STANDARD COSTING AND PROFITABILITY OF MANUFACTURING COMPANY (A CASE STUDY OF CHAMPION BREWERIES PLC)
CHAPTER ONE
INTRODUCTION
- Background of the Study
Standard costing and profitability has been problem of manufacturing company in Nigeria, The standard costing as a tool for either improving or not improving profitability. Unlike it’s contemporaries in the field of science, it deals with human beings and calculation significant information.
According to Adeniji, (2009;p.346), standard cost represents an estimated or a pre-determined total cost of products per unit for an organization. The process of estimating the total cost of production per unit is described as standard costing technique. If the estimated total cost of products for a big organization is based on the total unit produced then, the procedure is described as budgeting system.
Standard costing as a long established concept in the management function of planning and control. In effect, yardstick has been of vital important for planning and control exercise. As a matter of fact, problems associated with production and earning a profit was recognized for many years before the concept of standard costing was invented. Standard costing appeared in the early twentieth century when transaction volumes were overwhelming the record keeping system in the use at that time. Since then, prevalent use of computer system and automated data entry system have reduced the need for standard costing, though not entirely eliminated.
Standard cost cause appraisal to be made over production facilities and form management intentions and capabilities and is a first step strength and weakness appraised. These steps gave rise to formed expression that significant costs were not actual and historical but standard or planning cost and their variances.
Champion breweries Plc was incorporated in Nigeria on the 31st of July, 1972 as a public limited liability company with an authorized share capital of One-Million Naira (N1000, 000.) divided into One-Million ordinary shares of N1.00 each, it was incorporated to produce larger beer and soft drinks with the brand new “CHAMPION” and “CHAM MALTA” respectively. Soon after incorporation, the company established a factory along Aka Road, Uyo in the South Eastern State, later Cross River State and now the state capital of Akwa Ibom State, it was incorporated with the production capacity of 150,000,000 hectoliters of beer per annum. The foundation stone was laid by the then military government of South Eastern State Late Brigadier U. J. Esuene the factory began commercial production of champion beer in November, 1976 and was officially commissioned on the 11th of December, 1976 by the Governor Col. Paul Omu.
The first expansion of the company was done to increase the production/capacity of the company to 500,000.000 hectoliters of beer per annum in 1976 by the then Governor Dr. Clement Isong. Although the feasibility study for the expansion had projected on anticipated yield of 65% of the new capacity for 1980, the actual production figure represented on 80% utilization level within which had since reach 200% as the product distribution network and popularity, “Champion” was launched in late 1976, it also contributed to increase sales of total company Governor and profitability.
- Statement of the Problem
In Nigeria today, the economy is extremely dwindling. In this respect, a lot of measures have been taken to avert the economic situation. Among them includes; structural adjustment program (SAP), second tier foreign exchange market, Ban on importation etc.
These measures have adverse effort on the buying attitude of the consumers. Cost of production has increased in manufacturing sector of the economy which resulted to high prices of manufacturing goods. In effect, no applicable level of demand could be recorded by most manufacturers as the buyer’s purchasing power could no longer meet up with rising price level. With the economic reason, greater efforts should be made to keep cost to the lowest minimum through efficient and effective utilization of both human and material resources. Government policies may be favourable or unfavourable to manufacturers in Nigeria, they can be evidence to restriction and total ban as most of them are being imported.
The use of unqualified and in experienced accountants by some industries pose a greater problems to such industries for the accountant cannot adequately apply the accounting techniques required of them on standard costing.
Therefore, this research aim at evaluating the possible effect of standard costing on profitability of manufacturing company in Nigeria using champion Breweries Plc.
- Objectives of the Study
The main aim of this study is to examine the effect of standard costing on profitability of manufacturing company using Champion Breweries Plc as case study. Others are:
- To discover whether standard costing technique can improve the profitability of manufacturing company.
- To explore the importance of standard costing in manufacturing company in Nigeria.
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