THE EFFECT OF OVERHEAD COST ON THE SELLING PRICE OF A PRODUCT (A CASE STUDY OF UNILEVER PLC)

ABSTRACT

Accounting profession has been regarded as the profession for the people of integrity and objective.   The public tend to rely and put their confidence in any business that have the impact of an accounting professional. The public feel secured in dealing prepared with any business entity that has its books prepared and audited by an accounting professional. These trust and confidence seems to be getting evaded based on the failure that still happen to some of these business entities despite the fact that their books are being examined periodically by these professional. This project is an attempt to find out where exactly the problems lies, the level of the auditors involvement in the collapse of the business, the integrity issue of the auditor and what could be done to further strengthen the inferences of ethical standards of the practitioners especially the sole practitioners so, as to ensure the survival of business entities.         

TABLE OF CONTENT

Title                                                                                           i

Approval                                                                                     ii

Dedication                                                                                  iii

Acknowledgement                                                                      iv

Abstract                                                                                      v

Table of contents                                                                        vi

Chapter One - Introduction

1.1    Background of the study                                                   1

1.2    Statement of problem                                                        3

1.3    Objective of the study                                                        4

1.4    Research Question                                                            4

1.5    Research Hypothesis                                                         4

1.6    Significance of the study                                                    5

1.7    Scope of the Study                                                            6

1.8    Limitation of the Study                                                       7

1.9    Definition of Terms                                                             8

Chapter Two - Literature review

2.1    Introduction                                                                       9

2.2    Standard Cost System                                                       10

Chapter Three - Research methodology

3.1    Research design                                                                13

3.2    Population of the Study                                                      13

3.3    Sample Size and Sample Techniques                               14

3.4    Research Instrument                                                         14

3.5    Validation of Instrument                                                     14

3.6    Reliability of the Instrument                                               15

3.7    Method of Data Analysis                                                    15

3.8    Validity of the Instrument                                                   15

3.9    Method of Data Collection                                                  16

Chapter Four - Data Analysis and Presentation

4.1    Introduction                                                                       23

4.1    Data Analysis                                                                     23

4.3    Test of Hypothesis                                                             27

Chapter Five - Summary conclusion and recommendation

5.1    Summary                                                                           35

5.2    Conclusion                                                                         36

5.3    Recommendation                                                              37

References                                                                        38

Appendix                                                                           39

         Questionnaire                                                                    40

CHAPTER ONE

INTRODUCTION

1.1    Background of the Study

In view of the cost of manufacturing which involves the conclusion of raw materials to finish goods through the utilization of labour and overhead support, therefore, the (3) three basic element of manufacturing cost are direct labour, direct material and production overhead. The selling price of a product brings the separation of cost into both manufacturing costs, which are useful at the stage of introduction period cost and product cost.

Tuned Aderibighe (2002) proves to that in a merchandizing company, the cost of good sold during a given period is obtained by adjusting purchase during the period with the difference between, the closing and opening inventory of goods. However, in the case of manufacturing company, the cost of good sold is obtained by adjusting the cost of good manufacturing during that period with the difference between the opening inventory and the closing inventory of finish goods. But, in order to determine the cost of goods manufactured during that period, we must first of all adjust the difference between the beginning and the ending work in progress. So far, in an attempt to find the cost of a group of units of product, we don’t have much problem because we can trace the production overhead cost as the part of the costs that are necessary for the production of such product. Besides, the production stage of a company like “Unliever Plc” relies on the quality branding experience of its products and services respectively for the sole determinant of its success or achievement of marketing goals.

Bell Martins (2000) of marketing concept and strategy, where he analyse pricing as a crucial aspect of the sale appeal. Though, pricing is one of the importance of marketing mix, it must determine the price of a product as it is obviously known that it is the price charged by a company on it product that will determine if the product will succeed or fail and which can make the company records losses or profit. A company like “Unliever Plc” relies on the ability of its sales function for achievement of its marketing objectives, where emphasis is heavily placed on sales management issues. As far as I am concerned on the steps towards the charging of overhead cost to the units, all overhead cost that are traceable to various costs centres are first dealt with, that is, the process of charging to a cost centre the overhead costs, arises solely because the cost must be incurred solely by the cost centre. The effect of overhead costs of “UNLIEVER PLC” on selling price of a product could be obtained through the indirect material, clock cord payment for product workers who have spent their time on the maintenance of equipment along side with invoices from supplies and agencies for electricity bills, vents, rates and petrol among other items.

Lever Brother Nigeria PLC, a leading company in the industrial sector is involved in the manufacturing and marketing of detergent, soap, skin cream, tooth paste, squash drink, edible oils, fats tea and coffee as well as range of petroleum jelly and other personal care products. The aim of the company is to lead in out core market of fast consumer product and achieve strong profitable growth by the best at identifying and meeting consumers need through delivery of superior valued products. The objectives of the company is to bring in expatriates who are willing and able to work in Nigeria and who will contribute as well as to help train Nigeria Lever Brother PLC, it has been dedicated to the production of top product brands for Nigeria for over seventy years.

1.2    Statement of the Study

In this present time of poor economy situation of the country, there has been a persistence race of poor variance on the cost of a product, which mostly was due to the lack of control. The primary motive of a firm is to set a standard on its products in order to achieve its goals and objectives. Thus, the need for the satisfaction parameter to be enjoy by the society a large that, any company that makes profit must be able to enjoy more people thereby satisfying an essential aspect of the societal need. Unfortunately, some organisations concentrate more on manufacturing as only the conversion of raw materials to finished goods through the utilization of labour and overhead without paying much attention to the cost of good sold during the given period.

As some organisation face serious unfavourable returns, “UNLIEVER PLC” is facing a serious profit squeeze. Hence, this project will analyse the effect of overhead cost control on the selling price of product, that could considerably enhance a company.

1.3    Objectives of the Study

The aim and objectives of this research work are:

1.      To know the activities involve in the physical charging of raw materials to finish goods.

2.      To identify the process of charging to cost centre of a fair share of common item of cost.

3.      To identify the actual overhead cost that can be trace directly to each cost centre.

4.      To know that the differentiation of actual overhead and absorbed factory overhead is essential.

5.      To know that the marketing sales and subsequent services to the output of a business is an essential role to be played on the selling price of a product.

1.4    Research Questions

1.      How can the processes of charging to cost centre of a fair share of common item of cost can be identify?

2.      How can we identify the actual overhead cost that can be trace directly to each cost centre?

3.      How essential is the differentiation between the actual overhead and absorbed factory overhead?

4.      What is the role played on the selling price of a product by the marketing sales and subsequent services to the output of a business?

5.      What are the activities involved in the physical charging of raw material to finish goods?

1.5    Significance of the Study

It is a common knowledge that when there is boom, management then, employs less of the overhead cost techniques. They can afford to incur more cost, as the effect of such cost will not be felt on the over all profit. However, in the period of depression management often try to employ all the method of overhead cost in minimize cost benefit analysis of a product. This will further make the management to employ effect cost of product technique so as to minimize the selling price of product.

1.6    Scope of Study

This study emphasise on effect of overhead cost on selling price of a product using the Lever Brother Nigeria PLC Warri branch also called Unilever plc, as a case study. The price of a product must be determined as if it is obviously known that it is the price charged by a company on its product that will determine if the product succeed or fail and which can make the company record losses or profitable. A company relies mostly on the ability of its sales function for the achievement of its marketing objectives, where emphasis is heavily placed on sales management issues.

Overhead cost stand as the employment of management in the performance of any necessary operation so that pre-established objectives and aim of quality and time may be attained at the lowest possible outlay of goods and services.

1.7    Limitations of Study

In the course of conducting this research work, the researcher encountered some hindrances that stand as limitation to the study, these problems include the followings.

1.      Finance- In carrying out a project of this nature, the commonest problem is finance. A student who could not lay hands on bulk sum of money to use, lack of funds becomes an obvious impediment.

2.      Inadequate information- The relevant materials or data to aid the researcher to a successful result is very problematic in the sense that some of the officers are afraid of letting out or giving out vital information for security reasons.

3.      Time Constraint- For a student of this nature, lot of time is required by the researcher to conduct exclusive survey of the topic at hand, but the researcher shove the time available to shuttle from place to place to get the necessary information needed for this work.

1.8    Definition of Terms

1.      Overhead: There are cost which are not part of prime cost. It is the addition of all indirect cost.

2.      Adverse variance: This occurs when the actual cost is greater than the standard or budgeted cost.

3.      Value of chain: This is all activities that are needed to be carried out before a consumer receives a final product.

4.      Product Stages: This relies on the quality, branding, experience of its product and services for the sole determinant of its success.

5.      Selling Stages: This relies on the ability of its sales function for the achievement of its marketing objective where emphasis is heavily placed on sales management issues.

6.      Budget: This is a statement of planned actions in monetary terms indicating revenue to be generated, expenditure to be incurred and capital items to achieve a given objective for particular time or period.       

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