THE IMPACT OF STANDARD COSTING ON PROFITABILITY AND MANAGERIAL EFFECTIVENESS IN A MANUFACTURING INDUSTRY
ABSTRACT
The impact of standard costing on profitability and managerial effectiveness of manufacturing industry. The standard cost reveals the goals, spurs actions, and provides checks or controls such that exceptional profit-oriented goal performance can be achieved and on the reverse, adequate punishment to be exercised for bad performance.
Standard costs cause appraised to be made over production facilities and from management intentions and capabilities and is a first step in strength and weakness appraisal.
There also led to the preference of standard costing to other methods with the development of standard of standard costing system in 1920s, it was brought into the accounting system that total variances might be accumulated as well as detailed variances.
It is believed that standard costing helps management to plan for future, and if any justification is required for this project on the effects of standard costing on profitability’s and managerial effectiveness of a manufacturing industries.
Firstly, the financial management should penetrate into every cranny of the enterprise and indoctrinate all management in their working habits. Secondly, cost should be given the maximum attention while emphasis on the effects.
Finally, since revenue less cost gives balance profit, the profit should be increase as it is what industry is aiming at.
CHAPTER ONE
INTRODUCTION
The impact of standard costing on profitability and managerial effectiveness of a manufacturing industry. The standard costing as a tool for either improves or not improving profitability and managerial effectiveness. Unlike its contemporaries in the field of science, it deals with human beings and calculating significant information.
Standard costing as a long established concept is the management function of planning and control. In effect, yardstick has been of vital importance for planning and control exercise. As a matter of facts, problems associated with production and earning a profit was recognized for many years before the concept of standard costing was invented.
One of the earlier attempt at costing was by James Dodson. He showed how the books were kept by a shoemaker ranging from this period onwards, there was a steady development of costing developed in the time of our early scientific management proponents such as Fredrick W. Taylor, Henry Fayol and others.
These standards cost reveal goals, spur actions and efforts for effective management and equally provide checks such that exceptional profit oriented goal performance can be achieved and the reverse adequate punishment to be exercised for bad performance.
Standard costs cause appraisal to be made over production facilities and form management intentions and capabilities and is a first step strength and weakness appraisal. These led to the preference of standard costing to other method.
With the development of standard costing system in 1920s, it was brought into the accounting system such that total variances might be accumulated as well as detailed variances. These steps gave rise to formal expression that significant costs were not actual and historical cost but standard or planning costs and their variances.
1.1 BRIEF HISTORICAL BACKGROUNDS:
Ferdinand Industries Nigeria Ltd is a company used in this study. This company is located at Urualla in Ideato North Local Government Area of Imo State of Nigeria. It is a limited liability company incorporated in1975. The management of industries is made up of:
(i) Executive Directors
(ii) General Manager
(iii) Factory and department managers and other employees.
(iv) Other employees.
The company has two major operational industries used for this project, which includes:
1. Ferdinand Aluminum Manufacturing Industry
2. Ferdinand Filters Manufacturing Industry.
Ferdinand Industries Nigeria Limited started operation with initial capital base of seven hundred and fifty thousand naira (N750,000.00) as the authorized and subscribed capital.
This initial capital base does not include loans obtained from financial institutions and assets obtained on lease, subject to gradual payments. Ferdinand Group of Companies Plc are subsidiaries while Ferdinand Group of Company Plc is a holding company housing these industries and others.
FERDINAND ALUMINIUM MANUFACTURING INDUSTRY
Ferdinand aluminum manufacturing industry started operation fully in 1975 with staff strength of two hundred workers made up of male and female. This industry is headed by a manager who takes directives from the executive director. Ferdinand aluminum manufacturing industry produces a range of high quality aluminum domestic and cooking utensils which include:
(i) Heavy gauge luxury castrates
(ii) Fry pans
(iii) Kettles
(iv) Luxury aluminum plates
(v) Luxury aluminum cups
(vi) Luxury aluminum bowels with cover
The above enumerated products are produced in sets, and their brand name is ‘Touch’ the emblem of the products bears a ‘Touch’ as the trade mark.
The staff of Ferdinand Aluminium Manufacturing industry is trained under the expertise acquired from A.I kalogeros (export) Limited, Cyprus. The raw material used for production by this industry is got locally. It is obtained from Aikan Aluminium or first Aluminium Plc, Port Harcourt.
FERDINAND FILTER MANUFACTURING INDUSTRY
Ferdinand Filter Manufacturing Industry started operation in 1982 with staff strength of two hundred male and female workers. The industry is headed by a General Manager who takes directives from the executive director. Ferdinard Filter
Manufacturing Industry produces high quality and high performance Ferdinand Soparies automotive filters used by different motor vehicle and industrial plants. The staff of Ferdinand filter manufacturing industry are trained under the expertise acquired from Soparies Company Limited: a company based in France. Among the different types of filters produced include:
(a) Opinion Filter
(b) Element filter
(c) Special filter and
(d) Air cleaner
The above enumerated products are produced in different branches and sizes and below is the detailed analysis of the different types of filters produced.
(a) Opinion Filters
BRANDS
USERS
(i) CV 325
Volvo cars
(ii) CV 379
Peugeot Cars
(iii) CV 394
Vox wagen cars such as Santana Passat
This type of filter is called opinion because it is designed in a manner that it is fixed in a vehicle by spinning or screening inside to get balanced. It is used for filter oil that gets into engine. The cuter cover of spinion is made of thick gauge metal.
(b) Element Filters
BRANDS
USERS
Cap 330
Mercedes benz lorries
Sop 8
Flat lorries
Sop 117
Mercedes benz lorries (new model)
Cap 326
Mercedes benz lorries buses
This type of filter is cylindrical in nature with thick gauge perforated paper cover or light gauge perforated metal cover. The two heads are sealed with un-perforated thick gauge paper or metal.
(c) Air cleaner Filters
BRANDS
USERS
FPA
Ranger Rovers
FPA 300
Opel cars
Air cleaner is designed in the same manner with element filter.
(d) Special filter: Special filter is specially designed for industrial plant. NAFCON, NNPC, and DELTA STEEL etc. Some of the raw material used for manufacture of Ferdinand soparis automotive filters are got locally and some imported. The filter is made of many components which includes:
1. Filter paper: This is of different types, which include oil paper, fuel paper and air paper.
2. Metal: This is of different gauges or thickness ranging from 0.25, 4, 5, 6mm etc. to 3mm are used for spinion outer cover.
3. Gaskets: This is of different types, which include: rubber gasket and paper gaskets.
4. Special Gums: It is used for the end covers of the filers and is called “plastisol”. There is also colour plastisol used for special filters.
5. Springs and Gauge: They are of different sizes.
6. Paints: For colour such products like the spinions such a paint is called Ferdinand blue, is used to differentiate Ferdinand products from other products.
7. Printing materials such as white ink
8. Packets: Is for packaging of produce/filer.
9. Cardboard papers: Use outer shape of filter of paper cover.
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1.2 STATEMENT OF THE PROBLEM:
In Nigeria today, the economy is extremely bad. In this respect, a lot of measures have and are being taken to better the destining economic situation. Among the measures introduced to revamp the economy include:
(a) Structural adjustment program (SAP)
(b) Second-tier foreign exchange market.
(c) Foreign exchange market
(d) Bank on importation
(e) Ban on importation etc.
This measures have had and still having adverse effect on the buying attitude of the consumers. Costs of production have increased in manufacturing sector of the economy, which, in effect, has resulted to high prices of manufacturing goods.
In respect, no applicable level of demand could be recorded by most manufacturing, as the buyer’s purchasing power could not longer meet up with the rising price levels. Most of the manufactured products are consumed by civil servants, public servants and other wage earners whose take home pay pockets can no longer take them home.
In this regard, consumers utilize their little purchasing power mainly on foodstuff to sustain themselves first before luxury. With the economic reason, greater efforts should be made to keep costs to the lowest minimum, through efficient and effective utilization of both human and material resources. The above mentioned does not end it up, more problems still come up from such other areas like:
(i) Irregular supply of power: The Nigerian Electrical Power Authority (NEPA) do not render adequate services to manufacturers. NEPA will take off power and the production operation will stop unscheduled thereby resulting to much damages which the cost is added to cover all production.
(ii) Inadequate supply of Water: Water is always in short supply and in most cases, water board do not supply water when manufacturer needs it in effect. The manufacturer resort to buy water needed for their production from open markets to see that manufacturing activities are going on.
In this respect, the price of getting water from open market is costlier than that from the water board and in most cases whether water is supplied or not water board will require you to pay a reasonable monthly water rate.
(iii) Bad Roads:
In respect of transporting raw materials used, from the extraction area and evacuation of finished goods from manufacturing industry to the market where it is demanded, high transport cost are made due to bad roads in Nigeria with special reference to Imo State and Ideato North in particular.
THE IMPACT OF STANDARD COSTING ON PROFITABILITY AND MANAGERIAL EFFECTIVENESS IN A MANUFACTURING INDUSTRY
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