MANAGEMENT ACCOUNTING AND ITS APPLICATION TO ORGANISATIONAL, PLANNING, CONTROL AND DECISION MAKING (CASE STUDY OF NIGERIA BREWERIES PLC.)CHAPTER ONE
INTRODUCTION
1.0 BACKGROUND TO THE STUDY
In every business organization today, Management Accounting serves as
the ‘language’ used by businesses to communicate both financial
information and non-financial information to individuals and groups who
have an interest in how the business is performing.
From a management accounting point of view the primary purpose of
management is to plan, control and make decisions that may be classified
as marketing, production, and financial. The tactical decisions which
must be preceded by strategic decisions provide the historical data from
which the accountant prepares financial statements. The business firm
or enterprise is an organizational structure in which the basic
activities are departmentalized as line and staff. The organization is
run or controlled by individuals collectively called management.
Every organisation has managers, however, these managers have a
responsibility to the organisation’s stakeholders to manage the
organisation in the most-effective and most-efficient way, to maximize
the organisation’s potential, thus it involves the managers undertaking
adequate planning for the short-term and long-term future of the business, ensuring that the business is being properly controlled to ensure plans succeed, and making decisions that will enable the business to survive and grow in the future.
The management faces a broad array of decisions, including
production, marketing, financial and other decisions. Having in mind
that decision making is a fundamental part of management such decisions
about the acquisition of equipment, mix of products, methods of
production and pricing of products and services confront managers in all
types of organizations.
though, The fundamental objective of planning is to assist management
in deciding how to allocate an organisation’s resources, while Control
is a key feature of management accounting and follows on from planning,
it can be exercised at a strategic and / or an operational level, while
decision making process .
Management accounting equips managers with information required to
carry out these tasks. Management accounting is an important part of the
economic information system, with a key role in decision making,
whether we talk about small and medium enterprises or large companies.
However, management accounting is superficially treated in most economic
entities,
The format and content of management accounts depend upon the
specific requirements of management. Different businesses will have
different information requirements and their individual management
accounts will reflect this. As internal reports, management accounts
will often contain business-sensitive information for a restricted
audience and can focus on both financial information and non-financial
information, such as critical success factors (measures of factors or
aspects of an organisation’s performance deemed to be critical, or
essential, to its competitive advantage and thereby its success).
Early studies place management accounting in a service function with
the scope to provide all levels of management with high-quality
scorekeeping, attention-directing and problem-solving information and
also to provides management with data in order to establish policies,
develop plans and control operations.(Simon et al.1954).
Management accounting In a general sense, managerial accounting is an
integral part of management that deals with identifying, presenting and
interpreting information used for strategies, decision making, resource
optimization, employee information, asset protection planning and
control of activities, information of associates or other external
information users. ( Briciu, and C?pu?neanu, 2011: 57-68).
Furthermore, there is a separate division within management
accounting which captures cost accounting, cost analysis, cost control
and cost reduction. Singer (1961) and BrunsandMcKinnon (1993) point out
that management accounting captures collecting (financial) information
which is useful.
It should be noted that, in addition to principals of financial
analysis, the application of management accounting in an organization
captures good knowledge of the business the firm operates in, fluent
communication skills and knowledge of (change) project management.
Further analysis has clarify that the emergence of team-oriented
management accounting roles (management accountants)nowadays needto have
hybrid skills from the traditional roles, this is because management
accounting is becoming wider involved in integrated business situations,
agendas and decision-making forums.
It is against this issue, ideas, information that this study tends to
analyze, explain, and assess the application of management accounting
in organizational planning, control and decision making process.
1.2 STATEMENT OF PROBLEMS
The business world has changed totally. As a result, the role of
management accountant is very different now than it was years ago.
In the past, management accountants operation is strictly staff
capacity usually separated from the managers for whom they provided
reports and information.
Also from a broad perspective, Financial reporting is one of the
significant objectives for an accountant, due to its major effect in
highlighting and examining the financial information of a company. The
quality of reporting financial information is an international issue and
the decision making skills of the accountant plays a major role in
reaching the overall company objectives, but most organization today lag
behind when reporting financial activity of the company as a result of
inadequate application of Management accounting skills and functions,
this sometimes diminish the integrity and reputation of the
organization.
In any organization where there is an effective and adequate
management accounting technique, it provides vital information for
internal reporting manager’s use in decision-making and formulation of
long term plan.
In corporations that derive much of their profits from the
information economy, such as banks, publishing houses,
telecommunications companies and defence contractors, IT costs are a
significant source of uncontrollable spending, which in size is often
the greatest corporate cost after total compensation costs and property
related costs. A function of management accounting in such organizations
is to work closely with the IT department to provide IT cost transparency. Presumably
most of this function are not applied in most organization, thereby
leading to inability of the manager to plan, control and make IT cost
decisions.
Although many agree about the important role of management
accountants in organisations plan, control and decision making, moreso
certain studies show a certain lack of involvement by management
accountants. Even though quantifiable information is important for
planning and decision making, accountants are not engaged in it because
of the absence of the appropriate techniques. “They are not perceived as
having a positive contribution to decision-making, unless the
contribution is to legitimize decisions arrived at through a political
process, whereas this poses serious challenges to the organization
business activity.
Finally, the inability of some organization to use management
accounting techniques in their decision-making has resulted to
non-effective and efficient accomplishment of the firm’s or
organizational goal.
Therefore, the aim of this research work is to have a look at or show
the information, management can derive from management accounting
techniques, then usefulness or lack of it for decision making in
business organization.
1.3 OBJECTIVES OF THE STUDY
Thought it is undisputed facts that, Management
accountants, are responsible for financial information in most
companies, have a certain role in the decision making process. That role
differs from company to another, depending on the skills and qualities a
person has and earned over the years.
The main objective of the study is to examine the application of
Management Accounting on organizational planning, control and decision
making.
The specific objectives are:
- Ascertain whether management accounting information are provided at the right time for planning and decision making.
- Identify whether the management accounting information system is computerized.
- Eliminate the constraint affecting the application of management accounting information on organization decision making.
- Identify the effect of poor Management planning and decision making.
- Determine how effective the management accounting information system is in the company.
- Explain the differences between management Accounting and other fields of Accounting.
1.4. RESEARCH QUESTION:
For the purpose of the research study, the following research questions were asked:
- Are management accounting information provided at the right time for planning and decision making?
- Are there any constraint affecting the application of management accounting information on organization decision making?
- What are the effect of poor Management planning and decision making?
- How effective are the management accounting information system is, in the company?
- Is the management accounting information system computerized?
- Are there any differences between management Accounting and other fields of Accounting?
1.5 SIGNIFICANCE OF STUDY
Management accounting has evolved over time and is influenced by the
continually changing environment in which it has developed. This type of
accounting is focused on internal use by management rather than
external reporting. At this time, management accounting has appeared to
have matured and the current principles provide the basis for management
accounting of the future. All types of accounting share a common
objective: to measure entity capital and its changes through use over
time. The principal end products of management accounting are the
forecast balance sheet and the forecast profit plan. However, management
must also consider historical reporting and must use the same concepts
for planning and reporting to provide comparable results
On this note, this research work when completed will be very useful to the followings:
Business/ Organisations: To this group, the research work will
provide them with the requisite knowledge of management accounting in
making provision and interpretation of information required by
management at all levels for formulating organizational policies,
planning and good decision making.
The study will also be of importance to government corporation,
companies, regulators and policy makers who are involved in regulating
the accounting Standards and guidelines, it will also educate the
general public and entrepreneurs on application of management accounting
practices, types, it application, and benefits, It will also enable a
better understanding of common management accounting techniques in
relation to other fields of accounting.
This research would contribute to the existing literature by focusing
on tax administration in Nigeria with a view to identifying the
critical problems that are confronting the tax system so that
appropriate measures could be taken to tackle them.
This paper will contribute to the understanding of an accountants’
role in the formulation of company decisions. This research will reveal
the most important factors that lead to increasing accountant’s
involvement in the managerial process of Nigerian companies.
Finally this study will be of great significance to schools and
students, it will serve as a reference point for future researchers who
will want to research more on the topic.
1.6. STATEMENT OF HYPOTHESIS
Hypothesis is “a speculation of the way the variables of study
behaves” it is a guide method to be used in their analysis. The needs
for such guides rise to the following hypothesis;
Hypothesis one
Ho: Management Accounting Information are not effectively and efficiently used in planning and decision making.
Hypothesis Two
- Ho: Management accounting information are not applied at the right time for planning and decision making in an organisation?
1.7. SCOPE OF THE STUDY
From the foregoing discussion, the research focuses on Management
Accounting And Its Application To Organisational, Planning, Control And
Decision Making Using Nigeria Breweries Plc As Case Study.
1.8. LIMITATION OF THE STUDY
Limitations envisage in this research work are:
- Uncooperative attitude of the staff in the organisation: this is a major limitation which increase the time spent in completing the research work.
- Monetary constraints:this factors serves as a
deficiency for the research work, and as a result of low financial
capability, it was not enough to give us desired results.
- Protocols of getting the top management of the firm for more information.
1.9. DEFINITION OF TERMS
1. Management Accounting: This is the
process of identifying measuring, analyzing, interpreting and
communicating information in pursuit of an organizational goal.
- Management: This is the process by which
business systems are administered. It is also a process of planning,
controlling and decision-making in an organization.
- Company: This refers to a legal entity that carryout business in its name.
- Controlling: This is a process of ensuring that organisation operates in the intended manners and achieves it’s goal.
- Organisation: This refers to a recognized business entity of enterprise that carryout business activity.
- Accountant: An accountant is any person
who possesses a professional license to practice accountancy from a
recognized professional body and has legal capacity and authority to
carryout the duties of accountants in taxation and audit practice.
- Strategic Planning: This establishes, for
management, the shape and direction to be taken by the organisation.
This type of planning is normally ad-hoc and is driven by the
recognition of a need for the revision / change of priorities. This
normally results from seeing actual results achieved and / or projected
outcomes under a variety of proposed strategies.
- Cost Accounting: The part of management accounting
that is concerned with costs is often known as Cost Accounting, It is
generally made up of the following five parts, input measurement basis,
an inventory valuation method, cost accumulation method, a cost flow
assumption and a capability of recording inventory cost flows at certain
intervals.
1.10. BRIEF HISTORY OF CASE STUDY (NIGERIA BREWERIES PLC.)
Nigerian Breweries Plc, incorporated in 1946, is the pioneer and largest brewing company in Nigeria. Its first bottle of beer, STAR Lager, rolled off the bottling lines of its Lagos brewery
in June 1949. Other breweries were subsequently commissioned by the
company, including Aba Brewery in 1957, Kaduna Brewery in 1963, and
Ibadan Brewery in 1982. In September 1993, the company acquired its
fifth brewery in Enugu state, and in October 2003, its sixth brewery, sited at Ameke in Enugu.
Ama Brewery began brewing on the 22 March 2003 and at 3 million
hectolitres is the largest brewery in Nigeria. Operations at Enugu
brewery were discontinued in 2004, while the company acquired a malting
Plant in Aba in 2008.
In October 2011, Nigerian Breweries acquired majority equity
interests in Sona Systems Associates Business Management Limited, (Sona
Systems) and Life Breweries Limited from Heineken N.V. This followed
Heineken’s acquisition of controlling interests in five breweries in
Nigeria from Sona Group in January 2011.
Sona Systems’ two breweries in Ota and Kaduna, and Life Breweries in
Onitsha have now become part of Nigerian Breweries Plc, together with
the three brands: Goldberg lager, Malta Gold and Life Continental lager.
Nigerian Breweries Plc now has eight operational breweries from which
its products are distributed to all parts of Nigeria, in addition to
the malting plants in Aba and Kaduna.
PRODUCTS
The company has a portfolio of high-quality brands, including
- Star Lager (launched in 1949) Pale Lager
- Gulder lager beer (1970) Pale Lager
- Legend Extra Stout (1992) 7.5% ABV Extra Stout
- Heineken Lager (June 1998) Premium Lager
- Goldberg Lager (October 2011)
- Life Continental Lager (October 2011)
- Star Lite Lager (February 2014) Pale Lager
- Ace Passion Apple Spark (December 2014)
Alcohol-free drinks
- Maltina (1976), in three varieties, namely Maltina Classic,
Maltina Strawberry, and Maltina Pineapple; Maltina Sip-it (2005), in
Tetrapak;
- Amstel Malta (1994).
- Fayrouz, in pear and pineapple (2006)
- Climax Energy drink
- Malta Gold (October 2011)