STANDARD COSTING AS AN ESSENTIAL TOOLS FOR MANUFACTURING COMPANIES (A STUDY OF INNOSON COMPANY ENUGU)

CHAPTER ONE

INTRODUCTION

1.1      BACKGROUD OF THE STUDY

Knowing that a standard is an establish basis or measure against which actual result of performance is bench marked. Standard cost is a predetermined or established cost, or target or goal which the management of a firm or industry aims  at achieving given a  conducive operating condition with a view of attaining maximum efficiency in its production. I is a pre- determined or forecast estimates of cost to manufacture a single unit or a number of cost to manufacture a single unit or a number of units of product during a specific immediate future period (Keller et al 1966: 171) Therefore, standard costing is a costing technique which compares the standard cost of a units of product with the actual cost to determine the efficiency of operations with the ultimate intention of carrying out any remedial action whenever necessary.

Based on the fact that they are pre- determined units cost estimates deviation are bound to occur and these are pin pointed in that they represents measures of performance. These deviations are termed variance, and are isolated for an in-depth analysis to reflect in the variance aids to the initiation of corrective and control action, so as to direct the operational activities  of the firm to conform with the standard cost as determined prior to those activities.

One basic principle is that standard cost (whatever type) is used as a control of production cost, employees excesses and thus adds to the performance appraisal bearing in mind the over all objective of the firm or industry. As opined by Ama (2001: 7) the task of control accounting is to produce data at regular interval in a standard form so that the  firms actual performance can be compared with plans and budgets and differences analyzed by causes. By implication the progress of every manufacturing firm cannot be achieved on a total neglect of this cost control technique.

1.2   STATEMENT OF PROBLEM

        The problem of control as a function of the business manager and evaluation of the performance of the entire organization has become a hydra – leaded outlook. More so, the economic hardship characterized by high rate of inflation, fluctuation in the prices of goods, high cost of production among other task has led many companies to find ways of their production facilities in operation till a time when the economy is expected to improve. Such companies adopt cost control over production cost as to reduce and eliminate wastages.

Standard Costing is one of the cost control techniques which has been developed for years. And its widely application by many companies has proved it to be effective in supplying use information for cost control.

It is also worthy to note that standard costing in itself cannot control costs but can only be useful when the information supplied by this is applied to cost. With standard costing, technique efficiency can be determined through comparism of the actual incurred cost with the existing  standard but for the fact that production input are procured in an open market, it is affected by the inflation rate. This become a problem to the cost accountant in supplying accurate cost information. Therefore a cost information supplied today may become outdated in the next day.

In addition quality maintenance of the product given the current economic hardship and high cost production is concern to both the management of the company and its consumers. To guarantee the customers loyalty and there by ensure continuous profit, the quality have to be maintained through it might be costly. It is left for this company to decide on whether to use high quality material   which might be costly or low quality material at lower cost but would lower the quality of the product.

In the view of a company to survive this economic hardship operate effectively, efficiently and ensure profitability, it must take care of its cost of production which is the basis on which profit is realized. It is the purpose of this study to examine care fully how a company operating is an inflationary carefully, how a company operating in an inflationary economy maintain an effective standard costing system.

1. THE OBJECTIVES OF THE STUDY

This study is aimed at evaluating the effect of standard costing in manufacturing companies in Enugu state. The specific objectives of this research work include:

i.            To if standard costing practicable in the operational activities of manufacturing industries.

ii.           To examine if standard costing have anything to do with reduction of the production costing of a firm.

iii.        To is standard   costing data influence managerial decision making.

iv.         To evaluate the usefulness of standard costing system in the elimination and redaction of wastage.

1.4      RESEARCH HYPOTHESES

In view of this study the following assertions will be tested:

1.  Ho standard costing is not practicable in the operational activities of manufacturing industries.

H1 standard costing is practicable in the operational activities of manufacturing industries.

2.  H0 standard costing has nothing to do with the reduction of cost of production of the firms.

H1 standard costing has significant effect on the reduction of cost of production of the firms.

3.  H0 standard costing data does not influence managerial decision making.

H1 standard costing data influences managerial decision making.

1. H0: Standard costing system does not have any usefulness in the elimination and redaction of wastage.
2.  
3. RESEARCH QUESTIONS

The researcher formula the following research questions:

1. Does standard costing practicable in the operational activities of manufacturing industries.
2.  Does standard costing have anything to do with reduction of the production costing of a firm.

3.  Does standard costing data influence managerial decision making.

4.  What are the usefulness of standard costing system in the elimination and redaction of wastage.

1. SIGNIFICANCE OF THE STUDY

It is expected to help the researcher and other interested studies to have an insight of the practicability of the wholesome theoretical as seen in many textbooks on the concept of standard costing technique.

This additionally brings to the notice of the Nigeria entrepreneur and already existing companies the need to appreciate the use of standard costing in controlling costs and basis for  performance evaluation.

1. SCOPE OF THE STUDY

This research is intended to cover the control of production costing which include direct material cost direct labour cost and factory overhead cost, through the use of standard costing system and also the analysis of variance which might arise as a result of comparing the actual cost incurred with the existing standard cost determined by the management accountant. It is also worthy to note that this will cover standard cost and types also delineation given by some authorities will be reviewed.

1.8   LIMITATION OF THE STUDY

Since this requires constant transportation to Emene where the companies of my case study are located the in availability of the fund required for this possess the first limitation to this. This is followed by the inability of the management to divulge certain information which they consider sensitive and the publication of which is detrimental to their operations. Moreso, the attention of the members of top management whom may not be chanced on several occasions proved a limitation to this research

I must also comment on the limited time gives for the completion of this research which is amplified when considered that the researcher have to attend to other aspect of his study other than the research work alone since both research work and academic studies are run concurrently.

1. DEFINITIONS OF TERMS

2.          Quantitative accenting approach: This is that approach to accreting which concerns itself with only data that can be qualified in monetary terms.

3.          Qualitative accounting approach: This unlike the number one above take cognizance of data that matters but can not be qualified in monetary terms.

4.          Limiting factor: This is that factor that can be a constraint to the expansion of production. It is sometimes termed they factor.

5.          Cost control: This as used in this study an operating function but not an accounting function. It is the manipulation of cost through operating personnel precisely, it is the employment of all the management devices in the performance of an important operation so as to meet the already established objectives of quantity and quality with the lowest possible outlay of input

6.          Cost centre: This is a desirable are of activity within a business to which costs can be attributed. In the content of manufacturing firm. It is those manufacturing units or departments in respect of which cost can be ascertained and over which cost  can be controlled.

7.          Cost reduction: This is also an operating function this aim at the employment of the management derives in the performance of some important operation so as to reduce cost firm what it use to be. This can be achieved through a change in the system of production labour intensive to capital intensive)

8.          Performance: This is the act of measuring appraising and comparing the operational results of different  profit centers of an organization.

9.          Variance: This is the difference between the actual performance and the expected performance expressed by the standard costing. Simply put, it is a difference between standard cost and actual cost.

10.      Benchmark: This is used in this study means the process of comparism between what is and what is supposed to be.