CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
In the recent times some industries are facing problems raised by expansion through increased sales and the introduction of varieties of product. Many on the other hand are facing problems of contraction due to the introduction of substitute materials and products or reduces demand for products whichever is the case, but it is important that management should be in a better position to plan for these changing level of activities.
Apart from the problem of contraction and expansion during the period of economic depression/doom respectively a business may be faced with the alternative of expanding/closing down or selling its products at a price below the total lost. Also profit planning and control is made more difficult by the changes of products and the action of competitors. In order to solve the problems created by the above situations, profit planning, cost control and estimation, and decision making require an understanding of the characteristics of cost and their behaviour at different operating level. One of the most important tools developed by accountants to assist management in meeting the challenges is the cost-volume-profit analysis.
According to Pandey (1990:138) the analytical technique used to study the behaviour of profit in response to changes in volume, cost and prices is called “the cost-volume-profit analysis”. It is a device used in determining the usefulness of profit planning process of the firm.
According to Harper (1982:130), cost is defined mathematically as “cost equals usage multiple by price, which means that cost is also analyzed while studying the behavour of profit in response to changes in volume and prices.
According to Horngren Foster and Dala (1997) cost estimation is the attempt to measure the past cost relationships between the total costs and the drivers of those cost. Infact, the entire field of profit planning has become associated with the cost-volume-profit relationship. At the completion of this Study, the contribution made by the cost-volume profit analysis for the efficient profit planning and control in Nigerian Bottling company will be made known.
1.2 STATEMENT OF THE PROBLEM
The challenges facing management are many particularly during this period of economic depression characterized by liquidation of companies, low capacity utilization, shortage of foreign exchange to buy the needed raw materials and the advance of competition where only the fittest enterprise survive. Management is faced with the problems of on how to make use of available scarce resources in order to achieve the objectives of the profit maximization.
1.3 OBJECTIVES OF THE STUDY
1. To identify the problems encountered in the practical application of CVP analysis and suggest possible solutions.
2. To examine some other techniques that can help in the profit planning and control.
3. To identify the practical cost estimation involved in application of CVP in Nigeria Bottling company
1.4 RESEARCH QUESTIONS
1. what are the problems encountered in the practical application of CVP analysis?
2. what are some other techniques that can help in the profit planning and control?
3. What are the practical cost estimate involved in the application of CVP in Nigerian Bottling Company?
1.5 RESEARCH HYPOTHESIS
The basic assumption of this research work is the application of cost-volume-profit analysis as a technique for profit planning and control in manufacturing company.
Hypothesis I
Ho: The introduction of cost-volume-profit analysis has no significant effect on profit of manufacturing company.
Hi: The introduction of cost-volume-profit analysis has a significant effect on profit of manufacturing company.
Hypothesis II
Ho: The application of cost-volume-profit analysis has not helped Nigerian Bottling company to be efficient and effective in its operations.
Hi: The application of cost-volume-profit analysis has helped Nigerian Bottling company to be efficient and effective in its operations
1.6 SIGNIFICANCE OF THE STUDY
This research work is the study of cost-volume-profit analysis as a tool for profit planning and control using Nigerian Bottling company as a case study. This study will be significant in the following ways:
• It examines the application of CVP analysis in the company.
• It explores the problems and potentialities of the selected company. It will be useful to the potential managers, accounts, policy makers and planners etc.
• It provides information of the application of the tools under profit planning in different circumvents.
• This study also directed towards providing necessary recommendations to the related department of the company.
• It provides literature to the researcher who wants to carry on further research in this field.
1.7 Scope of the Study
The scope of this study borders to examine cost-volume-profit analysis as a tool for profit planning and control using Nigerian Bottling company Plc, ninth mile Enugu as a case study. Specifically the study seeks to identify the problems encountered in the practical application of CVP analysis, to examine some other techniques that can help in the profit planning and control and to identify the practical cost estimate involved in the application of CVP in Nigerian Bottling Company.
1.8 Limitation of the study
Like in every human endeavour, the researchers encountered slight constraints while carrying out the study. The significant constraint was the scanty literature on the subject owing to the nature of the discourse thus the researcher incurred more financial expenses and much time was required in sourcing for the relevant materials, literature, or information and in the process of data collection, which is why the researcher resorted to a limited choice of sample size. Additionally, the researcher will simultaneously engage in this study with other academic work. More so, the choice of the sample size was limited as few staff of Nigerian Bottling company, Lagos State. were selected to answer the research instrument hence cannot be generalize to other Local Government outside that region. However, despite the constraint encountered during the research, all factors were downplayed in other to give the best and make the research successful.
1.9 Definition of Terms
Cost-Volume-Profit: CVP is a management accounting tools to show the relationship between the ingredients of profit planning;
Profit Planning: Is a fundamental part of the overall management functions and is a vital part of the total budgeting process.
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