STRATEGIC MANAGEMENT ACCOUNTING AND PROFITABILITY OF FIRMS IN NIGERIA (A STUDY OF SELECTED FIRMS IN BREWERY INDUSTRY IN NIGERIA)
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STRATEGIC
MANAGEMENT ACCOUNTING AND PROFITABILITY OF FIRMS IN NIGERIA (A STUDY OF
SELECTED FIRMS IN BREWERY INDUSTRY IN NIGERIA)
ABSTRACT
Strategic
management accounting (SMA) is central to the accomplishment of organizational
objectives. Without the implementation of SMA, it would be quite difficult for
a firm to survive, given the competitive nature of business environment in
Nigeria. The study examined the impact of SMA on profitability of firms in the
Nigerian brewery industry. The study prioritized on three SMA techniques namely
corporate planning, capital investment analysis and cost-volume profit analysis.
The study employed the descriptive survey design. Structured questionnaire was
administered to 144 randomly selected staff of six brewery firms in Nigeria.
The data collected were analyzed by the use of descriptive statistics and
multiple regression analysis. Findings of the study revealed that corporate
planning, capital investment analysis and cost-volume profit analysis
positively and significantly influence profitability of selected firms. In
addition, the joint effect of these three techniques is statistically
significant on firm profitability. To this end, the study suggested that
organizations should develop internal capacity and network systems in order to
be able to capture external strategic information for decision making.
Organizations should also establish units/departments that will specifically
focus on collection and analysis of external strategic information.
CHAPTER ONE
INTRODUCTION
1.1 Background to the
Study
One of the
functionalities of organizations is their strategic drive that enables them
compete well in the market through sound decision making process. Ahmad (2014)
points that the principal challenge of management accounting lies on the fact
that its conventional tools such as variance analysis, budgeting, costing,
profit analysis and standard costing lack relevance to address managerial
problems in contemporary period. Apart from the irrelevance of these tools,
they are only good on paper as they lack applicability in the real world
(Ojira, 2014; Ojua, 2016). The mandate of management accounting is to supply
information to management of organizations for decision-making. These
information most times, neglects information from rival firms. Management
accounting only supplies internal information to organizations excluding
information from external stakeholders whose actions subtly affect the
performance of organization.
The
Chartered Institute of Management Accountants (2005) defines strategic
management accounting (SMA) as a form of management accounting (MA) that
prioritizes on information relating to factors external to an organization, as
well as non-financial information and internally generated information. Ojua
(2016) maintain that SMA can be captioned from two aspects – SMA as a component
of strategically-oriented accounting and the engagement of accounting
practitioners in corporate strategic decision-making processes. The application
of the tools of SMA is referred to as Strategic Management Accounting Practices
(SMAP). SMAP are various tools of accounting that supplies authentic
information to various parts of decision-making needs of an organization. The
needs of decision-making of an organization are but not limited to strategic
costing, target costing, consumer accounting, competitors accounting, strategic
decision, planning, control, performance management and evaluation (Khatabb,
etal, 2015). SMA as described by Tillman
and Goddard (2008) refers to the application of the systems of management
accounting for making strategic decisions. Techniques of SMA as enumerated by
them include activity based costing, attribute costing, brand value
budgeting, benchmarking, competitive
monitoring position, competitor cost assessment, environmental accounting
management, strategic costing, customer accounting, value chain costing and
strategic pricing.
The
techniques of SMA are effectively utilized by organizations in the developed
economies for the sole purpose of making strategic decisions (Ojira, 2014;
Ojua, 2016). The impacts of these SMA techniques have been found to positively
impact on the growth of organizations (Aremu&Oyinloye, 2014; Khatabb, etal,
2015; Mwangi, 2014). Only few organizations in Nigeria recognized the
importance of SMA and have been consistently applying its techniques to enhance
their organizational profitability (Ojua, 2016). However, the extent to which
SMA contributes to the profitability of Nigerian firms is limited or perhaps,
imaginary (Fagbemi, etal., 2013).
Majority of
organizations in Nigeria still apply management accounting in their day-to-day
operations. The limitation of management accounting has been its inability to
cope with the advancement in business environment (Akenabor& Okoye, 2011).
SMA sets the pace for strategic decision making by providing vital information
to management of organization which will consequently enhance productivity and
organizational profitability (Ahmad, 2014; Mwangi, 2014).
1.2 Statement of the Problem
SMA
emphasizes current information and analysis needed for managerial
decision-making. SMA provides managers and business owners with relevant
information for developing informed business decisions. Despite the benefits
attached to SMA, the rate of adoption and implementation by Nigeria
organizations is very low. According to Mwangi (2014), majority of
organizations shy away from SMA practices because they perceive that the cost
of implementation exceeds potential benefits. Similarly, Ojua (2014) observed that
SMA practices are prominent in large corporations because they have the
required financial capacity needed for implementation.
One of the
biggest complaints about SMA is that many of its techniques are not consistent
with Generally Accepted Accounting Principles (Uyar, 2010). For instance, the
activity-based costing provides accurate costing information to decision-makers
on alternative ways of assigning cost to products. However, because the method
does not assign all manufacturing costs to products, it is not in line with
GAAP. Furthermore, SMA practices have not gained ground in Nigeria business
environment due to the huge cost-attached. SMA requires time and money to design, implement, monitor
and evaluate. This can involve moving current employees away from their normal
job responsibilities, recruiting additional employees and hiring external
consultants. As such, organizations are expected to take cognizance of the
costs in totality from the design stage to execution stage. Few firms in
Nigeria possess the capacity to finance SMA from design to execution stage. In
addition, SMA techniques emphasize the timeliness of information and allow
business managers to make decisions. This implies a trade-off with reliability.
For instance, an organization intending to ascertain next year’s sales would
have to wait till the next year in order to obtain accurate and reliable
information. At times, information provided by SMA might not be absolutely
reliable because they are based on forecasts, deductions and projections. SMA
might not provide reliable information about future events.
However,
empirical evidence from developed countries revealed that SMA contributes to
firm profitability, facilitates sound business decisions and strengthens firm’s
competitive advantage. There is paucity of studies on SMA and firm
profitability in Nigeria. This can be attributed to the partial recognition of
SMA by Nigerian organizations. Nevertheless, it is imperative to extend the
subject area to a emerging economy such as Nigeria. Thus, the study
investigates the effect of SMA on firm profitability in Nigeria with respect to
brewery subsector of manufacturing industry in Nigeria.
1.3 Objectives of the Study
The main
objective of the study is to evaluate the impact of strategic management
accounting on profitability of firms in brewery industry in Nigeria. The
specific objectives are:
To evaluate the impact of corporate
planning on the profitability of firms in brewery industry in Nigeria.
To investigate the impact of capital
investment analysis on the profitability of firms in brewery industry in
Nigeria.
To assess the impact of cost volume profit
analysis on the profitability of firms in brewery industry in Nigeria.
1.4 Research Questions
The study
attempts to provide satisfactory answers to the following research questions:
Does corporate planning influence the
profitability of firms in brewery industry in Nigeria?
Does capital investment analysis influence
the profitability of firms in brewery industry in Nigeria?
Does cost volume profit analysis influence
the profitability of firms in brewery industry in Nigeria?
1.5 Research Hypotheses
H01: Corporate planning has no significant
impact on profitability of firms in brewery industry in Nigeria.
H02: Capital investment analysis has no
significant impact on profitability of firms in brewery industry in Nigeria.
H03: Cost volume profit analysis has no
significant impact on the profitability of firms in brewery industry in
Nigeria.
1.6 Significance of the Study
The use of
strategic management accounting practices amongst organizations in Nigeria is
inevitable due to their unremarkable profitability over years and as a result
of weak decisions made on the dependence of obsolete traditional management
accounting information. This study through its findings exposes the need for
involvement of strategic management accounting in the operations of
organization to enhance the profitability of organizations. Management of
organizations will be informed through the study on how to utilize the
techniques of strategic management accounting to boost profitability and gain
competitive advantage over their rival firms.
This study
is equally important to business managers as it espouse the superiority of
strategic management accounting over ordinary management accounting. Management
of organizations, relevant stakeholders and government regulatory agencies on
business affairs will benefit as the study unveils how the provision of
business information by strategic management accounting affects the
profitability, viability and competitiveness of organizations in Nigeria.
In addition
to these, this study contributes to empirical literature on the subject matter,
which can consequently be consulted by future researchers.
1.7 Scope of the Study
The study is
confined to selected quoted firms in the brewery industry in Nigeria. The
population of study comprises of accountants, auditors, marketing managers,
sales managers, production manager, procurement managers and other kind of
managerial staff in selected firms. Available statistics revealed that there is
1,441 managerial staff in selected firms in brewery industry. Selected firms
include Guinness Nigeria Plc, International Breweries Plc, Mopa Breweries,
Nigerian Breweries Plc, Champion Breweries Plc and Sona Breweries Plc.
1.8 Operational Definitions of Terms
Management
Accounting
Management
accounting provides only financial as well as internal information to the
management of organization.
Strategic
Management Accounting
SMA is a
type of accounting that focuses not only on internal factors of a company, but
factors that are external. This includes industry-wide financials, averages and
upcoming trends.
Corporate
Planning
This refers
a systematic approach to clarifying corporate objectives, strategic decision
making and checking progress toward objectives.
Capital
Investment Analysis
A budgeting
procedure that companies and government agencies use to assess the potential
profitability of a long-term investment.
Cost Volume
Profit Analysis
This refers
to the analysis used to determine how changes in costs and volume affect a
company's operating income and net income.
Firm
Profitability
This refers
to extent an organization has succeeded in accomplishing its objectives.
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