THE EFFECT OF STANDARD COSTING AND VARIANCE ANALYSIS ON MANUFACTURING COMPANYS’ IN NIGERIA.

THE EFFECT OF STANDARD COSTING AND VARIANCE ANALYSIS ON MANUFACTURING COMPANYS’ IN NIGERIA. (A CASE STUDY OF PAL BREWERIES LIMITED OKO.

ABSTRACT

This study aims at knowing “the effect of standard costing and variance analysis on manufacturing companys’ in Nigeria”. (A case study of Pal Breweries Limited Oko). Survey design was considered appropriate together with the study of twelve years annual financial reports of the sample. Four questions were developed for this study and the observed data were arranged in tabular form using simple percentage method. From the data collected which was based on the research questions, it was observed that standard costing and variance analysis stimulate improved performance in manufacturing firm. Other findings includes the fact that standard costing is an effective techniques for planning control and decision making performance evaluation in today’s manufacturing companies and also helps management attain its goals of profit maximization. Questionnaires were distributed by hand to various department, of the company, which includes production department, accounting department, sales and marketing department, store department, etc, from the questionnaires distributed, few were returned, and that few returned questionnaire proved adequate for the  purpose of this study which standard costing and variance analysis have strong effects on manufacturing firms in Nigeria. Finally, the need for further research into the fixed issue of the effect of standard costing and variance analysis was stressed among other recommendations

CHAPTER ONE

1.0             INTRODUCTION

1.1          BACKROUNG OF THE STUDY

This report focuses on the effect of standard costing and variance analysis in Nigeria manufacturing firms, a case study of Pal Breweries Oko. Financial accounting is that part of accounting, which cover the classification, reading, selecting, measuring, interpreting and communicating financial data’s of actual transactions of an entity in monetary terms in accordance with the established concepts, principles, accounting standards and legal requirement and presents accurate, a view as possible of those transaction over a period of time, and at the end of that time. In other records it gives only historical, custodial and stewardship aspect of accounting.

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Costing accounting is that part of management accounting that established budgets; standards cost (S.C) and actual cost (A.C) of operations, process, departments or products and analysis of variance profitability or social use of funds.

Standard costing can thus be designed to show in relation details how much each product should cost to produce and send at a given level of out put and efficiency. Any difference between standard cost and actual cost is the variance and would assume a positive value, if the operation has been efficient and ineffective. The variance determines that the operation has been efficient or inefficient.

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Costing is concerned with the provision and ascertain of information about cost, due to insufficient information of financial accounting.

The process of computing the amount and isolating the cause of variance between actual cost and budget or standard cost is what is known as variance analysis.

Pal project was conceived and designed in the 1970’s civil works started shortly after incorporation in 1980 and was commissioned on August 1985. At conception, pal was to start “pal larger beer” followed by “sherby drinks” and about three years later by non- alcoholic malt drink and finally a range of soft drinks. Adequate provision for these were made in the plant design and procurement.

The company commercial production in the month of August 1985, with the introduction of the first lager beer, pal lager beer in the market. The company now brews and introduced the second product non-alcoholic drink,” royal malt on 27th December 1995”. The company now operates by appointment of the executive directors from the existing directors and produce at less than 20% capacity due to finance problem. The company has about seven directors now.

The survival of any organization is dependent upon its decision to achieve its desired objectives.

A definitive guide to management decision is information. Management need information for planning, a second control for decision making.

Accounting is of great importance to all level of management and without accounting there would be stagnation and confusion which in extreme cases may lead to a complete break down of the system. Without analysis of cost, management cannot exercise decision over production.

(Kalu 2002) in today’s business environment, the development and use of information especially management accounting information and cost techniques are critical factor in the effective management of an organization.

Management information is not only concerned with the provision of changing environment involved in the provision of non-financial information about productivity, quality, but also in response to cost and revenue generated and other key success factors for the organization.

To ensure effective use of variance/analysis for planning the information provided by the management accounting and cost accounting system, they must be timely, complete, reliable, objective and understandable amongst others.

Standard costing and variance are vital tools in our manufacturing firms, which our manufacturing firms have to expressed and complete carefully as at not to present wrong information, due to vitality of its application in decision making.

1.2   STATEMENT OF PROBLEM

Effectiveness of standard costing and variance analysis has been playing a greater role as a tool of co-operate survival especially in the present day complex business management, having the best techniques and information are the key to success in production unit and the entire organization.

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Therefore the problems of the research work include:

  1. Does standard costing and variance analysis stimulate improved performance in manufacturing company?
  2. Does standard costing helped the manufacturing firm attain its goal of profit maximization.
  • Does standard costing serve as effective techniques for planning control and decision making in performance evaluation in today’s manufacturing company.
  1. The type of standard in use.

1.3 PURPOSE OR OBJECTIVE OF THE STUDY.

The followings are the objectives with which the study was conducted:

  1. To ascertain whether standard costing and variance analysis stimulate improved performance in manufacturing company
  2. To determine whether standard costing help the manufacturing firm attain its goal of profit maximization.
  • To determine whether standard costing is an effective techniques for planning control and decision making performance evaluation in today’s manufacturing company.
  1. To determine the type of standard costing applied.

1.4 RESEARCH QUESTIONS

For the purpose of this research, the following questions were formulated and tested.

  1. Does standard costing and variance analysis stimulate improved performance in manufacturing company?
  2. Can standard costing help the manufacturing firm attain its goal of profit maximization?
  • Is standard costing effective technique for planning control and decision making performance evaluation in today’s manufacturing companies?
  1. Does current standard yield more performance in terms of productivity when compare to other standard.

1.5 SIGNIFICANCE OF THE STUDY.

The need for this study focuses on the result of standard cost and variance analysis in Nigerian manufacturing firms, and the proper way of applying standard costing, effect of standard and variance costing and the adverse that follows:

Nigeria manufacturing firm often overlook the use of standard cost which result to variance in the manufacturing firms.

To properly educate the manufacturing firms about standard costing in order to eradicate wits and inefficient use.

A better application of standard costing and variance will lead to growth of firms in Nigeria; when their firms attain its goals of profit maximization. Standard costing makes it possible to establish, which variance are due to external influences, an instance is where there is a price increase over which management have limit control and which are caused by internal influences.

Finally, the study will provides a valuable aid to management in determining price and formulating policies by establishing the most efficient and effective method of producing the unit which in itself may lead to economic.

1.6 SCOPE/LIMITATION OF THE STUDY.

The scope of the study covers the manufacturing firms in Nigeria with Pal Breweries Oko as its case study.

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The study sets to contribute to empirical research in the discipline of accounting in Nigeria by working at the effect of standard costing and variance analysis presented are being put to use in the manufacturing companies of Nigeria and its result in helping management to make decision in the production center and the organization at large.

1.7 DEFINITION OF TERMS

Standard: It can be the required degree of excellence a noble or an example for comparism.

Cost: The amount of many needed in order to buy, makes or do something.

Costing: It is an estimate of how much money will be needed for something.

Variance analysis: It is the detailed examination or study of something or amount by which something changes or is the difference from something else.

  1. Firms: A business or companies.

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