COST-VOLUME-PROFIT ANALYSIS AS A TOOL FOR PROFIT PLANNING AND CONTROL (A CASE STUDY OF NIGERIAN BOTTLING COMPANY PLC, NINTH MILE ENUGU).
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COST-VOLUME-PROFIT ANALYSIS AS A TOOL
FOR PROFIT PLANNING AND CONTROL (A CASE STUDY OF NIGERIAN BOTTLING COMPANY PLC,
NINTH MILE ENUGU).
ABSTRACT
This
research investigation has focused on the use of cost-volume-profit analysis as
a tool for profit planning and control using Nigerian Bottling Company Plc as a
case study. The Nigerian Bottling Company Plc was facing lots of problem after
it establishment in 1953, and these problems includes; low capacity
utilization, shortage of foreign exchange to the needed raw materials and
competitive market where only the fittest survive. Some of the objectives of
the study are to identify the problems encountered in the practical application
of CVP analysis, to examine some other techniques that can help in the profit
planning and control and to identify the practical cost estimate involved in
the application of CVP in Nigerian Bottling Company. The sources of data for
the research includes primary and secondary sources and examples of primary
sources of data is oral interview and questionnaires, while secondary data were
collected from journals, textbooks and News papers. Chi-square was the tool
used to test the hypothesis. After the testing of hypothesis, the findings made
includes; other techniques were not superior to cost volume profit analysis,
the company has managed to remain in the market inspite of the economic
recession in Nigeria. In view of the above findings, the following
recommendations were made; management must be well structured to make planning
techniques feasible for adequate cost control purpose, workers should be made to
known the objectives of the company and finally subordinates opinion should be
sought in preparation of departmental estimate.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
In the
recent times some industries are facing problems raised by expansion through
increased sales and the introduction of varieties of product. Many on the other
hand are facing problems of contraction due to the introduction of substitute
materials and products or reduces demand for products whichever is the case,
but it is important that management should be in a better position to plan for
these changing level of activities.
Apart from the problem of contraction
and expansion during the period of economic depression/doom respectively a
business may be faced with the alternative of expanding/closing down or selling
its products at a price below the total lost. Also profit planning and control
is made more difficult by the changes of products and the action of
competitors.
In order to solve the problems created
by the above situations, profit planning, cost control and estimation, and
decision making require an understanding of the characteristics of cost and
their behaviour at different operating level.
One of the most important tools
developed by accountants to assist management in meeting the challenges is the
cost-volume-profit analysis.
According to Pandey (1990:138) the
analytical technique used to study the behaviour of profit in response to
changes in volume, cost and prices is called “the cost-volume-profit analysis”.
It is a device used in determining the usefulness of profit planning process of
the firm.
According to Harper (1982:130), cost is
defined mathematically as “cost equals usage multiple by price, which means
that cost is also analyzed while studying the behavour of profit in response to
changes in volume and prices.
According to
Horngren Foster and Dala (1997) cost estimation is the attempt to measure the
past cost relationships between the total costs and the drivers of those cost.
Infact, the entire field of profit planning has become associated with the
cost-volume-profit relationship.
At the
completion of this Study, the contribution made by the cost-volume profit
analysis for the efficient profit planning and control in Nigerian Bottling
company will be made known.
1.2 STATEMENT OF THE PROBLEM
The
challenges facing management are many particularly during this period of
economic depression characterized by liquidation of companies, low capacity
utilization, shortage of foreign exchange to buy the needed raw materials and
the advance of competition where only the fittest enterprise survive.
Management is faced with the problems of on how to make use of available scarce
resources in order to achieve the objectives of the profit maximization.
1.3 OBJECTIVES OF THE STUDY
1. To evaluate the extent to which the use of
cost-volume-profit technique has helped in achieving the profit maximization of
Nigerian Bottling Company Plc.
2. To identify the problems encountered in the
practical application of CVP analysis and suggest possible solutions.
3. To examine some other techniques that can
help in the profit planning and control.
4. To identify the practical cost estimation
involved in application of CVP in Nigeria Bottling company
5. To highlight the importance of using
cost-volume-profit over other firms or Enterprises
1.4 RESEARCH QUESTIONS
1. How would cost-volume-profit analysis help
the management of Nigerian Bottling Company to know which of the products to
produce and achieve profit margin?
2. Will it afford the management the opportunity
to know the changes in cost behaviour?
3. What are the likely affects of changes in the
mix of products procedure and sold?
4. What are the likely effects of plant
expansion and contraction?
1.5 HYPOTHESIS
The basic
assumption of this research work is the application of cost-volume-profit
analysis as a technique for profit planning and control in manufacturing
company.
Hypothesis I
Ho: The
introduction of cost-volume-profit analysis has significant effect on profit of
manufacturing company.
Hi: The
introduction of cost-volume-profit analysis has no significant effect on profit
of manufacturing company.
Hypothesis
II
Ho: The
application of cost-volume-profit analysis has helped Nigerian Bottling company
to be efficient and effective in its operations.
Hi: The
application of cost-volume-profit analysis has not helped Nigerian Bottling
company to be efficient and effective in its operations.
Hypothes
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