AN EVALUATION OF MANAGEMENT ACCOUNTING TECHNIQUES ON ORGANIZATION DECISION MAKING PROCESS (A CASE STUDY OF CADBURY NIGERIA PLC, IKEJA, LAGOS)
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AN EVALUATION OF
MANAGEMENT ACCOUNTING TECHNIQUES ON ORGANIZATION DECISION MAKING PROCESS (A
CASE STUDY OF CADBURY NIGERIA PLC, IKEJA, LAGOS)
ABSTRACT
This project work attempts to evaluate the management
accounting techniques used by the manufacturing company (A case study of
Cadbury Nigeria, PLC) on decision making process. Lists of traditional and
modern management accounting techniques were identified and the extent of their
use was evaluated. Some of the techniques evaluated are; make or buy decision,
opportunity cost, relevant cost, incremental cost, just-in-time, inventory
management, budgeting, standard costing (variance analysis) cost-volume-profit
analysis; activity based costing and linear programming.
Survey design was employed with the use of a well structured
questionnaire. Respondents were selected based on simple random sampling
technique. Hundred (100) Cadbury Plc.
were sampled.
Two hypotheses were formulated and tested with the use of
Chi-Square analysis. The analysis resulted to rejecting both hypotheses and
hence accepting the two alternate hypotheses.
Based on decisions of the tested hypotheses conclusions were
reached that application of management accounting techniques by manufacturing
companies influence decision making process and There is significant
relationship between the management accounting technique used on organization
decision making process and the effective result of the decision made
Recommendations were proffered to Cadbury Nigeria Plc and the
entire manufacturing companies.
TABLE OF CONTENTS
CHAPTER ONE : INTRODUCTION
1.1 Background of
the Study
1.2 Objectives of
the Study
1.3 Statement of
the Problems
1.4 Research
Questions
1.5 Statement of
Hypotheses
1.7 Significance
of the Study
1.8 Scope and
Limitations of the Study
1.9 Organization
of the Study
1.10 Definition of
Terms
References
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction
2.2 Opportunity
Cost
2.2.1 Importance of Opportunity Cost to Decision Marking
Process
2.3 Relevant
Cost
2.3.1 There are Six Steps in Decision Making Process in an
Organization
2.3.2 Usefulness of Relevant Cost to Organization Decision
Making Process
2.4 Incremental
Cost
2.5 Cost Volume
Profit Analysis
2.5.1 Application of Cost Profit Volume Ratio in a
Manufacturing Company
2.5.2 The Application
of the Cost Volume Profit Model
2.6 Make or Buy
Decision
2.6.1 Consideration
that Favours Make or Buy Decision
2.6.2 Factors that May
Influence a Manufacturer to Buy a Part Externally
2.6.3 Elements of “Make” Analysis
2.6.4 Element of “Buy”
Analysis
2.7 Standard
Costing (Variance Analysis)
2.7.1 Basic
Variances
2.8 Inventory
Control Techniques
2.8.1 Objective of
Inventory Control
2.8.2 Factors
Considered for Effective Inventory Control in a Manufacturing Company
2.8.3 The Reasons why
Manufacturing Companies Hold Inventory
2.8.4 Factors
Influencing Stock Holding Decision
2.8.5 Inventory
Control System in a Manufacturing Company
2.9 Just – In –
Time Technique
2.10 Linear
Programming Technique
2.11 Activity Based
Costing
Reference
CHAPTER THREE: RESEARCH METHODOLOGY
3.1
Introduction
3.2 Research
Design
3.3 Source of
Data
3.4 Population of
the Study
3.5 Sample and
Sampling Techniques
3.6 Research
Instrument
3.7 Restatement of
Hypotheses
3.8 Method of Data
Analysis
CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND INTERPRETATION
4.1
Introduction
4.2 Analysis of
Respondent Bio-Data
4.3 Analysis of
Questions from Problem Area
4.4 Testing of
Hypotheses
4.4.1 Test of
Hypothesis One
4.4.2 Test of
Hypothesis Two
CHAPTER FIVE: SUMMARY CONCLUSION AND RECOMMENDATIONS
5.1 Summary
5.2
Conclusion
5.3
Recommendation
5.4 Suggestions
for Further Studies
References
Appendix
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF
THE STUDY
Management accounting techniques have in no small measure
assisted different organizations especially manufacturing companies, in their
decision making processes. It is a known fact that techniques change over the
time largely because business themselves and the societies that they operate
change as well. What was considered as a good management technique year ago may
be considered ineffective in making decision in the future.
Also, changing external business environment has resulted in
further developments in the tools and techniques used for management
accounting. Traditional management accounting techniques had certain
limitations associated with them, for instance, absorption costing methods have
been found to be inappropriate in the modern environment. Similarly, standard
costing suitability with respect to its general philosophy and detailed
operations has come under severe criticism. It is believed that, traditional
management accounting performance measures can produce the wrong type of
response. However, the current techniques used by the management in making
their decisions such as; make or buy, cost-volume-profit analysis, just-in-time, inventory
management,budgeting,variance analysis, activity based costing,
linearprogramming, relevantcost, incremental cost and opportunity cost are the
techniques to be discussed in this write-up.
Decision making may be simply defined as choosing a course of
action from among many alternatives. If there are no alternatives, then no
decision is required. A basis assumption is that the best decision is the one
that involves the most revenue or the list amount of cost. The task of
management with the help of management accountant is to find the best
alternative. From the descriptive model of the basic features and assumptions
of the management accounting perspective of business, it is easy to recognize
that decision making is the focalpoint of management accounting. The concept of
decision making is a complex subject with a vast amount of management
literature behind it. In management accounting, it is useful to classify
decisions as:
· Strategic and
tactical
· Short-run and
long-run
In any organization, whether a decision is good or acceptable
depends on the goals and objectives of management. Consequently, a prerequisite
to decision making is that management have set the organization’s goals and
objectives. For instance, management must decide strategic objectives such as
the company’s product line, pricing strategy, quality of product, willingness to
assume risk, andprofit objective. All these can be efficiently achieved when
appropriate technique(s) is applied.
1.2 STATEMENT OF
THE PROBLEM
It is more or less easy to notice the usefulness of
management accounting techniques in decision making process. Therefore, there
arise questions as;
§ Does the management
accounting techniques really useful on organization’s profit maximization
decision making process?
§ What led to the
dependence of the company on the use of techniques considered to be modern?
§ Does application of
management accounting techniques in organization decision making improve their
performance?
§ Indeed, all the
above points would take me into a comprehensive research on the effectiveness
of management accounting techniques on decision making process in manufacturing
industry(CADBURY NIGERIA PLC).
1.3 OBJECTIVES OF
THE STUDY
The main aim of this study is an attempt to:
· Evaluate the
effectiveness of management accounting techniques on organization decision
making process.
· Determine how
useful the management accounting techniques are to the manufacturing company
when making decision.
· Demonstrate by
using some variables in calculating how each of these techniques will influence
organization decision making process if practically implemented.
· Examine the
benefits of using management accounting techniques in organization indecision
making.
1.4 RESEARCH
QUESTIONS
Research questions are those interrogative statements that
arise often from the course of study or alternatively they can be defined as
research objectives stated in interrogative form. Research questions are meant
to generate possible answers to different aspects of the research problem and
they should be clearly stated such that they act as guides in identification,
collection and analysis of relevant data. In order to achieve the purpose of
this research study, the study will
attempt to provide answers to the following research
questions in order to arrive at a logical conclusion
i. Does using
management accounting techniques in making decision have tremendously enhance
rapid growth for the company?
ii. Is there any
significant relationship between the management accounting technique used on
organization decision making process and the effective result of the decision
made?
iii. What are the
yardsticks or parameters to measure the effectiveness of management accounting
techniques used in the organization?
iv. Are there
significant challenges attached to the use accounting technique in making their
decision?
1.5 STATEMENT OF
HYPOTHESES
In order to do justice to this research work, the following
hypotheses are formulated to act as guides for my findings.
HYPOTHESIS ONE
Ho: Application of
management accounting techniques by manufacturing company does not influence
decision making process.
HI: Application
of management accounting techniques by manufacturing companies influence
decision making process.
HYPOTHESIS TWO
Ho: There is no
any significant relationship between the management accounting technique used
on organization decision making process and the effective result of the
decision made
HI: There is
significant relationship between the management accounting technique used on
organization decision making process and the effective result of the decision
made
1.7 SIGNIFICANCE
OF THE STUDY
The researcher strongly believe that evaluating some of the
techniques used by the management of manufacturing company in the decision
making process will be beneficial to both the management accountants and
manufacturing companies in general.
1.8 SCOPE AND
LIMITATION OF THE STUDY
This research will evaluate some of the techniques used by
the management of manufacturing company(s) in their decisions making
processes.Also,the research intends to study essential problems encountered by
industries using management accounting techniques as their decision making
tools.
The study would be limited to Cadbury Nigeria Plc.This is due
to constraints like degree of precision, cost and time involve. As a result of
this, I will limit myself to data collected (brief history) at Cadbury Nigeria
Plc, primary and secondary data.
1.9 ORGANISATION
OF THE STUDY
This study will be divided into three chapters.
Chapter one, which is the introduction will include the
problem statement where the problems of the study that prompted the researcher
will be stated. Objectives intended to be achieved in carrying out this
research work will also be listed here; the research questions will also be
specified in the chapter. Answers to these questions will be provided at the
end of the research work. Other sections of the chapter will include; Scope and
limitations of the study, significance of the study, definition of terms and
finally historical background of the study.
Chapter two, which is the literature review examine the
existing literatures on management accounting techniques.The chapter will
include history, definitions, theories and concepts in accounting.
Chapter three, this section includes; the research design,
population of study, method of data collection and method of data analysis.
Chapter four is the presentation of data analysis. It
includes the presentation of data, analysis and testing the hypothesis.
Chapter five, which is the summary, conclusion and
recommendation. This will be the final chapter and will summarize the findings
of the research, drawn conclusions from these findings and proffer
recommendations to staff and management of organizations in Nigeria.
1.10 DEFINITION OF
TERMS
This study intends to examine various concepts used in
research work in order to make them understandable to those who are not in this
filed (Accounting/Finance)
JUST-IN-TIME: This is a technique whereby production only
takes place when there is actual customer demand for the product.
RELEVANT COST:According to chartered institute of management
“relevant costs are the cost appropriate to a specific management decision”
OPPORTUNITY COST:An opportunity cost is a level of profit
forgone by the pursuit of a particular course of action.
MARGINAL COSTING: This is also known as direct costing or
variable costing. It is a system of segregating manufacturing costs between
fixed and variable components, and charging the product manufactured only with
variable manufacturing costs. It comprises direct material costs, direct labour
cost and direct expenses(i.e. Prime cost) and variable manufacturing overheads.
ACTIVITY BASED COSTING: This is a costing techniques that
identifies activities in an organization and assigns the cost of each activity
resource to all products and services according to the actual consumption by
each. It assigns more direct costs overhead)into direct costs.
TECHNIQUE: A practical method, skill, or art applied to a
particular task. It can be defined as procedure used to accomplish a specific
activity or task.
PROCESS: This is a sequence of independent and linked
procedures which, at every stage, consumer one or more resource (employee,
energy, machines, money)to convert inputs(data, materials, partsetc.)into
outputs. These outputs then serve as inputs for next until a known goal or end
result is reached.
MANUFACTURING: Any industry that makes products from raw
materials by the use of manual labour or machines and that is usually carried
out systematically with a division of labour.In a more limited sense;
manufacturing is the fabrication or assembly of components into finished
products on a fairly large scale. Among the most important manufacturing industries
are those that produce aircraft,automobiles,chemicals, clothing, computers,
electrical equipment,furniture,heavymachinery, refinerypetroleum
products,ships, steel and tools.
DECISION: Decision-making is not a separate function of
management. In fact, decision-making is intertwined with the other functions,
such as planning, coordinating, and controlling. These functions all require
that decisions be made. Forexample, at the outset, management must make a
critical decision as to which of several strategies would be followed. Such a
decision is often called a strategic decision because of its long-term impact
on the organization. Also; managers must make scores of lesser decisions,
tactical and operational, all of which are important to the organization’s
well-being.
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