EXAMINE COST CONTROL, REDUCTION AND THE PERFORMANCE OF SELECTED MANUFACTURING COMPANIES IN NIGERIA.
ABSTRACT
This study investigates the impact of cost control and cost reduction strategies on the performance of selected manufacturing companies in Nigeria. Recognizing the challenges posed by escalating production costs, economic volatility, and competitive pressures, the research aims to assess how effective cost management practices influence profitability and operational efficiency within the manufacturing sector.
Employing an ex-post facto research design, the study analyzes financial data from a sample of manufacturing firms listed on the Nigerian Stock Exchange over a ten-year period (2013–2023). Key cost components examined include cost of sales, administrative expenses, selling and distribution costs, and overheads. The analysis utilizes multiple regression techniques to determine the relationship between cost management practices and firm performance indicators such as net profit margin and return on assets.
Findings reveal that strategic cost control and reduction measures, particularly in managing overheads and optimizing production processes, have a significant positive effect on the profitability of manufacturing firms. However, the study also notes that indiscriminate cost-cutting, especially in areas critical to product quality and workforce competence, can adversely affect performance.
The research concludes that a balanced approach to cost management—emphasizing efficiency without compromising essential operational areas—is vital for enhancing the performance and competitiveness of manufacturing companies in Nigeria. It recommends the adoption of integrated cost management frameworks and continuous monitoring to ensure sustainable growth in the sector.
TABLE OF CONTENTS
TITLE PAGE - - - - - - - ii
DECLARATION - - - - - - - - iii
CERTIFICATION - - - - - - - - iv
DEDICATION - - - - - - - - v
ACKNOWLEDGEMENTS - - - - - - vi
CHAPTER ONE: INTRODUCTION
1.1 Background to the Study - - - - - - 1
1.2 Statement of the Problem - - - - - 4
1.3 Objective of the Study - - - - - - 4
1.4 Research Questions- - - - - - - 5
1.5 Statement of the Hypotheses - - - - 5
1.6 Significance of Study - - - - - - 6
1.7 Scope of the Study - - - - - - 6
1.8 Operational - - - - - - - - 7
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction - - - - - - - - 8
2.2 Conceptual Review - - - - - - - 8
2.3 Theoretical Framework - - - - - - 30
2.4 Empirical Studies - - - - - - - 38
CHAPTER THREE: RESEARCH METHODS
3.1 Research Design - - - - - - 45
3.2 Population of the Study - - - - - - 45
3.3 Sample Size - - - - - - - - 45
3.4 Sampling Technique - - - - - - - 46
3.5 Method of Data Collection - - - - - - 46
3.6 Technique for Data Analysis - - - - - 46
3.7 Model Specification and Variable Definition - - - 46
3.8 Measurement of Variables - - - - - - 48
CHAPTER FOUR: PRESENTATION AND ANALYSIS OF DATA
4.1 Presentation of Data - - - - - - 36
4.2 Discussion of Findings - - - - - - 39
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary - - - - - - - - 41
5.2 Conclusion - - - - - - - 45
5.3 Recommendations - - - - - - - 46
5.4 Contributions to Knowledge - - - - - 46
5.5 Suggestions for Further Studies - - - - 47
References - - - - - - - - 48
CHAPTER ONE
INTRODUCTION
1.1BACKGROUND OF THE STUDY
The growth of any company is largely determined by how well it can manage its costs. This is partly because to be able to maximize profit, the cost must be reduced the minimum level possible. Cost reduction has become a vital tool for companies to constantly stay ahead of the increased competition in the business environment (Alireza and Mahdi 2012). The ultimate goal of every firm is profit maximization and cost minimization through proper cost management, to maximize shareholder wealth (IFAC (2024). The profit motive behind business income is universal to most business entities.
Cost control (CA), which measures and reports financial and non-financial information related to the organization’s acquisition or consumption of resources, has an exceptionally important position within the entire accounting information system of an organization because it provides information to both management accounting and financial accounting as subsystems of the accounting information system. When its information is intended for the financial accounting it measures product costs in compliance with the strict legal and professional regulations. When its information is used for internal purposes it provides the basis for planning, control, and decision-making. Accounting data used for external reporting very often do not completely satisfy managers‟ needs for decision-making purposes. Attempts at slight modifications of financial accounting systems for managerial purposes rarely end happily and far from effective (Wikipedia, 2015).
Every organisations, be it profit oriented or non profit oriented needs a number of resources to survive. Nigeria being a developing country, it is very clear that operating or running cost of businesses are increasing at a very high rate. Many manufacturing companies in Nigeria suffer from serious profit squeeze. They are struggling to maintain reasonable earnings in a situation where costs are rising thereby making profit margin more and more difficult to sustain. To maintain earnings in the face of these conditions, a company has to take very strict measures to reduce the costs, eliminate unnecessary waste to increase productivity and improve aggregate profitability. Many companies have involved various measures to check the sky rocketing costs through improved technologies, job timing, setting of standards, procurement of cheaper and alternative local raw materials to produce the same product without necessarily lowering its standard and quality. Budgets are used to control costs (Johnson, & Kaplan, 2018). They are being made more detailed, tighter and controlled vigorously.
Managing costs involves formulating and adhering to a consistent performance strategy in order to boost over all business effectiveness. Controlling costs is consequently vital for a company in order to manage and eliminate unwelcome expenditures, and it also contributes to the enhancement of market demand in an environment where there is intense competition. According to Pandy (2009), the primary objectives of any company are to maximize the wealth of their shareholders, maximize their profits, and restore the pleasure of their customers. On the other hand, non financial goals include prioritizing financial performance and professional advancement. In particular, the maximizing of profits is the focus of the majority attention. In order for businesses to accomplish their most important goals while keeping their expenses to a minimal, cost management must be given the highest importance.
In line with Kaizen’s costing theoretical framework production inputs require effective cost control through certain techniques and cost management practices for a firm to operate competitively and survive in the constantly changing global market environment (AG 2018, Yigit 2022). It can be further argued within the kaizen costing framework that if cost containment techniques are well designed the market share of production firms can be increased at local and international market levels promoting their competitiveness. In Nigeria, several manufacturing companies have witnessed unexpectedly high operating costs with the attendant reduction in organisational performance and management in recent periods (Godwin, Amos and Sunday 2019; Akinleye and Fajuyagbe, 2022).
Company performance is the net result of the combined efforts of all individuals and groups in an organization (Khandwalla, 2021). Companies referred to in this study are the manufacturing companies. The definition of company performance is problematic because it varies, depending on the viewpoint from which it is being assessed. For example, from society’s viewpoint, performance may be assessed in terms of efficiency of production of products or services needed by the society. From the owners’ viewpoint, profitability and growth rate in earnings may be the criteria, while employees may assess performance from how well employees are being treated. Customers may look at product quality, prompt delivery and competitive pricing. Since management must take into account the various expectations of these groups in setting its goals, management’s criteria for assessing company performance may be assumed to adequately reflect the concerns of others groups such as the society, employees, suppliers and customers (Khandwalla, 2021). However, the researcher is examining the effect of use of cost accounting and management accounting as a tool for performance evaluation in manufacturing company.
The purpose of this study, basically was to develop a system in a manufacturing firm that will consolidate the task of developing standards, the identification and analysis of any variances and taking corrective measures into one overall system, cost reduction and control. These will enhance profitability by ensuring the rational procurement and allocation.
1.2 STATEMENT OF THE PROBLEM
The Nigerian manufacturing sector, a cornerstone of economic growth, faces significant challenges in maintaining cost efficiency due to internal inefficiencies and external economic pressures. Rising production costs, driven by inflation, exchange rate volatility, and energy expenses, threaten the competitiveness and profitability of listed manufacturing companies. Despite efforts to adopt cost control and reduction strategies, many firms struggle with outdated practices, ineffective implementation, and insufficient managerial expertise (Oni and Olabode, 2021; Ikpeama, 2020).
Research has shown that poor cost management often results in wastage of resources, lower operational efficiency, and reduced profitability. Additionally, resistance to change, lack of employee involvement, and inadequate technological investments are critical barriers to successful cost control and reduction initiatives (Oni and Olabode 2021). Furthermore, external factors such as infrastructure deficits, regulatory challenges, and economic instability exacerbate these issues, making it difficult for firms to adopt and sustain effective cost management strategies (Ikpeama 2020).
Given the limited empirical evidence linking cost management practices to organizational performance in the Nigerian context, there is a pressing need to examine how cost control and reduction strategies impact the performance of listed manufacturing companies. This study aims to address these gaps, providing insights into the challenges faced, the effectiveness of current practices, and the potential for leveraging modern cost management techniques to enhance organisational performance and sustainability.
1.3 OBJECTIVES OF THE STUDY
The primary aim of this study is to examine cost control, reduction and the performance of selected manufacturing companies in Nigeria. The specific objectives are;
1. To ascertain if cost control can be a tool for performance evaluation in manufacturing company
2. To identify the extent in which cost control can be a tool for performance evaluation in manufacturing company
3. To examine the effect of cost control on manufacturing company performance.
1.4 Research Questions
1. To what extent does cost control affect performance evaluation in manufacturing company?
2. To what extent does job costing affect performance evaluation in manufacturing company?
3. To what dimension does cost control affect various manufacturing company performance?
1.5 Hypothesis
H01: Standard Costing does not have significant effect on manufacturing company
H02: Cost control does not have significant effect on manufacturing company
H03: Job costing does not have significant effect on manufacturing company
1.6 SIGNIFICANCE OF THE STUDY
This study is significant as it highlights the critical role of cost control and reduction strategies in enhancing the performance of some selected manufacturing companies in Nigeria. It provides practical insights for managers, policymakers, and stakeholders on effective cost management techniques to improve operational efficiency and profitability. The findings will also contribute to academic knowledge by filling gaps in existing literature on cost management in some selected manufacturing sector and serve as a foundation for future research.
1.7 SCOPE OF THE STUDY
This study examines the effect of cost control and reduction on the performance of manufacturing companies in Nigeria, will cover all the manufacturing companies in Lagos State and measure cost control, job costing, standard costing by carefully examining their respective performance evaluation tools.
1.8 LIMITATION OF THE STUDY
Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
Time constraint- The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.
1.9 DEFINITION OF TERMS
1. COST CONTROL: Cost control refers to the process of monitoring and regulating expenses to ensure that they align with budgetary allocations and organizational objectives. It involves identifying cost drivers and implementing measures to minimize unnecessary expenditures.
2. COST REDUCTION: Cost reduction is the systematic approach to lowering costs by eliminating inefficiencies, adopting new technologies, or improving operational processes without compromising the quality of products or services.
3. PERFORMANCE: Performance, in this context, refers to the effectiveness of a company in achieving its financial and operational goals. This includes profitability, productivity, market competitiveness, and overall sustainability.
4. MANUFACTURING COMPANIES: Manufacturing companies are firms engaged in the production of goods by transforming raw materials into finished products through various processes.
5. LISTED COMPANIES: Listed companies are organisations whose shares are traded publicly on a recognised stock exchange. These firms are required to adhere to regulatory and reporting standards.
6. ACTIVITY – BASED COSTING (ABC): A modern cost management technique that allocates overhead costs to specific activities, allowing organisations to identify inefficiencies and improve resource utilization.
7. LEAN MANAGEMENT: A cost management strategy that focuses on minimizing waste, optimizing processes, and enhancing value delivery to customers.
8. EXTERNAL ECONOMIC FACTORS: These refers to external conditions, such as inflation, exchange rate fluctuations, and infrastructural challenges, which can impact the cost management practices of firms.
1.10 Organization of the Study
This research work is organized in five chapters, for easy understanding, as follows
Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding. Chapter five gives summary, conclusion, and recommendations made of the study.
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