Abstract
This is set out to determine the application of cost volume
profit analysis in business decision making the constraints experienced as well
as the assessment of service coverage. In chapter one and two the decision
makers on management is faced with a lot of problems but when these are
addressed, the cost volume profit analysis are not adequately interpreted to
management non availability of records and lack of proper knowledge of the
users in a manufacturing firm. There is therefore need to embrace and identify
the extent and nature of a accounting, services to the business segments in
their decision makings especially on the areas of finance of the business. In
chapter three, the researcher restricted himself to a reasonable scope,
believed to give a representative of the case understudy. Primary &
secondary data were used for data collection while interviews, personal
observations and questionnaire distribution played a vital role to the regard
percentages and chi-square were used to test the validity or otherwise used the
hypothesis formulated
CHAPTER ONE
INTRODUCTION
Background of the study
Due to industrialization in recent years, manufacturing
firms have been increasing. They are more complex technologically and compete
among each other for survival. It can also be that high growth rate occurs
among them due to some levels of efficiency in production. The complexity and
competition had been enhanced by increasing technology, use of expertise,
computerization and raw material acquisition. There is also government economic
growths cost control to mention a few. Among these control measures, cost control
is significantly controlled by firm, since is managerial function which help to
reduce cost in production and to again advantage over other first in the same
industry. But some questions arise how can a firm be faced with control and
management of cost decides on how many units to be employed? At what price will
the products be disposed off? Cost volume profit analysis is a management tool
used hen the problems of CVP implications arise in the firm, the problem
includes making or buying decisions, product appraisal, adding or dropping
decisions product planning and promotional mix, distribution channels and
profit planning decisions.
Cost volume profit analysis is a valuable and reliable tool.
If well applied, helps to alleviate the enumerated problems. The next questions
that arises is do manufacturing firms apply cost volume profit analysis? If
yes, how many CVP charts and ratios are plotted (or graphed) and computed in
order to manage and control costs while increasing profits and market shares?
How are this information relieved from appraised charts and ratio in the light
of the basic assumption? How firms that acquired this information do used them
in decision making?
STATEMENT OF THE PROBLEM
Considering the naira and its purchasing power, the
researcher founds out that manufacturing firms are faced with heavy cost
involvement during the process of manufacturing. The incurred cost has the
implications in his overall productions which call to mind the cost problem.
How can this cost problem be alleviated? The economy is not the same today as
it has been in the past decade. The exchange rate of naira to foreign
currencies and the price fixed for manufacturing goods and services greatly
affect the profits to be made on the part of the manufacturers. If prices are
not well fixed compared with the sale needed and cost incurred, it will pose a
problem hence. In the past decade,
manufacturing firms had been increasing their volume of production. But today
because of inflationary trends which prompted increase in cost of production
negatively affected the volume of output. As such firms had been forced out of
business while the continuing ones find it difficult to produce or maintain
their format volume of production. The result is that the volume produced had reduced
and reduce and this pose a volume problem that is capacity under utilization.
The next issue: How can these three words cost; volume and profit be understood
and inter mingled?
OBJECTIVE OF THE STUDY
The objectives of the study are;
To find out the reason why some firms do not use cost volume
profit analysis, in planning and control of cost, and also in decision making.
To find out where some firms use cost-volume profit
analysis, the basic assumptions are not implemented
To analyze the basic assumptions of CVP analysis to know
their effect on firms especially those of the manufacturing sector.
To also make recommendations to the problems will be
predicted.
RESEARCH HYPOTHESES
For the successful completion of the study, the following
research hypotheses were formulated by the researcher;
H0: The applications of CVP graphs and ratios do not enhance
profitability, productivity and efficiency decisions in manufacturing firms.
H1: The applications of CVP graphs and ratios do enhance
profitability, productivity and efficiency decisions in manufacturing firms.
H02: The application of CVP analysis is not necessary in the
effective control and management of costs.
H2: The application of CVP analysis is necessary in the
effective control and management of costs.
SIGNIFICANCE OF THE STUDY
Due to the inherent problems in Nigeria, the CVP analysis
has been directly and indirectly affected. It is with this in mind the
researcher looks into the underlined consideration of CVP analysis in the
manufacturing firms with particular reference to Obika Industry Limited
Nkpologwu. In order to have the various approaches of the CVP touched.
SCOPE AND LIMITATION OF THE STUDY
The scope of the study covers cost volume analysis for
profit planning in manufacturing firms. The researcher encounters some
constrain which limited the scope of the study;
a) AVAILABILITY OF RESEARCH MATERIAL: The research material
available to the researcher is insufficient, thereby limiting the study
b) TIME: The time frame allocated to the study does not
enhance wider coverage as the researcher has to combine other academic
activities and examinations with the study.
c) Organizational privacy: Limited Access to the selected
auditing firm makes it difficult to get all the necessary and required
information concerning the activities.
1.7 DEFINITION OF
TERMS
COST-VOLUME-PROFIT ANALYSIS (C.V.P): This is a systematic
method of examining the relationship between changes in volumes (output) and
changes in total sales revenue, expenses and net project. As the model of these
relationships, it simplifies the real word conditions that a firm will face is
it subject to a number of the understanding assumptions, limitations and a
powerful tool for decision making.
COST VOLUME CHART (CVPC): A chart that helps in the
enrichment of understanding of the inter-relationship of all factors affecting
profit especially cost behaviour patterns over ranges of volume.
FIXED COST (FC): The cost that fixed in total amount over a
period of production, but varies per unit of output with the level of
production changes.
VARIABLE COST (VC): The cost that directly affects
production by varying the level of production but constantly remains fixed per
unit of output.
SEMI VARIABLE COST (SVC): The cost that have both fixed and
variable cost features. It fluctuates as changes occur with relevant range but
not in direct proportion to the changes.
CONTRIBUTION MARGIN (CM): It is the product profit of sales
minus all variable costs.
BREAK-EVEN POINT (BEP): The point of activity where total
cost are equal and the firm neither making profit nor loss.
MARGIN OF SAFETY (MOS): This is the excess of budgeted sales
over the break even sales –volume
PROFIT/VOLUME RATIO (PVR): Is the relationship between
contribution and sales value.
GROSS PROFIT RATIO (GPR): This is the commonest measure of
profitability. The gross profit margin measures the efficiency with which the
firm produces each unit. Its products by discounting all operating expenses
TIME-SERIES ANALYSIS (TSA): This approach does an evaluation
of the firms operations over a period, the purpose being to evaluate the firm’s
performance over this specific internal of time.
PRODUCTION DEPARTMENT (PD): A unit in which operations are
performed on the part or product and whose costs are not further allocated.
NET PROFIT RATIO (NPR): The net profit margin measures the
percentage of sales remaining after expenses including taxes have been
deducted.