research will reveal the essences of COST reduction in manufacturing firm, the cost structure of the sector, COST reduction 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.

Research Hypothesis

H0 Inefficient application of COST reduction leads to a decline in the profit level of an organization, when other factors are constant.

H1 Efficient and adequate application of COST reduction leads to increased in profit, while all other factors are constant.

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 reduction. 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 reduction. Increase revenue will subsequently boost infrastructures facilities.

1.7 Definition of Terms

Cost:

It is the amount of resources put into the production of goods and or service. It’s often expressed in monetary terms and is also’ seen as the expenditure resulting from providing goods and services.

Cost Reduction:

Control means compelling events to conform to plan. Therefore COST reduction is the process whereby management seeks to influence costs so as to keep them within planned limits.

Cost Center:

This is a desirable area of activity within a business to which costs can be attributed. Such centers incur expenses but do not directly generate revenue, for instance the personnel department, accounting department, public relation department etc.

Impact:

This is the degree to which a particular management policy and or measures yield desire result.

Budgetary Control:

Is part of overall system of responsibility accounting. Establishment of budgets for each area of functional responsibilities so that the performance required in order that the objectives of the business as a whole may be achieved. That is regular comparison of actual with budgeted results.

Standard Costing:

Standard costing is a method of ascertaining costs whereby statistics are prepared to show;

The standard cost
The actual cost and
The difference between variance.

Management:

This is the process of combining and utilization of organizational resource towards the achievement of the common, or organizational objectives.

Efficiency:

This explains the ratio of output to inputs. It is the amount of output per unit of input, that is the amount of resources used to produce a unit of output.

Chapter Five

Summary, Recommendation and Conclusion

5.1 Summary of Findings

This study considered the impact and efficiency of cost reduction techniques in productivity in manufacturing firm. 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 reduction provides information, which aids the management of the firm in making decisions concerning business operations,
COST reduction has been of great help to the management of most firms towards the attainment of its objectives – profit maximization,
Most business cannot exist profitably without the use of COST reduction and reduction in their daily decision-
making.
COST reduction 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 productivity in manufacturing firm because it simplify(s) the design and manufacturing process, thereby set the direction for everyone in the company.
The use of standards and COST reduction has fetched the organization the opportunity to enter into markets where other competitors could not meet the standards,
With the relationship, which exists between COST reduction 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 reduction measures such as standard costing, budgetary control responsibility accounting etc the company has been able to measure performance.
The organization establishes committees with representation from different departments of the firms for effective decision concerning the welfare of the company.
COST reduction 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 reduction, 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 reduction is essential in the following areas, Labour, materials, sales, overheads, Energy etc.

5.2 Recommendations

Based on the findings above, the researcher recommends the following to aid facilitate effective COST reduction in the organization.

The organization 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 organization should encourage the use of local raw materials. Using the local made materials will lower the total cost of material usage, thereby making COST reduction 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 organization these could be through workshop or seminars at regular intervals.
Grant them the opportunity to harness and harmonize the cost reduction techniques adopted by the organization. This accord them the ability to ensure that it conform with set plan.

5.3 Conclusion

This study revealed that the purpose of control is to ensure that operations and performance conform to plan. Therefore, COST reduction 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 productivity in manufacturing firm and performance. Finally, from the foregoing management achieved its target by adopting the steps of COST reduction, cost reduction programme and recommendations set out in this study, infact it was effectual.

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