The topic of this research is effects of standard costing on the profitability of a manufacturing company. The purpose of this study was to discover if the application of standard costing techniques has any effect on profitability, to explore the relationship between standard costing and the profitability of manufacturing companies and also to determine whether standard costing techniques and principles are being adopted and practiced in Nigerian manufacturing companies (PRESCO PLC). The design of this study is descriptive survey method and the study was conducted at Palm Oil Companies, Edo which is the case study of this research work. The instrument of data collection was analyzed using the chi -square method. The researcher discovered the following as her data findings that proper accounting records are kept and are significantly necessary in the management of the company. That the company employs standard costing in costing their product and decisions are made with the standard costing information obtained in the company. That accounting reports are prepared and presented to the company’s management and that actions are taken promptly on the information given in the report. That effective application of standard costing has effect on the profitability of the company. That the company benefit in a significant way through the use of standard costing especially in the improvement of profit. The researcher came to a conclusion that standard costing is widely used in Nigerian manufacturing companies and that standard costing enhances adequate planning, control and decision making processes in the company. That standard costing aids manufacturing companies in the elimination of unprofitable products, provision of costing information and cost control.
TABLE OF CONTENTS
TITLE PAGE i
CERTIFICATION ii
DECLARATION iii
DEDICATION iv
ACKNOWLEDGEMENT v
ABSTRACT vi-vii
TABLE OF CONTENTS viii-xii
INTRODUCTION 1
1.1 BACKGROUND OF THE STUDY 1-2
1.2 STATEMENT OF THE PROBLEM 2-6
1.3 OBJECTIVES OF THE STUDY 6-7
1.4 RESEARCH QUESTIONS 7
1.5 HYPOTHESIS OF THE STUDY 7
1.6 SIGNIFICANCE OF THE STUDY 8
1.7 SCOPE AND LIMITATION OF THE STUDY 8-9
1.8 DEFINITION OF TERMS 9-11
CHAPTER TWO 12-38
REVIEW OF RELATED LITERATURE 12
2.1 CONCEPTUAL FRAME WORK 12-23
2.1.1 Concept of Standard Costing 12-15
2.1.2 Features of Standard Costing 15-18
2.1.2.1 Types of Standard 15-16
2.1.2.2 Setting Standards 16-18
2.1.3 Revision of Standards 18-19
2.1.4 Standard Cost Card 19-20
2.1.5 Accounting Variances 20
2.1.6 Variance Analysis 20-23
2.2 EMPIRICAL REVIEW 24-35
2.2.1 Flow Chart Of Commonly Encountered Variances 24
2.2.2 Advantages And Disadvantages Of Standard Costing 25-27
2.2.3 Concept of Profitability 27-28
2.2.4 Measurement of Profitability 28-31
2.2.5 Profit and Profitability 31
2.2.6 Areas Where Standard Costing Improve Profitability 31-36
2.2.6.1 Cost Reduction and OST Control 32-35
2.2.6.2 Pricing 32-33
2.2.6.3 Stock Valuation 33
2.2.6.4 Salary Valuation 34
2.2.6.5 Cost Estimation 34
2.2.6.6 Measurement of Profit 34-35
2.2.6.7 Business Planning 35
2.3 THEORETICAL REVIEW 35-38
2.3.1 Brief Historical Background of The Case Study 35-36
2.3.2 PRESCO Brand Portfolio 36-37
2.3.4 Social Responsibility 37-38
2.3.5 Financial Reports 38
CHAPTER THREE 39-43
RESEARCH DESIGN AND METHODOLOGY 39
3.1 RESEARCH DESIGN 39
3.2 SOURCES OF DATA 39
3.3 RESEARCH INSTRUMENTS 40
3.4 RELIABILITY AND VALIDITY OF RESEARCH INSTRUMEN 40
3.5 POPULATION 40-41
3.6 SAMPLE SIZE/ TECHNIQUES 41-42
3.7 ADMINISTRATION OF RESEARCH INSTRUMENT 42
3.8 METHOD OF DATA ANALYSIS 42-43
3.9 DECISION OF CRITERION FOR VALIDATION OF DATA 43
CHAPTER FOUR 44-60
DATA PRESENTATION AND ANALYSIS 44
4.1 DATA PRSESENTATION 44-54
4.2 TESTING OF HYPOTHESES 54-60
CHAPTER FIVE 61-63
SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATIONS 60
5.1 SUMMARY OF FINDINGS 61
5.2 CONCLUSION 61-62
5.3 RECOMMENDATIONS 62-63
BIBLIOGRAPHY 64-65
APPENDIX I 66
APPENDIX II 67-68
QUESTIONNAIRE 67
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