Evaluation Of Cost Reduction Technique In Achieving Profitability In An Inflated Economy (A Case Study Of Nigerian Breweries Plc)

AN EVALUATION OF COST REDUCTION TECHNIQUE IN ACHIEVING PROFITABILITY IN AN INFLATED ECONOMY.

(A CASE STUDY OF NIGERIAN BREWERIES PLC)

ABSTRACT

The research work aim to study the evaluation of cost reduction techniques is achieving profitability in an inflated economy with particular reference to Nigerian Breweries Plc and to find out how effective, the resources of Nigerian Breweries Plc are utilized to improve profitability.  This research work has five chapters.

Chapter one contains a general discussion of cost reduction as seen by different people. It went further to state the problem to be studies

and why this study was carried out, the scope and limitation for the study and finally the proposition and the definition of terms.

Chapter two reviewed related literature as it relate to costs, concept and definition of cost reduction.

Chapter three deals with the design of the study the method used in collecting relevant data.  It also deals with way the questionnaire were distributed and the treatment of data.          Chapter four, showed data gotten from the research survey. its analysis and interpretation.      Finally, the summary of findings, conclusion on the research and recommendation made by the researcher are all in chapter five.

TABLE OF CONTENT

CHAPTER ONE

1.0        INTRODUCTION

1.1     BACKGROUND OF THE STUDY

1.2        STATEMENT OF THE PROBLEMS

1.3        OBJECTIVES F THE STUDY

1.4        SIGNIFICANCE OF THE STUDY

1.5        SCOPE AND LIMITATION OF THE STUDY

1.6        OPERATIONAL DEFINITION OF TERMS

REFERENCE

CHAPTER TWO

2.0        REVIEW OD RELATED LITERATURE

2.1     COST

2.2        CONCEPT AND DEFINITION OF COST REDUCTION

2.3        INFLATION AND PROFITABILITY

2.4        DIFFERENCE BETWEEN COST REDUCTION AND COST CONTROL

2.5        THE PRODUCTION DEPARTMENT

2.5.1   THE PURCHASING DEPARTMENT

2.5.2   THE SALES DEPARTMENT

2.5.3   PERSONNEL AND ADMINISTRATIVE DEPARTMENT

2.6        THE PLANNING REDUCTION

2.7        COST REDUCTION ANALYSIS

2.8        COST REDUCTION TECHNIQUES

2.9        BREAK-EVEN ANALYSIS

2.9.1   ABC ANALYSIS

2.10     ABSENTEEISM CONTROL

2.11     FACTORS THAT INFLUENCE PROFITABILITY

2.12     ROLE OF PROFIT IN BUSINESS

CHAPTER THREE

3.0        RESEARCH DESIGN AND METHODOLOGY

3.1     POPULATION COLLECTION

3.2     TEST OF HYPOTHESIS

3.3        ANALYSIS OF QUESTIONNAIRE

3.4        METHOD OF DATA COLLECTION

3.5        PRIMARY DATA

3.6        SECONDARY DATA

CHAPTER FOUR

4.0        DATA PRESENTATION AND ANALYSIS

4.1     DATA PRESENTATION

4.2        DATA ANALYSIS

4.3       INTERPRETATION OF DATA

CHAPTER FIVE

FINDINGS, CONCLUSION, AND RECOMMENDATIONS

5.1        SUMMARY OF FINDINGS

5.2        CONCLUSION

5.3        RECOMMENDATION

BIBLIOGRAPHY

CHAPTER ONE

INTRODUCTION

For a business to succeed, knowledge of certain management, techniques is ver necessary.

Mastering the techniques that can help one to achieve the basis objectives of building up a business and making it profitable,

1.1    BACKGROUND OF THE STUDY

The aim of all production is to satisfy peoples wants, however in carrying out this production, certain costs are incurred I order to achieve the stated organisational objective be it to satisfy peoples wants according to Hanson J. L to maximizes profit. For any business to achieve it s set objective there have to be adequate, strong and effective cost reduction measures (formal or informal) which should be adopted.

The effectiveness of the these measures however may have heaped some of these companies to still remain in business irrespective of the hash condition like inflation among others.

Many Nigerian business establishments presently, especially the manufacturing sectors are in serious profit squeeze.  A number of factors account for this into ward condition which include, the increasing cost of running business in Nigeria, drastic fall in Nigerian foreign exchange market did not help  matters.  The situation is further aggravate by tripple digit inflation present in our (Nigeria) economy.  The structural adjustment programme, ban on importation  of certain basic raw materials, payment of long excise duties have caused some companies either to have closed indefinitely or produce at high cost, thereby making even the local goods high and sale volume low.

All have result in poor profit margin payout, retrenchment, compulsory leave and retirement with or without benefit which invariable affects the company as well.

Firms therefore are struggling to maintain satisfactory pay-off where costs are using and o price increase becoming more and difficult to sustain. To maintain earnings in the face of thee conditions, there is the need for these companies to make decision with regard to cost maintenance culture, increase productivity to enhance profitability and diversification into a complete new market area.

In addition to these, it will enhance competitive ability and generate reasonable profit margin for survival, growth and expansion of the business.

It is the view that most  industries do not have approved they exist, are not well  organisation.

This analysis therefore is designed to explore the various strategies and evaluate them and well as open to manufacturing firms in reduction system can go a long way at improving profitability and over coming inflation.

It is appropriate therefore to say that the identification of these problems of some industries and the solution to them will not only improve the profitability of its operations but also helps largely towards the improvement of the Nigerian economy.

This work therefore is assumed to be of some benefits to manufacturing firms and help than improve further than returns on investment and improving the Nigeria economy generally.

1.2       STATEMENT OF PROBLEM

The firms are business to make profit. It does this by producing and selling some commodities.

Essentially, every activity whether productive of not, consumes resources.  According to Lipsey Et Al “there are insufficient productive resources in the world to produce the amount of goods and services that would be required to satisfy every ones want”.  The scarcity of these productive resources eg (human and material) made it imperative that there should be product and judicious use of them.

Most firms in Nigeria are faced with raising cost of production and low contribution margin.

Small firms in particular have peculiar problems and easily swept off their feet by conditions that other companies could accommodate,

Factors that can disrupt the profitability of Nigerian Breweries Plc in this our economy of hyper inflation includes:

i    Inadequate capital structure

ii   Inadequate to enjoy economies of purchase

iii  Tiny market share r loosing their market share

iv   Higher cost of research and development.

Having considered the above factors, certain questions needed to be answered include:

1.    Is there any possible means of installing a cost reduction system so as to eliminate avoidable cost and or waste and enhance the Nigeria Breweries Plc’s profitability.

2.    Do this firm have any cost reduction scheme or programme and if present, how effective and efficient are they ?  Are they producing the desired result ?

3.    Can the cost per unit of production of a given product be realized wit out affecting h quality and usefulness of product.

4.    Are the firm resources being fully utilized or some of them lying idle and thus going to waste.

5.    How, out of the various alternatives do we employ our limited resources to produce this assertments as efficiently as possible.

6.    In a manufacturing set-up, what specific area requires reduction in cost and what level of cost reduction is require in a given cost level.

1.3       OBJECTIVE OF THE STUDY

Having identified these problems above, and the operational environment surrounding the company, which the researcher is aimed at solving, the following as what this study is aimed at achieving:

–              To find out how effective, the resources of Nigerian Breweries PLC are being utilized to improve profitability.

–              To know of cost reduction scheme are being applied in the industry.

–              To find out the specific strategies adopted, the level of application and the specific areas where they are being administered their evaluation.

–              To ascertain whether there is a systematized cost reduction schemes/programme under the personnel and or accounting department.

–              To know if certain specific cost reduction techniques applied in one industry will still achieve some result elsewhere.

–              To offer suggestions ion the specific cost reduction techniques to the company under review as well as providing an assistance where firms including the low ones.

1.4       SIGNIFICANCE O THE STUDY

Certain facts /things has been fund significant and had taken note of by the research in this analysis which will help him go on with the study.  Some of these include

1.     That Nigerian Breweries Plc is a going concern that have specific and procedural cost reduction techniques.

2.     That the problem being encountered by this organisation in its problems as the case may be.

Since the establishment of Nigerian Breweries Plc which is over fifty (50) years ago with the sole aim of producing lager beer and other mineral drinks have forming strength, making and declaring its profits.

If the life cycle of a business star5ts at Zero, climbing gradually through its peak and then falling down to extinction, Nigerian Breweries Plc has remained at its peaks and yet growing a new peak irrespective of the economic down turns and serious hyper inflation associated presently with our economy.

This had not been without the proper implementation of the various techniques to cost production.  Management skills, proper recording and analysis of transactions to management acquiring them with state of the financial position sand avoiding unnecessary spending.

These techniques therefore need to be evaluated and reviewed to either commend the management or advice for a change if a particular techniques is becoming out of  fashion.

1.5       OPERATIONAL DEFINITIONS OF TERMS

The following terms which are used in this study are defined precisely they related to the context of this research work.

1.      COST REDUCTION

This is a process whereby a permanent cost savings are made without affecting the quality or the usefulness of a  given product (goods and services).

2.      PROFIT SQUEEZE:

This is persistent dwindling of return on investment cased by high   cost of operation.

3.     PROFITABILITY:

It is the yardstick for measuring return efficiency and effectiveness on the use resources.

4.      COST CENTRE:

This is the smallest responsibility center for which cost are accumulated. Sometimes “an entire department is considered a single cost centre.  It control and report cost only.

5.      PROFIT CENTRE

This is centre used to assign responsibility for revenues
and expenses.

6.      SEGMENT AUTONOMY:

This is the “procession of decision-making power” by

managers of sequent of an organisation.

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