Cost Accounting as a Tool for Performance Evaluation in a Manufacturing Company (a Case Study of Nestle Nigeria Plc)
Content Structure of Cost Accounting as a Tool for Performance Evaluation in a Manufacturing Company (a Case Study of Nestle Nigeria Plc)
- The abstract contains the research problem, the objectives, methodology, results, and recommendations
- Chapter one of this thesis or project materials contains the background to the study, the research problem, the research questions, research objectives, research hypotheses, significance of the study, the scope of the study, organization of the study, and the operational definition of terms.
- Chapter two contains relevant literature on the issue under investigation. The chapter is divided into five parts which are the conceptual review, theoretical review, empirical review, conceptual framework, and gaps in research
- Chapter three contains the research design, study area, population, sample size and sampling technique, validity, reliability, source of data, operationalization of variables, research models, and data analysis method
- Chapter four contains the data analysis and the discussion of the findings
- Chapter five contains the summary of findings, conclusions, recommendations, contributions to knowledge, and recommendations for further studies.
- References: The references are in APA
Abstract on Cost Accounting as a Tool for Performance Evaluation in a Manufacturing Company (a Case Study of Nestle Nigeria Plc)
The study investigated the impact of costing on performance of manufacturing firms in Nigeria. In specific terms, the study examined the effect of overhead cost, inventory cost and direct labour cost on the performance (proxied by return on asset) of Nestle Plc for the period 2009-2017. The study relied on secondary data extracted from the audited financial statements of Nestle Plc.
The regression analysis was employed to analyze the data. The results showed that; Overhead cost (β= -0.209; p>0.05) exerted negative but insignificant impact on the performance of Nestle Plc between 2009 and 2017; Inventory cost (β= -0.201; p<0.05) had negative and significant impact on the performance of Nestle Plc between 2009 and 2017; Direct labour cost (β= 0.218; p>0.05) had positive and insignificant impact on the performance of Nestle Plc between 2009 and 2017; The combined effect of cost management practices (represented by direct labour cost, inventory cost and overhead cost) on the performance of Nestle Plc is statistically significant (R2 =0.945; F= 28.5; p<0.05).
The study concludes that amongst all cost accounting variables, inventory cost is highly significant to predict the performance of Nestle Plc, Ogun State.
The study suggest that; Cost management strategies that focus on reduction of production and administrative overhead should be adopted by manufacturing organizations in Nigeria so as to achieve the objectives of profit maximization and wealth creation for shareholders.
Chapter One of Cost Accounting as a Tool for Performance Evaluation in a Manufacturing Company (a Case Study of Nestle Nigeria Plc)
BACKGROUND OF THE STUDY
The business environment has become intensively dynamic and increasingly unpredictable in recent decades and, correspondingly, managing company has become more demanding. Company performance is the net result of the combined efforts of all individuals and groups in an organization (Khandwalla, 1977). Companies referred to in this study are the manufacturing companies. The definition of company performance is problematic because it varies, depending on the viewpoint from which it is being assessed. For example, from society’s viewpoint, performance may be assessed in terms of efficiency of production of products or services needed by the society. From the owners’ viewpoint, profitability and growth rate in earnings may be the criteria, while employees may assess performance from how well employees are being treated. Customers may look at product quality, prompt delivery and competitive pricing. Since management must consider the various expectations of these groups in setting its goals, management’s criteria for assessing company performance may be assumed to adequately reflect the concerns of others groups such as the society, employees, suppliers and customers (Khandwalla, 1977).
The primary focus of economic planning and management in Nigeria over the years has been the transformation of the economy through industrialization, however, desired results are yet to be obtained. The Nigerian economy is far from being fully industrialized and the manufacturing sector is yet to take a prominent place in the scheme of things (Ayodele & Falokun, 2003). The need to increase company level efficiency has been a dominant suggestion offered as the key to reversing this unimpressive performance. As Soderbom and Teal (2002) suggested, a key policy issue the Nigerian government should face is to understand and address the factors that will enable the efficiencies of companies and consequently their competitiveness to increase. Ayodele and Falokun (2003) also suggested the adoption of the combination of suitable management techniques with suitable technology and other resources in addressing the low productivity of the sector.
Cost accounting has been suggested as one of such important management techniques that can help ensure efficiency in the use of companies’ resources (IFAC, 1998).
Traditionally, the main objective of the cost accounting systems has been to provide information for costing products and for promoting efficiency in the use of labour and materials (Johnson & Kaplan, 1987). Such traditional method adopt practices and techniques such as standard costing and flexible budgeting for cost control, cost allocation and product cost measurements; incremental analysis for decision-making; measurement of profit, contribution and return on investments for performance monitoring; and the full integration of internal cost accumulation systems with the external financial reporting systems (Shillinglaw, 1989).
Cost accounting (CA), which measures and reports financial and non-financial information related to the organization’s acquisition or consumption of resources, has an exceptionally important position within the entire accounting information system of an organization because it provides information to both management accounting and financial accounting as subsystems of the accounting information system. When its information is intended for the financial accounting it measures product costs in compliance with the strict legal and professional regulations. When its information is used for internal purposes it provides the basis for planning, control, and decision-making. Accounting data used for external reporting very often do not completely satisfy managers’ needs for decision-making purposes. Attempts at slight modifications of financial accounting systems for managerial purposes rarely end happily and far from effective (Wikipedia, 2015).
However, the researcher is examining cost accounting as a tool for performance evaluation in a manufacturing company (A case study of Nestle Nigeria Plc).
STATEMENT OF THE PROBLEM
In the past, many companies have witnessed considerable lapses and increasing changes in management disciplines. Costing is an important element in the overall operation of an organization although the provision of relevant information about cost is one of the problems organizations are facing because there are no satisfactory requirements to maintain detailed cost records, some small firms keep only traditional financial accounts and prepare cost information in an ad-hoc-fashion. In all but small firms this approach is likely to be unsatisfactory.
There is a vast range of systems in operation ranging from simple analysis to computer based accounting systems incorporating standards, variance analysis and the automatic production of control and operating statements. These different costing methods are meant to suit different organization. The adaptation of the wrong method, for a company will constitute a problem instead of a solution. Also poor or inadequate knowledge of a particular method of costing has constituted problems for many firms.
Most companies are still using the simple analysis system to set cost while some companies do not even have a costing system. This no doubt has led to poor planning, control and decision making.
For the purpose of this research, the following questions will be answered:
• Is there a significant relationship between Overhead cost and performance of manufacturing companies in Nigeria?
• Is there a significant relationship between Inventory cost and performance of manufacturing companies in Nigeria?
• Is there a significant relationship between Direct Labour cost and performance of manufacturing companies in Nigeria?
• What is the effect of cost accounting on manufacturing company performance?
OBJECTIVES OF THE STUDY
The general objective of this study is to analyze cost accounting as a tool for performance evaluation in manufacturing company. However, the following are the specific objectives:
• To show the relationship between Overhead cost and performance of manufacturing companies in Nigeria.
• To show the relationship between Inventory cost and performance of manufacturing companies in Nigeria.
• To show the relationship between Direct Labour cost and performance of manufacturing companies in Nigeria.
• To examine the effect of cost accounting on the performance of manufacturing companies in Nigeria.
Two hypotheses have been put forward for testing in this research.
HO: There is no significant relationship between Overhead cost and performance of manufacturing companies in Nigeria.
HO: There is no significant relationship between Inventory cost and performance of manufacturing companies in Nigeria.
HO: There is no significant relationship between Direct Labour cost and performance of manufacturing companies in Nigeria.
HO: Cost accounting has no effect on the performance of manufacturing companies in Nigeria.
SIGNIFICANCE OF THE STUDY
It is the desire of any management to maximize profit to boast of high profit all expenses incurred must have to be deducted from turnover; whether profit will be low or high largely depends on how much deductions (expenses) will be. Excessive cost reduces turnover excessively this in turn reduces profit. This project which is centered on the importance of establishing adequate and proper cost for production will
(1) Be of immense contribution towards helping managers to determine proper cost for organizational operations.
(2) Help managers and others in industry, commerce, local authorities and similar organization to gain a working knowledge of the principles and processes of cost.
(3) Enable managers to analyse, select and implement the principle, techniques and method that best suit their firm.
SCOPE OF THE STUDY
From the foregoing discussion, the research focuses on cost accounting as a tool for performance evaluation in a manufacturing company using Nestle Nigeria Plc.
Nestle Nigeria Plc is a member of the respected and trustworthy nutrition, health and wellness company renowned world-wide for its top and high quality products. The company commenced simple trading operations in Nigeria in 1961 and has today grown into a leading food manufacturing and marketing company.
Nestle was listed on the Nigerian Stock exchange on April 20, 1979. Nestle S.A of Switzerland and Nestle CWA Ltd, Ghana are the major shareholders of the company, controlling 31.17% and 59.13% of the company respectively.
Raw material sourcing
Nestle Nigeria procures some of its raw materials such as corn grains, Soya beans, cocoa powder and sorghum locally from farmers through contractual and partnering arrangement that enables them benefits from the technical advice and assistance of the company continuous supply of raw materials that meet its high-quality standards. Nestle also imports some of its raw materials which include Monosodium Glutamate, Milk Skimmed Powder, Full Cream Milk powder & Salt through Suppliers. The company’s objective is to satisfy the requirements of consumers with high quality food products by ensuring safety and quality of its product from raw materials till the finished products get to the final consumer. The suppliers are also aware of this objective and they ensure compliance with all Nestle Food Safety Standards.
Corporate head office
The Corporate Head Office is situated at Ilupeju Industrial Avenue, Lagos. This is the administrative office where customer servicing, demand and supply planning and vendors payment takes place. Other departments in Head Office include Human Resources, Finance and Control, Import and Export, Purchasing and Sales.
The manufacturing complex is located at Agbara Industrial Estate, in Ogun State. The main production units were designed in line with modem manufacturing methods which ensure efficient production of the following products: Nitrene, Cereal maize, Cereal Wheat, Milo, Maggi varieties, Chocomilo and GoldenMorn. Nestle Nigeria also imports some of its finished products which include Nescafe, NAN, Nido Milk etc.
LIMITATION OF THE STUDY
Financial constraint – Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection.
Time constraint – The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.
DEFINITION OF TERMS
Cost: is usually a monetary valuation of effort, material, resources, time and utilities consumed, risks incurred, and opportunity forgone in production and delivery of a good or service. All expenses are costs, but not all costs (such as those incurred in acquisition of an income-generating asset) are expenses.
Accounting: It is a systematic process of identifying, recording, measuring, classifying, verifying, summarizing, interpreting and communicating financial information.
Cost accounting: is the process of accumulating and accounting for the flows of costs in a business. It is defined as a technique or method for determining the cost of a project, process, or thing through direct measurement, arbitrary assignment, or systematic and rational allocation. The appropriate method of determining cost often depends on the circumstances that generate the need for information (Swamidass, 2000). This can be information such as material cost, production cost, product cost, investment calculations, and budget.
Performance measurement: is the process of quantifying actions, where measurement is the process of quantification and performance is the result of action (Slack, 1997). These measurements show how well the production is performing in categories such as quality, delivery precision, service level, time per operation, set up time and so on.
Activity Based Costing: Activity-based costing (ABC) is a method of assigning costs that calculates a more accurate product cost by identifying all of an organization’s major operating activities. The goal of ABC is not to allocate common costs to products, but to measure and then price out all the resources used for activities that support the production and delivery of products and services to customers. ABC is important when the organization has more than one product (Noreen et al., 2011).
Marginal Costing: Marginal Costing (MC) is a technique where only the variable costs are considered while computing the cost of a product. The fixed costs are met against the total fund arising out of excess of selling price over total variable cost. This fund is known as contribution in marginal costing. Marginal costing system is however not a system of cost finding such as job, process or operating costing, but it is a special technique concerned particularly with the effect of fixed overheads on running the business
Ayodele, A. S. &Falokun, G. O. (2003). “The Nigerian economy: Structure and pattern of development”. Ibadan: Jodad publishers
IFAC (1998). Statement of management accounting concepts.
Johnson, H. T. & Kaplan, R. S. (1987)”Relevance lost: The rise and fall of management accounting”, Massachusetts: Harvard Business School Press.
Khandwalla, P. N. (1977). “The design of organizations”, New York: Harcourt Brace Jovanovich Inc.
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