CHAPTER ONE

INTRODUCTION

Background of the Study

There are no more important decision in market affairs than those connected with pricing.

No matter how intelligently the product, distribution and communication mixes are conceived, improper pricing of a production one of the reason is that price decision cut across all areas of business operation say “Fred Foy” (1980:P143).

This research therefore, among other things intends to highlight an management seemingly indifference towards this all important issues.  Through the cost structure especially as it effects a manufacturing industry constitutes the major determinant of the price product of firms which vary with circumstances, types of the commodity services rendered.

Before delving into some of these other factors that influence product price, let us look at some of these factors at play in the cost and of beer, component of the cost structure also include:

a.Historical Accounts:  Since actual figures of cost and revenue obtained from previous periods in a steady economic activities affects management can use information from it to determine the price of a product.

b.Budgeted Costs: Management often base its policy on the information system through which cost can be estimated, usually applied in a newly established firms.

c.Market Forces: Demand and supply; the price of beer is affect by factor in the market because it cannot be rigid in its pricing, since it is a price taker, so with high demand the price of beer increase and the reverse is the case.

d.Capacity of the Factor: This refers to the quantity of the product that can be produced in a run.  The factory with large size will produce and sell it in lesser price than a small sized ore. For example, Life Breweries has a capacity of about 500 hectoliters of a 6million cartoons per year while premier has a capacity of 1200 hectoliters.  Under normal circumstance, premier should be cheeper.

e.Raw Materials: Beer Brewing requires three major raw material viz.  Malt, Maize and Hop (Malt Extract).  Malt constitutes the major cost of beer, and Malt and hop are being imported.  When price of all those materials increases the price of beer increase and visa versa.  Example when the price of Malt was N20,000.00 per tone, a carton of beer sales for N600.00 each but now it has gone to N35,000.00 and I sale for N1000.00per carton.  Other factor includes efficiency, economic trends.

Statement of Problem:

The study is geared towards the solution of the problem encountered by management in pricing and marketing their products due to inadequate or misleading accounting information.  Instances are where management had unknowingly continued selling products below out of pocket cost.  This researcher intends to provide several cases and simulations and through proper analysis of these, management would have learnt the best method  of analyzing its costs to obtain adequate information necessary for pricing policy.

Purpose of Study

The project will attempt to:

a.           X-ray the element of cost involves in the brewing of beer and the extent to which the cost of price of beer is being influence by the actual cost of production.

b.           Through the ideal of the actual cost figures involves in the price of beer, other factors at play in the determination of the price of beer will be known.

c.           To determine an appropriate condition and environment for proper collection and analysis of cost.

Significance of the Study

The essence of cost accounting information came to mind when one realizes that in the modern world of industrization that no firm can survive without properly costing its products.

        And any firm that does not know its information as regards costs, stands the chance of pricing itself out of the market.  The greatest weapon, which a firm can use against its opponents to maximize efficiency is proper costing.  Ever if price ceiling exists, the firm will still in  a position to maximize its profits that is, reduction in cost without equivalent reduction in price leads to increase profit.

        The more costs are minimized based on information gained, the higher the profit will be and this is a position increase in government tax hence dissuade the use of the ‘market watch department” as the pricing guide to some manufacturing industries especially the beer industry in which m case study is not exempted.

Get this material NGN 5,000

Message Us on WhatsApp  »