Abstract
Budgets
and budgetary control has been described as an aid for the achievement of
profitability and growth of manufacturing companies as it provides a holistic
and integrated approach to capture future manufacturing operation now. Thus,
this project is the impact of budget and budgetary control on the profitability
and growth of manufacturing companies in Nigeria using Guinness Nigeria PLC as
a case study. The major objectives of the study was firstly to determine the
relevance of budget and budgetary control to manufacturing companies and
secondly to determine whether significant relationship exit among some budget
variables such as turnover, total cost, profit and total asset. Literature
review and the annual report account of Guinness Nigeria PLC were the major
sources of secondary data employed to provide information as evidence to
evaluate the impact of budget and budgetary control in the manufacturing
operations. The use of Durbin Watson Regression model based on the statistical
package for social science (SPSS) was the statistical software utilized for the
purpose of determining the regression and correlation results. Based on the
analysis gathered in the study, there is a significant positive correlation
between budget sales and total cost. It was identified in the study that
profitability is dependent on investment in productive assets. The major
recommendation was that manufacturing companies should adopt and implement a
sound budget and budgetary control system that will address materials, labors, overheads
and capital expenditure budget toward achieving a desired profitability.
TABLE OF CONTENTS
Title
Page
Certification
Dedication
Acknowledgements
Abstract
Table
of Contents
Chapter One: Introduction
1.1 Background to the study
1.2 Statement of Research Problems
1.3 Research
Questions
1.4 Objectives of the Study
1.5 Statement of Hypotheses
1.6 Significance of the Study
1.7 Scope of the Study
1.8 Limitations of the Study
1.9 Definition of Terms
Chapter
Two: Review of Related Literature
2.1 Introduction
2.2 Budgets and Budgetary Control: A Conceptual
Clarification
2.3 Probability and Growth in Manufacturing
Companies
2.4 Impact of Budgeting and Budgetary
Control
2.5 Budgeting Process in Manufacturing
Companies
2.6 Diagrammatic Representation of Budgeting
Process
2.7 The Budget Manual
2.8 Ways of
Improving on Budget Preparation
2.9 Types of
Budget
2.10 Introduction
Functional Budgets
2.11 Cash
Budget
2.12 Limitation
of Budgeting and Budgetary Control
Chapter
Three: Research Method and Design
3.1 Introduction
3.2 Research
Design
3.3 Description
of Population of the Study
3.4 Sample
3.5 Sampling Method
3.6 Sources
of Data Collection Method
3.7 Method of
Data Presentation
3.8 Method of
Data Analysis
Chapter
Four: Data Presentation, Analysis and Interpretation
4.1 Introduction
4.2 Model
Specification
4.3 Data Presentation
4.4
Analysis and Interpretation of Results
Chapter Five: Summary
of Findings, Conclusion and Recommendations
5.1
Introduction
5.2
Summary of Findings
5.3 Conclusion
5.4 Recommendations
References
CHAPTER ONE
INTRODUCTION
1.1 Background to the study
The whole essence of
management is the achievement of objectives through proper decision making.
Although, management accounting can assist managers in making decisions, the actions
that follow managerial decision normally involve several aspects of the
business such as marketing, production, purchasing and financing functions, and
it is important that managers should co-ordinate these various interrelated
aspect of decision making. If they fail to do this, there is a danger that
managers may each make decisions that they believe are in the best interest of
the organization which in fact, are not. For example, the marketing department
may introduce a promotional campaign that is designed to increase sales demand
to a level beyond that which production department can handle. The various
activities within a company should be co-ordinate by preparation of plans and
actions for future periods. These detailed plans are usually referred to as
budget (Drury, 2004:589).
Accordingly, Adeniyi (2008:291) defined
a budget as a plan qualified in monetary terms prepared and approved prior to
define periods of time usually showing planned income to be generated and/or
expenditure to be incurred during that period and the capital to be employed to
attain a given objective(s). Terry Lucey (2009:414) also defined a budget as a
quantitative expression of a plan of action prepared in advance of the period
to which it relates. Budgets may be prepared for the business as a whole, for
department, for function such as sales and production and for financial and
resource items such as capital expenditure, cash, manpower, purchases etc. the
process of preparing and agreeing budgets is a means of translating the overall
objectives of the organization into detailed, feasible plans of actions.
Furthermore, a budget is a future plan
of action formulated by management for the whole organization or section
thereof which is expressed in monetary terms. It also relates to the estimation
of revenue, expenditure, assets acquisition and capital sourcing for the budget
year. One should be reminded on the fact that budget is a short term financial
plan does not mean that it should be focus on only today’s problem but it should
be a continuation of a long rate plan.
Consequently, Farounbi (2006) opined
that budgetary control is the establishment of budget relating the
responsibilities of executives to the requirements of a policy and continuous
comparison of actual with budget result either to secure individual action, the
objectives of the policy or to provide a basis for its revision. In other
words, it is a part of overall system of responsibility accounting within an
organization (Adeniyi, 2008:291).
Following the uncertainties prevailing
in the Nigeria business environment today, managers and stakeholders must be
poised and prepared to compete favorably under these rapidly shifting
conditions. In order to survive, and to experience profitability and growth,
budgeting has proven to be effective management techniques to forecast the major
changes as it affects the profitability and growth of the manufacturing
sectors.
Budgeting as a proven management tools
helps organization management and enhance improved performance of any economy
in different ways. Drury (2004:593) identified six(6) multiple function of a
budget namely: planning annual operations; coordinating the activities of the
various parts of the organization and ensuring that the parts are in harmony to
each other; communicating plans to the various responsibility centre, motivating
managers to strive to achieve the organizational goals; controlling activities and evaluating the performance of
managers.
From the above analysis, one will notice
that the issues of budgeting and budgetary control is a delicate matter which
managers should handle with outmost care and expertise if manufacturing
organization wish to maximize profitability and growth in their business
pursuit. It is in this light that this research work studies the “impact of
budgeting and budgetary control in the profitability and growth of
manufacturing companies using Guinness Nigeria PLC as a case study.
Historical
Background of the Case Study
Guinness Nigeria is a subsidiary of
Diageo plc of the United Kingdom, was incorporated in 1962 with the building of
a brewery in Ikeja, the heart of Lagos. The brewery was the first outside of
Ireland and Great Britain. Guinness Nigeria Plc is a company engages in the
bottling and marketing of products such as Guinness stout, extra stout, harp
lager beer, satzenbrau lager beer and Malta Guinness. Most of these products
are alcoholic beverages which are readily available in the Nigeria market.
The original Guinness brewery at St
James gate in Dublin, republic of Ireland was founded in 1759. The second
brewery, portrayal brewery was opened in London.
Guinness Nigeria Plc was incorporated as
Guinness Nigeria Limited to import and distribute Guinness stout from Dublin in
Ireland for sale in Nigeria, a decision to build success of the trade in
Nigeria.
Following the great achievement and
success of the trade in Nigeria, a decision to build a small brewery in Nigeria
was taken and later in 1960, construction of Ikeja brewery started. In 1962,
the stout brewery in Ikeja was commissioned. The brewery was then the third
Guinness stout brewery in the world and the first outside the brewery isles.
Following increased demand of the product in Nigeria, Guinness stout brewery
was opened in Benin and Ogba Lagos in 1974 and 1982 to be precise. A brewery
for harp lager beer was opened in Benin in 1974.
Going back to history in 1999, Guinness
Nigeria Plc as then had three breweries; the first was Ikeja brewery located at
Oba-Akran Avenue industrial estate in Lagos. The second one is the Ogba brewery
located in ACME road industrial estate in Lagos and last one was the Benin
brewery located in Benin City Industrial Estate along Benin Asaba road, Benin
City.
The company is jointly owned and managed
by Nigerians and foreign investors but Nigeria own majority of the shares.
Guinness Nigeria Plc is trying to minimize cost on imported barley malt sought
possible substitute for barley includes sorghum and maize. This resulted in the
successful launching of malt lager beer in 1986.
Guinness Nigeria Plc contribution to
Nigeria economy lies only in providing direct employment to 6000 Nigerians
engage in the production of crown corks, cartons, bottles, label and crates but
also employment was created for importers and suppliers of raw materials.
1.2 Statement of Research Problems
In order to provide solutions to identified
lapses in budgeting and budgetary control in the profitability and growth of
manufacturing companies, the research questions will be investigated. They are:
i. Has
budgeting and budgetary control help in the achievement of profitability and
growth of manufacturing companies in Nigeria?
ii. Are
budgets been prepared for both financial and non-financial resources such as
human in recent past years?
iii. Is
there any significant relationship between profitability and budgeted sales?
iv. Is
there positive correlation between budgeted sales and total cost?
v. Is
profitability dependent on the level of investment in productive assets?
vi. What
are the useful ways of achieving adequate budgetary control to close the gap
between budgeted variables and actual figures?
vii. What
are recent issues or development in the field of budgeting and budgetary
control?
1.3 Research Questions
The
following research questions will be addressed with the view to achieving the
objectives of the study.
i. what
is the relationship between profitability and budgeted sales or turnover?
ii. Is
there any significant relationship between budgeted sales and total cost?
iii. Does
profitability depend on the level of investment in productive assets?
1.4 Objectives of the Study
The research is aim at achieving the
following objectives;
i. To
determine the relationship between profitability and budgeted sales or
turnover.
ii. To
establish the relationship between budgeted sales and total cost.
iii. To
determine whether profitability is depends on the level of investment in
productive assets.
vi. To
determine whether there is a positive correlation between budgeted sales and
total cost.
v. To
investigate on the list of limiting budget factors that managers and planners
should consider adequately when preparing budgets.
1.5 Statement of Hypothesis
According to
Aigbokhaevbolo (2002:141), a hypothesis is a testable statement regarding the
relationship between two or more variables. Hypothesis is majorly of two types;
Null Hypothesis: This
is the hypothesis a researcher needs to reject based on the result of his
experienced.
Alternative Hypothesis: This
is the complement of the null hypothesis. However, where null hypothesis is
rejected with the help of statistical analysis, the alternative hypothesis is
accepted and vise-versa.
Since
no research problem can be properly addressed unless reduced to hypothesis for
objectively, the following hypotheses were therefore stated for the purpose of
this study.
Hypothesis One:
Ho: There is no significant
relationship between profitability and budgeted sales.
HI: There is significant relationship between
profitability and budgeted sales.
Hypothesis
Two
Ho: There is no positive
correlation between budgeted sales and total cost.
HI:
There is positive correlation between
budgeted sales and total cost.
Hypothesis
Three
Ho: Profitability is not
dependent on the level of investment in productive assets.
HI: Profitability is dependent in the level of
investment in productive assets.
For
the first hypothesis, the dependent variable is profit while the independent
variable is budgeted sales. The second hypothesis, budgeted sales is dependent
variable while total cost is the independent hypothesis. Similarly, in the
third hypothesis, the dependent variable is profit while total asset is
independent variable.
1.6 Significance of the Study
According to ICAN study pack (2009:77),
the significance of the study is the part of research that reveals the
relevance of the study to the field in question and it is relevance to
stakeholders within the field as it is meant to provide resources or point of
reference to the study embarked upon by such stakeholders in the industry.
In this research, the field in question
includes the manufacturing sectors and its stakeholders such as budget
committee and planners who delight in accurate and reliable budgeting and
budgetary control.
The following therefore are the
significance of this study:
i. The
study will be of considerable help to the management board of manufacturing
companies in Nigeria to re-awaken their insight into how budgeting budgetary
control enhances the achievement of their long range plan.
ii. It
will enhance the issue of coherent co-ordination of department budgets among the
functional managers such as the production manager, sales manager, finance
manager etc.
iii. The
findings of this study will expose both managers and planners to the need to
control actual cost and revenue to reflect the budget figures.
iv. It
will equip the management board of manufacturing companies with the techniques
of variance analysis and how these can help in resolving unfavorably variables.
v. The
findings of this work will contribute to the expansion of academics and
business knowledge as required by both the basic and applied research
respectively.
vi. Management
will be able to utilized productive resources in the most economic ways since
cost minimization is a requirement of the achievement of profitability and
growth in business organization.
1.7 Scope of the Study
The scope of the study will analyze the
published financial statement of Guinness Nigeria PLC from 2007 to 2012 and the
result of the analysis will be generated over all the manufacturing companies
in Nigeria.
The analysis will focus on the impact of
budgeting and budgetary control in the profitability and growth of
manufacturing companies.
1.8 Limitations of the Study
The
major limitation encountered in this research work is as follows:
i. Time constraint: Time
is a major limitation in this project work, though there was the problem of
obtaining the published financial statement of Guinness Nigeria plc, but it was
all due to the limited timing of the project work. The time required by the
project was not given so; the available time was shared between the research
work and normal classes.
ii. Finance constraint: This
is another constraint to the project work; there was a problem of insufficient
fund to source for materials and literature both online and offline which
militated against the research work.
iii. Non co-operation constraint: Non
co-operation by the management of Guinness Nigeria plc to release their
financial statement of their company since one is not a member of staff or
shareholder in their company.
However, despite the constraint outlined
above, efforts was made at ensuring a promise empirical study.
1.9 Definition of Terms
In
the course of the research work, some technical words came across and were used
in the research. These words defined below in order to permit through
understanding of the beneficiaries of the findings of the research.
Annual Budgeting: According
to Drury (2004: 599) it is concerned with the detailed implementation of the
long term plan for the year a-head. It is therefore a continuous and dynamics
process and should not end once the annual has been prepared. It is also known
as short term planning or budgeting.
Variance:
This is defined as the difference between an actual result and a budgeted
amount (Adeniyi, 2008: 588). It measures the extent which actual performance
deviates from expected or standard performance.
Manufacturing Sector
Company: Adeniyi (2008:504) defined this as a company that
purchases materials and components and convert them into different finished
products.
Benchmarking:
It is the continuous process of measuring products, services and activities
against the level of performance (Faroubi, 2006).
Investment:
According to Adeniyi (2008:584), refers it to the resources or assets used to
generate income.
Actual cost:
It refers to cost incurred (a historical cost) as distinguished from budgeted
or forecasted cost.
Long-Range Planning:
According to Sizer (1989) it is a systematic and formalized process for
purposely directing and controlling future operations towards desired
objectives for periods extending beyond one year.
Profitability:
John (2008) is of a view that profitability refers to a company’s ability to
generate adequate returns on invested capital.
Growth:
According to the oxford advanced learners dictionary of English, 5th
edition, growth can be seen as increase in economic ability and profit.
According to Adeniyi (2008:583), growth component is a change in operating
income attributable to an increase in the quantity of output sold between one
period and the next.
Budgeting Process:
Faroubi (2006:297) opined that budgetary process cannot be viewed as being
purely concerned with the current year. It is instructive to note that the
budgetary process is only part of whole corporate planning of organization.
Budget:
According to T. Lucey (2009:414), it refers to a quantitative expression of a
plan of action prepared in advance of the period to which it relates.
Master Budgets: According
to T. Lucey (2009:443), it refers to the summary of all other budgets and it is
expressed as a budgeted profit or loss and balance sheet.
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