The Effect Of Production Cost Control In A Manufacturing Company

Project and Seminar material for Accountancy

Abstract

This study is designed to appraise the effect of production cost control in a manufacturing industry/company. The effect of cost control in a manufacturing industry is varied and highly challenging.

They are concerned with future planning and direct the operation and decision making and other financial plans, processing financial information falls within their areas of competence. For effective cost control, the company should practice process costing methods in it’s true meanings.

This means that cost should be ascertained along the production process for adequate and effective cost control mechanism, this will go along way in reducing the production cost.

Table Of Contents

Preliminary Page(s)

• Title page
• Approval page
• Dedication
• Acknowledgement
• Abstract
• Table of contents

Chapter One

1.0 Introduction

• 1.1 Background of the study
• 1.2 Statement of the problem
• 1.3 Objectives of the study
• 1.4 Research questions
• 1.5 Significance of the study
• 1.6 Scope of the study
• 1.7 Limitation of the study
• 1.8 Definition of term

Chapter Two

2.0 Literature Review

• 2.1 Introduction
• 2.2 Nature of cost accounting
• 2.3 What cost control means
• 2.4 The concept of cost control and cost minimization
• 2.5 Steps involved in cost control
• 2.6 The need for cost control strategies and techniques
• 2.7 Cost control / cost minimization techniques and strategies worth study
• 2.8 The nature and classification of cost

Chapter Three

3.0 Research Methodology and Design

• 3.1 Introduction
• 3.2 Research design
• 3.3 Sources / methodology of data collection
• 3.4 Population and sample size
• 3.5 Sampling technique
• 3.6 Validity and reliability of measuring instrument
• 3.7 Method of data analysis

Chapter Four

4.0 Presentation and Analysis of Data

• 4.1 Introduction
• 4.2 Data presentation, classification and calculation
• 4.3 Analysis of data
• 4.4 Test of hypotheses
• 4.5 Interpretation of result

Chapter Five

5.0 Summary, Conclusion and Recommendations

• 5.1 Introduction
• 5.2 Summary and findings
• 5.3 Conclusion
• 5.4 Recommendations
• References
• Appendix

Chapter One

1.0 Introduction

Manufacturing is the transformation of raw materials into finished goods through the use of labour and the factory facilities. It is clear from this point of view that currently the prices of raw materials are exorbitant to the extent that manufacturing industries are in a serious profit squeeze. They are struggling to maintain satisfactory earnings in a situation that increases are becoming more difficult to obtain even atleast proportional degree of cost.

Manufacturing companies whether sole proprietorship, corporation among others must have an objective and the primary objective of these company is to maximize profits. It therefore follows that for a company or organization to make profit, it must have control over the cost of it’s production and services.

1.1 Background Of The Study

It is paramount that the feature of every organization is in the pursuit of a goal(s) and objective and this target exists in different dimension. So to maintain the level of earning or to increase earnings following this situations, companies have to take drastic measures to control, if not reduce costs do away with waste and increase productivity at al ebbs.

This research work is conducted to see in general the effect of cost in a manufacturing industry and also to verify the discriminate increase in the price of commodities produced by companies which have attracted the attention of many citizens, especially those who know the applications of the continuous rise in price (inflation) on nation’s economy in general. This rapid increase in price of manufactured goods can be attributed to the cost of production of goods and services and it is in light of this reason that the need for cost control rises.

This research work will therefore attempt to give a comprehensive account of the cost control in the field of manufacturing company with a particular emphasis on Longman furniture company Enugu.

In other words, the purpose of this study is to examine the various cost control measure being used in manufacturing company using Longman furniture company as a case study.

The consequence of these reasons is necessary because the industry/company involved in the manufacturing of many products faced with discriminate rise in price of their product which is attributed to the cost of production, when cost control is applied the product cost will be reduced.

1.2 Statement Of The Problem

For sometimes, major discussions have been going on in government circles, among the members of the public and within private organizations about serious cost control. Some of these problem include:

1. The discriminate increase in the price of commodity by companies
2. Some manufacturing industries are in a serious profit squeeze, struggling to maintain satisfactory earnings.
3. The rapid increase in price of manufactured goods as a result of high cost of production of goods and services.

1.3 Objective Of The Study

The sole objectives of this study

1. To examine the cost control system in operation at Longman furniture company Enugu.
2. To evaluate them as to their effectiveness or otherwise
3. To find out all the inherent deficiency
4. To make recommendation for solving identified problems and possibly improved and undated any absolute techniques lines with recent trends.
5. To find out the effect of cost control in the price of a product, growth of the firm and operating expenses.

1.4 Research Questions

1. What are the main purpose of cost control in the manufacturing companies?
2. What are the objectives of effects of cost control in the manufacturing company?
3. What procedures should be taken in cost control in manufacturing companies?
4. What are the methods of costing in the manufacturing company?
5. What are the techniques used in cost control in the manufacturing companies.

1.5 Significance Of The Study

It is a fact that in all manufacturing company, cost of producing goods and services constitutes the major proportion of operating cost. Therefore for a manufacturing industry to survive, grow, pay it’s workers and make a reasonable profit, the effective and efficient cost control by the management becomes very vital.

The assumption of studying the effects of cost control is that the result will help manufacturing companies to identify the exact problem affecting their cost of production.

For students who would research further on this topic, it will give them a clue on what goes on in the company, prepare their minds on some hardship to be encountered and also limit their research.

1.6 Scope Of The Study

Although there are many manufacturing companies in existence in the country, but because it is not all that possible for research to cover them all, coupled with time and financial factor, this present study is designed to cover only one manufacturing industry, Longman furniture company Enugu.
It is believed that what is obtainable in Longman furniture company is used to represent other manufacturing companies.

1.7 Limitation Of The Study

The researcher while trying to obtain information from respondents encountered certain draw backs which hindered data collection. The reluctance of some official to grant audience during the course of the study was a stumbling block in the way of an indepth course of the study.

Another problem and constraints against the successful conduct of the study is relating to inadequate finance, material and time resources together with low level of cooperation from the respondent in rendering vital information.

Finally the problem of conceptualization and also problems relating to the process of data collection pose a great limitation of the study.

1.8 Definition Of Terms

Cost Centre:

A cost centre is a location, person or item in respect to which cost may be ascertained or related to.

Cost:

The amount of expenditure 9actual or normal) incurred on or attributed to a specified thing or activity.

Costing:

The ascertainment of cost

Control:

The monitoring of activities to see that organizational goals and objectives are achieved as planned. It is the measurement of the set out goal of a firm to achieve aim or objectives.

Manufacturing:

It is the transformation of material into finished goods through the use of labour and factory facilities.

Manufacturing Industry:

This is defined as an industry that turns primary products (raw material) into finished goods.

Budgetary Control:

This is the establishment of departmental budget relating the responsibilities of executives to the requirement of a policy and the continuous wither to secure by individual action, the objective of that policy or provide a firm basis for this revision.

Marginal Costing:

This is a costing technique which distinguishes between fixed costs and variable cost.

Overhead:

The cost incurred other than direct cost in the course of production activity.

Inventory:

Also known as stock, refers to the goods and materials that a business holds for the ultimate purpose of resale.

Prime Cost:

The addition of direct material, direct labour and direct expenses.

Chapter Five

5.0 Summary, Conclusion And Recommendation

This is the last chapter of the study and also ends main body of the research work. It is an epitome of the whole study.

5.1 Introduction

This chapter will enlighten most readers who may not be chanced to go through the whole study to have glimpse of the entire work. It contains the summary and findings, the conclusion and the recommendations based on the course of study.

5.2 Summary And Finding

The overall study of cost control effects in a manufacturing industry concerns organization of which the Longman furniture company Enugu is used as a case study ended up with the following findings:

i. Material:

It was evidently clear that some of the materials used by the fir are imported and this hinders procurement and it is not made efficiently and easy. Another serious problem in the form constraint is the government restrictions on the importation of some materials. The firm does not usually determine its economic order quantity as it only pile up as these materials that can be procured with the available fund and public requisition or demand for their products. However they try as much as possible to maintain minimum and maximum stock level.

ii. Labour:

The firm employs a system of remuneration that guarantees employees a fixed salary per month irrespective of production level reached in that month only, as long as he or she is seen within the premises or as long as the attendance register is being signed by employee.

iii. Overhead:

The company normally separate fixed overhead from variable component position.

5.3 Conclusion

In conclusion, it is of paramount importance to understand the fact that cost is a necessity for any organization that wish to survive and even grow as one can agree.

Effective cost control means that manufacturing industries should develop an effective costing system so that proper costing of its materials, labour and overhead can be easily effected so as to determine the actual cost of production based on the analysis carried out.

It is not just enough to accumulate cost data as this is not an end in itself, rather cost data analysis and presentation and basis for production cost control and other vital decision.

Against this background, it is the opinion of the researcher that Longman furniture industry being a manufacturing company which normally incure a lot of cost in process of product should pay more attention to cost control as it is one of the factors, if not term survival of the organization for no organization operates with unlimited resources.
Hence the need to make maximum use of the scarce resources at the disposal of the company to ensure maximum profit in the face of growing competition from both old businesses in the country also calls for effective and efficient cost control system to be installed and maintained by all manufacturing industries as a sure way for survival.

5.4 Recommendation

Based on the analysis of the data collected from the firm, the following recommendations are quite necessary for effective cost control the company should practice process costing method in it’s true meanings, this means that cost should be ascertained along the production process for adequate and effective cost control mechanism. This will go a long way in reducing the production cost.

Moreover, it is very vital to apply the economic order quantity (EOQ) model and it’s associated re-order quantity parameter should be emphasized. This will help the firm to know the actual time to place and receive an order, the quantity to be ordered and number of orders to be placed. All these will go a long way in reducing the high carriage cost incurable from excessive material stock piling. The stock pile is sort of waste and poor working capital management as the capital is being tied up in stock.

Another one of insight is of a more effective supervision and inspection of the production facilities that should be carried out on regular basis in order to reduce or control the various wastages in areas of leakages of materials.
This will help in prompt discovery of such faults and subsequent necessary action to rectify them.

The firm should exercise effective control over labour idle time of the payment. Idle time is manifested in group basis for determination of remuneration and incentive scheme. This sort of labour remuneration is not encouraging and the firm should try to abolish that for good and effective cost management in labour.

Moreover, supervisors should be instructed to be close to the workers under them so that at the end of the period, giving them special prize or incentive will reward best workers. This will go a long way in motivating the various work groups, increasing their productivity with the resistant reduction in overhead cost.

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