THE EFFECT OF COST REDUCTION AND CONTROL TECHNIQUES ON THE PERFORMANCE OF MANUFACTURING FIRMS IN NIGERIA

ABSTRACT

This topic examines the effect of cost reduction and control technique on firms. The dependent variable in this study is performance which is represented by the net profit, the independent variable in this study is cost reduction and cost control technique which is represented by cost of sales, selling and distribution cost, administrative cost, while the domain is firms in Nigeria. This study would cover a period of 2004-2013 study on two firms which are Dangote Plc and Nestle Plc. The source of data collection for this study is secondary source which was gotten from company’s annual reports. The research design used in this research is Ex-post-facto research method. The technique of data analysis used for this study is the simple regression which will be used to text and analyze the hypotheses of this study. The conclusions reached are that there is a significant relationship between cost of sales and performance of firms in Nigeria, there is a significant relationship between selling and distribution cost and performance of firms in Nigeria and also that there is a significant relationship between administrative cost and performance of firms in Nigeria. The researcher recommend that companies should ensure that the method of cost reduction and control technique adopted not over or under state its gross profit but shows a true and fair view of the gross profit figure and reported profit in the company’s financial statement. He also recommended that companies should consistently review the method of cost reduction and control approved by management in line with the rate of inflation in the economy, he advice that companies to use historical cost reduction method and control technique, taking into account the most recent cost prices and companies should place particular importance on the cost reduction and control of materials to reduce the problem of over or under valuation posed by work-in-progress.  He finally concluded that companies should adopt a well planned and effective cost reduction and control technique that will make possible smooth and effective operations of the firm.

CHAPTER ONE

1.1 ...

1.2     STATEMENT OF PROBLEM
Two inter-related function of modern day manager are; planning and controlling. Management must not only ensure that adequate plan of cost is made at the beginning of a period but adequate arrangements are put in place to ensure periodic measurements of performance and the institution of the control factors to check noticeable deviation from standard or set objectives.
Business activities result in the occurrence of cost and excessive cost could lead to a reduction in profits which is contrary to the purpose of any business Endeavour, whose purpose is to maximize profit.
Manufacturing firms are faced with the problem of how to embark on cost and their effectiveness. Moreover, the problem of inefficiency under the utilization of resources which has tremendous effect on our economy should be taken into full consideration. Ubeku (1983) said that “resources are not well managed in our economy”.
         The main problem organization are facing is the inability to make enough profit and achieve high performance due to the in ability to reduce and control cost. Companies are unable to install the appropriate cost reduction and control techniques in the business.
It follows that it is essential to monitor the cost of producing. So how then can cost control and reduction be effectively applied in n organization to help management attain its goal?
According to Adeniyi (2009), he said that “cost reduction campaigns are often introduced at a rush, desperate measure instead of a carefully organized, well throughout exercise”. That is to say that cost reduction techniques which might be adopted by a company may not yield positive result because such technique were introduced at a rush and not analyzed properly 
1.3     OBJECTIVE OF THE STUDY
The main objective of this study is to examine the effect of cost reduction and control technique on the performance of firms in Nigeria. The specific objectives are:

1. To investigate if the cost reduction and control of manufacturing firms has effect on their performance.
2. To find out whether the cost of sales has effect on the performances of manufacturing firms.
3.  To ascertain if selling and distribution cost has effect on the performances of manufacturing firms.
4.  To find out whether administrative cost has effect on the performance of manufacturing firms.

1.4   RESEARCH QUESTIONS
This study for effect of cost reduction and control has the following question to help achieve the stated objective;

1.   Do cost reduction and control have effect on the performance of manufacturing firms?
2. Do costs of sales have effect on the performance of manufacturing firms?
3. Do selling and distribution cost has effect on performance of manufacturing firms? 
4. Do administrative costs have effect on the performance of manufacturing firms?

1.5     RESEARCH HYPOTHESES
This study for the purpose of effect of cost reduction and control will test the following null hypothesis (Ho) and alternative hypothesis (H1);
HYPOTHESIS 1
Ho:   There is no significant relationship between cost of sales and performance of manufacturing firms in Nigeria.
H1:   There is a significant relationship between cost of sales and performance of manufacturing firms in Nigeria.
HYPOTHESIS 2
Ho:   There is no significant relationship between selling and distribution cost and performance of manufacturing firms in Nigeria.
H1:   There is a significant relationship between selling and distribution cost and performance of manufacturing firms in Nigeria.

HYPOTHESIS 3
Ho: There is no significant relationship between administrative cost and performance manufacturing of firms in Nigeria.
H1: There is a significant relationship between administrative cost and performance of manufacturing firms in Nigeria.