ABSTRACT
This study
is designed to analyze the Break-even theory and accounting as a decision tool
in manufacturing company. The researcher
discussed the purpose and the importance of the techniques that are in
operations and practiced by the company.
It introduced the planning tool called the Break-Even chart that will
make a major impact to assist management in profit planning, decision making and
forecasting. It also emphasizes on model
of development relating to Break-Even analysis.
Data for this research work was
obtained through administering questionnaire through oral interview to the
senior staffs of some manufacturing companies, after which critical analysis
follows.
Regrettably however, the quest for
information was hindered by time and money factors. Resources are scarce to travel wide and
collect more information which would enable the researcher to write extensively
on the topic.
In conclusion therefore, the
researcher suggests that Break-even techniques when applied, helps businesses
in profit planning, decision making and forecasting.
TABLE OF CONTENTS
Cover page i
Title page ii
Approval page iii
Dedication iv
Acknowledgement v
CHAPTER ONE
INTRODUCTION
1.1 Background
of study 1
1.2
Historical backgrounds of Nigerian Hoechst Plc 2
1.3 Statement
of problems 4
1.4 Objective
of study 5
1.5 Significance
of study 5
1.6 Hypothesis
and research questions 6
1.7 Scope
and limitation of study 7
1.8 Definition
of terms 8
CHAPTER TWO
REVIEW OF LITERATURE
2.1 Literature
review 10
2.2 Theoretical
framework of studies 18
2.3 Model
development 24
2.4 Tools
of management accounting 48
2.5 Classification
of decision 49
CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY
3.1 Introduction
3.2 Research
approach 51
3.3 Sampling
design and population size 52
3.4 Source
of data 53
3.5 Interview
questions 54
3.6 Method
of data analysis 54
CHAPTER-PRESENTATION, ANALYSIS AND INTERPRETATION OF DATA
4.1 Analysis
of data and interpretation 58
4.2 Hypothesis
testing and proofing 63
CHAPTER FIVE
SUMMARY OF FINDING. CONCLUSION AND RECOMMENDATION
5.1 Summary
of findings 68
5.2
Conclusion
5.3
Recommendation
Bibliography
Appendix i
Appendix ii
CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND
OF STUDY
The success of a business is generally attributable
in great measure of the ability of its management personal to cope with
probable conditions of the future.
Short range as well as long-term
plans must be made accomplished through sound management evaluation. However, many aids have been controlling and
co-ordinating the function of their business.
One of the tool which encompasses vital and needed information in
guiding companies profit path is the Break-Even theory. This is an extension of marginal costing;
basically. It is concerned with the
point at which revenue and costs intercedes, hence the term “Break – Even”.
Break-Even system is a simple and easily
understandable method of picturing to the management the effect of changes in
volume on profits. It predicts the
effects of managerial actions today on future profits and company survival. Business people do not view costs outputs and
profits may be affected by their actions.
With the aid of Break-Even theory, they will be able to understand more
and data revealed by the Break-Even analysis.
This system involves the marshalling of the cost – volumer – profit data
and other data to guide manager in its day-to-day decisions. Some of the data are best seen in a chart
form for management to get a perspective view of the profit structure.
Moreover, at the beginning of the century a planning
tool was developed by WALTER RAUTENSTRAUCH called the Break-Even chart. This development made a major contribution as
a management aid in profit planning, forecasting and decision-making. The
concept show the significance in a firm between it’s costs, volume and
relationship between the costs, illustrate the relationship between the cost, that-the selling price is constant
irrespective of the volume.
1.2 HISTORICAL
BACKGROUND OF NIGERIA HOECHST PLC
On the 18th
of December, 1963 the company was formed under the name “Hoechst Nigeria
limited”. The company was registered as
a private limited liability company with
an authorized share capital of $10000 divided into 100 ordinary shares of $1
each on the 10th of January, 1964.
August 4th, 1971 the PVA plant at Ikeja
commissioned for use. The major and
company sold their 40% shareholding to E.O Ashamu and sons (holdings) Ltd. The same day the name of the company was
change to “Nigerian Hoechst.
The authorized share capital was increased to N2 million by
the creation of additional 600,000 ordinary shares of N2 each in 1977. On October, 1978 the paid – up capital was
increased to N3 million by public issued of N1 million which implies that the
whole authorized capital of the capital
issued and fully paid-up. A, year
later, Nigerian Hoechst shares were quoted on Nigerian stock Exchange at 30K
per share of 50k.
The pharmaceutical factory and central warehouse at Ottah
was commissioned on November 4th 1982. Three years after, the authorized share
capital on the company was increased from N10 million to N15 million while the
paid-up capital increases from N7 million to N10.5 million by bonus issue of
one ordinary share for every two ordinary shares held. In 1991 the authorized share of the company
was increased from N15 million to N25
million by the creation of additional 20 million ordinary shares of 50k each
and paid-up capital increases from N14 million to N17.5 million by bonus issue
of one ordinary share for every four ordinary shares held.
Nigerian Hoechst Plc has been engaged in pharmaceuticals
and industrial chemicals for years. The
pharmaceutical factory is located at Otta while the PVA (Industrial chemical
Division) is located at Ikeja. Among
their pharmaceuticals in market are the reformulated Daga, Tabalon (an anti-rheumatic analgesics),
fastaquine (a malaria preventive), Tarivid and Lasix etc.
However, Nigerian Hoechst Plc is also engaged in high
quality textile dyes, veterinary products, herbicides and paints pigments. The registered office is situated at Ikeja.
1.3 STATEMENT OF PROBLEMS
The research is borne out of the belief that Break-Even
accounting technique is very vital to any form of business organization. The analysis can be made for various
conditions to reveal profitable, less profitable and unprofitable proposals; it
is important to note that it brings home to
management. Dramatically the basic need to bring to light and the
necessity of the significance of controlling costs and increasing in sales will not solve the problems and not be
used as anacea for profit. Management in
the cause of analyzing the company data in disclosing the company’s future
profit structure few have the knack of quickly calculating the effects of
alternative course of action and such calculations eat into high priced
executive time. Even they care
frustrated in their attempts to use the conventional Break-Even techniques
approach. However, among the complaints
of the pressing issues that poses difficult are:
i.
Ineffective
decision of determining the profit of a particular product.
ii.
Unfavourable volume of output to aid in fixing the
budgeted sales
iii.
Indecisive profitability of the various segments of the
business
iv.
Inability of fixed price of the product.
v.
Insensitive to the selection of the most profitable mix
vi.
Inability to decide on the volume of sale that will
cover a reasonable return on capital employed
vii.
Lack of poor cash involved on obtaining a particular
volume of output of the product.
1.4 OBJECTIVES OF STUDY
The Break-Even theory and accounting technique portrays to
management what the profit structure of their company is now and what it could
become in the future under various proposed alternatives. Some of the objectives are;
i.
Validating the cash crunch involved in obtaining a
particular volume of output of the product
ii.
Assessing the fixed price of the product
iii.
Making a careful consideration on the columns of output
to aid in fixing the budgeted sales.
iv.
Deciding on the volume of sales that will cover a reasonable
return on capital employed.
v.
Analyzing the profitability of the various segment of
the business
vi.
Evaluating the decisions of determining the profit of a
particular product.
vii.
Selecting closely the most profitable mix
1.5 SIGNIFICANCE OF STUDY
This is the
importance of the study and the benefits derived from it, the following are the
significance of the study. The study
will:
i.
Identify the most profitable mix
ii.
Discover the effective decision tool in determining the
profit of a particular product.
iii.
Show the profitability of the various segment of the
business.
iv.
Evaluate the economic characteristics i.e. profit
structure
v.
Ascertain the interplay of the variables in the profit
structure
vi.
Evaluate the future results of proposed actions
vii.
Make a change on the volume of sales to cover a
reasonable return on capital employed.
1.6 HYPOTHESIS AND RESEARCH
QUESTIONS
Hypothesis is an
assumption or a concession made for the sales of argument in order to draw out
and test its logical consequence.
This is often in 2 forms:
i.
Null hypothesis-
which is normally expressed as the ideal situation (H0)
ii.
Alternative Hypothesis- this is the converse of the
Null Hypothesis (H1).
In carrying out this research work these conceptual
statements are made to serve as a guide on which the work will be anchored.
i.
Ho: That volume is the only relevant factor
affecting cost
H1:
Volume is not the only relevant factor affecting cost.
ii.
Ho: The major objectives of Break-Even
techniques is profit planning and forecasting.
H1:
the major objectives of Break-Even techniques is not profit panning and
forecasting
iii. Ho: variable unit cost does not vary in production
ot the volume of production and consequently total production costs does not
also change in proportion to the volume of production.
H1: Variable unit cost vary with the volume of
production.
Generally statement of the Hypothesis can be deduced thus;
“That there is a significant relationship between the major objectives of
Break-even techniques as profit planning and forecasting and the management
approach
RESEARCH QUESTIONS
1.
Could a small amount of expansion for the coming year
be done economically and be co-ordinated with the basic long-range plans for
expansion?
2.
What is the certain rate of return on investment in the
product division and the total firm?
3.
Is the company striving to get above average profit in
the coming period when volume is expected to be relatively high?
1.7 SCOPE AND LIMITATION OF
STUDY
The research attempts to give an insight into the
practice of Break-Even theory and accounting as a means of an effective
decision tool in the manufacturing companies.
Despite its limitation it discusses the purpose and
importance of the techniques, the or of technique in operation and practiced by
the company and the recommendation that will serve as a means of decision tool
to improve the system.
Also
in the comparison of the comparison of the company’s system with other
disparate manufacturing company in the same sector. The research work is limited ot the sample
frame under investigation.
1.8 DEFINITION OF TERMS
The researcher finds
it s worthy to define some important terms in the research work for a better
understanding of their meaning and.
i.
BREAK-EVEN:
ANALYSIS: This is the term given to the study of the interrelationships
between cost, volume and profit at various levels of activity, which produces
neither profit nor loss.
ii.
MANAGEMENT
ACCOUNTING: Is an integral part of management, requiring the
identification, generation, presentation, interpretation and use of relevant
information.
iii.
COSTS: These
are operating expenses to the business
iv.
REVENUE:
is the income derived from selling goods and services.
v.
MARGINAL
COSTING: it distinguishes between fixed cost and variable costs as
conventionally classified
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