ABSTRACT
This research investigation is
focused on the use of Cost-Volume-Profit analysis as a Management tool for
decision making using Nigerian Breweries Plc as a case study.
Cost-Volume-Profit (CVP) analysis
narrowly called break-even analysis, is the application of marginal costing and
seeks to study the relationship between costs, volume and profits at differing
activity levels and can be a useful guide for short-term planning and decision
making.
There are series of relationship
between costs, volume of production and profit.
An understanding of these relationship are useful to management. Cost-volume-profit relationship as a decision
making device that considers the inherent relationship between cost, volume of
production and the profit that is made.
This research study is divided into
five chapters. Chapter one is
introduction which includes background of the study, statement of the problem,
objectives of the study, significance of the study, research questions,
hypothesis, scope and limitation of the study and definition of terms.
Chapter two deals with review of
related literatures on cost-volume-profit analysis as a management tool for
decision making.
Chapter three deals with research
design and methodology.
Chapter four involves presentation,
analysis and interpretation of data.
Finally chapter five is summary of
findings, conclusion and recommendations.
TABLE
OF CONTENTS
Title page
Dedication
Acknowledgement
Abstract
Table of contents
CHAPTER ONE
1.0
Introduction
1.1 Background
of study
1.2
Statement of the problem
1.3
Objectives of the study
1.4
Significance of the study
1.5
Research Questions
1.6
Research Hypothesis
1.7
Scope and Limitation of the study
1.8
Definition of terms
CHAPTER TWO
2.0
Literature Review
2.1 An
Overview of Cost-Volume-Profit Analysis
2.2
Cost-Volume-Profit Limitations
2.3
Break-Even Analysis A Traditional View of the
Cost-Volume-Profit
Relation
2.4
Graphical Approach to break-even Analysis
2.5
Formular method of finding break point
2.6
The multi- product cost-volume-profit analysis
2.7
Decision making function
2.8
Other tools for decision making and control
CHAPTER THREE:
3.0
Research design and methodology
3.1 Sources
of data
3.2
Primary sources of data
3.2.1
Personal/Oral interview
3.2.2
Questionnaire method
3.3
Secondary sources of data
3.4
Population and sample size determination
3.5
Method of data collection
3.6
Method of validating the instrument
3.7
Method of data analysis
CHAPTER FOUR:
4.0
Data Presentation, Analysis and Interpretation
4.1 Preliminary
information
4.2
Data analysis
4.3
Testing and interpretation of hypothesis
CHAPTER FIVE
5.0
Summary of Findings, Conclusions and Recommendations
5.1 Summary
of findings
5.2
Conclusions
5.3
Recommendations
Bibliography
CHAPTER
ONE
1.0
INTRODUCTION
1.1 BACKGROUND
OF THE STUDY:
Orjih
(2001), defined cost-volume-profit analysis as “specific way of presenting and
studying the inter-relationship between costs, volumes and profits”. According to him, it provides information to
management in a most lucid and precise manner.
It establishes a relationship between revenues and costs with respect to
volumes. It indicates the level of sales
at which costs and revenue are in equilibrium.
This equilibrium point is commonly known as Break even point. The break-even point is the point of sales
volume at which total revenues is equal to total costs. It is a point of zero profit.
According
to Brown et al (1997), “some
industries today are encountering problems raised by expansion through
increased sales and the introduction of new products. Many on the other hand are facing problem of
contraction due to the introduction of substitute materials, products or
reduced demand for their products.
Whichever is the case, it is vitally important that management should be
in a clear position to plan for these changing levels of activity”.
Apart from the problem of contraction and expansion, during the period of
economic depression, a business may be faced with the alternative of closing
down or selling its products at a price below the total cost. Also profit planning and control is made more
difficult by the changes in the general pattern of demand for the type of
products offered and the action of competitors.
In order to solve the problem created by the above situations, profit
planning, cost control and decision making require an understanding of the
characteristics of costs and their behaviour at different operating
levels. One of the most important tools
developed by accountants to assist management in meeting these challenges is
cost-volume-profit analysis.
1.2
STATEMENT OF THE PROBLEM:
This
study entitled “cost-volume-profit analysis as a management tool for decision
making” goes to suggest how the application of cost-volume-profit analysis has
helped managers in making decisions of the firm to ensure its growth and
survival.
The challenges facing management are enormous particularly during this
period of economic depression and they are as follows:
1.
Management is faced with the problem of how to make use
of the available scarce resources in order to achieve the objective of profit
maximization.
2.
Advanced state of competition and rivalry where only
the fittest enterprises survive.
3.
Shortage of funds to buy the needed raw materials.
4.
Low capacity utilization.
1.3
OBJECTIVES OF THE STUDY:
The
research will be focused on cost-volume-profit analysis as a management tool
for decision making (A case study of Nigerian Breweries Plc).
The purpose of the study will be:
(i) To
evaluate the extent to which the use of cost-volume-profit analysis has helped
in achieving the profit maximization of Nigerian Breweries.
(ii) To
identify problems encountered in the practical application of CVP analysis and
suggest possible solutions.
(iii) To
examine some other techniques that help in decision.
(iv) To
highlight the superiority of using cost-volume-profit over other forms of
techniques.
1.4
SIGNIFICANCE OF THE STUDY:
This
study, “cost-volume-profit analysis as a management tool for decision making”
(A case study of Nigerian Breweries Plc) will educate the entire public on how
cost-volume-profit analysis is an effective tool applied by managers in
decision making in their firms.
This study will be of immense benefit to the following groups of persons:
(a) Business organizations especially
Nigerian Breweries Plc.
(b) Cost Accountants and Financial analysts.
(c) Students of accountancy profession and
other allied profession.
(d) Institute of management and technology
(IMT) community.
(e) Researchers on related study.
(f) The general public.
1.5 RESEARCH QUESTIONS:
In
this study, “cost-volume-profit analysis as a management tool for decision
making” (A case study of Nigerian Breweries Plc) the following research
questions come to mind: They are:
(i) Is
Cost-Volume-Profit analysis used as a management tool for decision making in
Nigerian Breweries Plc?
(ii) Has
the application of the cost-volume-profit analysis helped Nigerian Breweries to
be efficient and effective in its operations?
(iii) What
other technique apart from cost-volume-profit analysis does Nigerian Breweries
employ in decision making?
(iv) Are
these other techniques superior to cost-volume-profit analysis?
(v) What
problems do Nigerian Breweries encounter in decision making?
1.6 RESEARCH
HYPOTHESIS:
The
hypothesis to attest to the questionnaire’s belief that cost-volume-profit
analysis is a management tool for decision making can be tested as follows:
Ho: Cost-volume-profit
analysis is extensively applied in Nigerian Breweries Plc.
H1: Cost-volume-profit
analysis is not extensively applied in Nigerian Breweries Plc.
Ho: The
application of cost-volume-profit analysis has helped the decision making and
growth of the firm.
H1: The
application of cost-volume-profit analysis has not helped the decision making
and growth of the firm.
1.7
SCOPE AND LIMITATION OF THE STUDY:
This topic, “cost-volume-profit analysis as a management tool for
decision making” (A case study of Nigerian Breweries Plc) should have intended
to cover all the Nigerian Breweries located in different States of the
Federation but the researcher intends to limit this topic to only 9th
Mile Depot, Enugu State due to time constraints, distance and financial
handicap. The study of Nigerian
Breweries 9th Mile Depot Enugu shall also serve other States of the
Federation since the same techniques are applied in other depots. Therefore, the researcher will rely heavily
on the Nigerian Breweries 9th Mile Depot since they have adequate
information data relevant to the study.
1.8
DEFINITION OF TERMS:
COST: Nweze (2000) defined cost as “a measurement in
monetary terms, of the amount of resources used for specific purpose.
PROFIT PLANNING:
According to Orjih (2000), “profit planning refers to the operating decisions
in the areas of pricing costs, volume of output and the firm’s selection of
product line”.
ECONOMIXC
DEPRESSION: This is a period when there
is little economic activity and many people are poor without jobs.
COST
CONTROL: Strahlem (1977) defined cost
control as “the regulation, limitation or confinement of cost”.
DECISION
MAKING: Barfied et al (1994) defined
decision making as “the process of choosing among the alternative solutions
available to a course of action or a problem situation.
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