AN ASSESSMENT OF THE EFFECTIVENESS OF STANDARD COSTING AS A CONTROL TOOL FOR PERFORMANCE EVALUATION IN MANUFACTURING COMPANIES
- Project Research
- 1-5 Chapters
- Quantitative
- Simple Percentage
- Abstract : Available
- Table of Content: Available
- Reference Style: APA
- Recommended for : Student Researchers
- NGN 3000
BACKGROUD OF THE STUDY
Knowing that a standard is a pre-determined foundation or benchmark against which actual performance results are measured. A standard cost is a predefined or established cost, objective, or goal that the management of a business or industry strives to achieve given favorable operating conditions in order to maximize production efficiency. I is a pre-determined or predicted estimate of the cost to manufacture a single unit or a number of units of goods over a given time period (Keller et al 1966) As a result, standard costing is a costing approach that compares the standard cost of a unit of product to the actual cost in order to measure the efficiency of operations and, if required, take corrective action (Nnamadi, 2000).
Cost estimates are going to differ due to the fact that they are pre-determined units, and these are pinpointed in that they reflect performance measurements. These differences are known as variances, and they are separated for a more in-depth examination to reflect in the variance assists in the commencement of corrective and control action, directing the firm's operational activities to conform to the standard cost as calculated prior to those operations (Jack, 2009).
One important premise is that standard cost (of any kind) is used to regulate production costs, employee excesses, and therefore ards to performance assessment while keeping in mind the firm's or industry's overall goal. According to Ama (2001), the goal of control accounting is to create data in a consistent format at regular intervals so that actual performance can be compared to plans and budgets, and variations may be evaluated for causes. As a result, no manufacturing company's success can be accomplished if this cost-control strategy is completely ignored.
These assertions apply to the Anambra Motor Manufacturing Company Ltd (ANAMMCO), a maker of vehicle engines. Firms must embrace standard costing and make appropriate use of it as a cost control method with which to analyze their performance in order to reduce and minimize costs.
The federal military administration of Nigeria formed the Anambra motor manufacturing company limited case study of the researcher in an effort to propel the country ahead in terms of industrial growth, technical advancement, and independence. This began in 1975 with the inter aha negotiation of a joint venture agreement with Damler Benz AG of the Federal Republic of Germany, which manufactures automobiles, among other things. On December 12, 1975, the federal military administration of Nigeria and Daimler Benz AG inked a collaboration deal. The first executive president of Nigeria, Alhaji Shelar Shagari, commissioned the plast, which is located in Emene, Enugu state, and spans 3000, 000 square meters. In January 1981, official production began with a team of 794 people, including 782 Nigerians and 12 international expats. The factory has a capacity of 75,00 commercial cars per year installed.
The company's initial objective was to make trucks for the Nigerian market, but it has since been reclassified to a product range that includes items for Nigeria's growing industrialisation. L700, L1418, and ACTROS are examples of tracks that have gone above and beyond in terms of designing, building, producing, and selling buses and other utility vehicles. MBO 800, MBO 1418, MBO 1721, MBO 4000 MARCOPOLO/ BUSSEAR, FIR FIGHTING VEHICLE are among the company's products. Ambulatory mobile clinics, garbage collectors, and other specialized vehicles are also available.
Despite the fact that the pricing of these products are governed by the economy's falconry trend. This disregards the cost component in car manufacture in order to maintain a lower production cost, which usually helps the corporation undercut its competitors.
1.2 STATEMENT OF PROBLEM
Control as a function of the business management and appraisal of the entire organization's performance has become a hydra-leaded viewpoint. Furthermore, the economic hardship defined by high rates of inflation, fluctuation in the pricing of commodities, and high costs of manufacturing, among other factors, has prompted many businesses to discover ways to keep their production facilities operational until the economy improves. Such businesses adhere to cost containment in order to decrease and eliminate waste (Isaac, 2007).
Standard costing is a cost control strategy that has been around for a long time. And its widespread usage by numerous businesses has demonstrated that it is beneficial in providing cost-controlling information.
It's also worth noting that standard costing can't manage costs on its own; it's only beneficial when the data it provides is applied to expenses. The efficiency of a process may be measured using standard costing by comparing the actual incurred cost to the current standard, but because manufacturing inputs are acquired on the open market, inflation is a factor. This makes it difficult for the cost accountant to provide reliable cost data. As a result, cost information provided today may become obsolete the next day.
Furthermore, given the present economic downturn and high-cost production, both the company's management and its customers are concerned about product quality maintenance. To preserve client loyalty and, as a result, continuing profit, quality must be maintained, even if it is expensive (Brac, 2000). It is up to this corporation to determine whether to utilize high-quality materials, which may be more expensive, or low-quality materials, which are less expensive but diminish the product's quality.
In order for a firm to function effectively, efficiently, and profitably during current economic downturn, it must pay attention to its cost of production, which is the foundation on which profit is achieved.
1.3 THE OBJECTIVE OF THE STUDY
The general aim of this study is to examine the effectiveness of standard costing as a control tool for performance evaluation in manufacturing industries. Specifically the study is set to;
A. Determine the effectiveness of the application of standard costing system in controlling the production cost.
B. Determine if inflation impede the effectiveness of standard costing in an organization.
C. Determine if standard costing effectively and efficiently aid the evaluation of an organizational performance.
D. Ascertain if standard costing data influences managerial decision making
E. Ascertain if standard costing system help in the elimination and redaction of wastage
1.4 RESEARCH QUESTIONS
The study will be guided by the following questions;
Is the application of standard costing system effective in controlling production cost?
- Does inflation impede the effectiveness of standard costing in the organization?
- Does standard costing effectively and efficiently aid the evaluation of an organizational performance?
- Does standard costing data influences managerial decision making?
- Does standard costing system help in the elimination and redaction of wastage in the organization?
1.5 SIGNIFICANCE OF THE STUDY
This research is mainly carried out as a requirement in the partial fulfillment of the award of higher National Diploma (HND) in accounting.
It is also expected to help the researcher and other interested studies to have an insight of the practicability of the wholesome theoretical as seen in many textbooks on the concept of standard costing technique.
This additionally brings to the notice of the Nigeria would be entrepreneur and already existing companies the need to appreciate the use of standard costing in controlling costs and basis for performance evaluation.
1.6 SCOPE OF THE STUDY
This research is intended to examine the effectiveness of standard costing as a control tool for performance evaluation in manufacturing firms, with specific emphasis on if inflation impede the effectiveness of standard costing in an organization, if standard costing effectively and efficiently aid the evaluation of an organizational performance. if standard costing data influences managerial decision making, and if standard costing system help in the elimination and redaction of wastage. The study will be carried out in ANAMMCO, Enugu State, and the respondents will be obtained from the finance/accounting department of the organization.
1.7 LIMITATION OF THE STUDY
Since this requires constant transportation to Emene where the company of my case study is located the in availability of the fund required for this possess the first limitation to this. This is followed by the inability of the management to divulge certain information which they consider sensitive and the publication of which is detrimental to their operations. Moreso, the attention of the members of top management whom may not be chanced on several occasions proved a limitation to this research
I must also comment on the limited time gives for the completion of this research which is amplified when considered that the researcher have to attend to other aspect of his study other than the research work alone since both research work and academic studies are run concurrently.
1.8 DEFINITIONS OF TERMS
1. Quantitative accounting approach: This is that approach to accreting which concerns itself with only data that can be qualified in monetary terms.
2. Qualitative accounting approach: This unlike the number one above take cognizance of data that matters but can not be qualified in monetary terms.
3. Limiting factor: This is that factor that can be a constraint to the expansion of production. It is sometimes termed they factor.
4. Cost control: This as used in this study an operating function but not an accounting function. It is the manipulation of cost through operating personnel precisely, it is the employment of all the management devices in the performance of an important operation so as to meet the already established objectives of quantity and quality with the lowest possible outlay of input
5. Cost centre: This is a desirable are of activity within a business to which costs can be attributed. In the content of manufacturing firm. It is those manufacturing units or departments in respect of which cost can be ascertained and over which cost can be controlled.
6. Cost reduction: This is also an operating function this aim at the employment of the management derives in the performance of some important operation so as to reduce cost firm what it use to be. This can be achieved through a change in the system of production labour intensive to capital intensive)
7. Performance: This is the act of measuring appraising and comparing the operational results of different profit centers of an organization.
8. Variance: This is the difference between the actual performance and the expected performance expressed by the standard costing. Simply put, it is a difference between standard cost and actual cost.
9. Benchmark: This is used in this study means the process of companism between what is and what is supposed to be.
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