APPRAISING THE IMPACT OF COSTING TECHNIQUES ON PROFITABILITY.

CHAPTER ONE

INTRODUCTION

This chapter covers the background to the study, statement of the problem and the objectives of the study. It also highlights research questions, significance of the study and assumptions. Also, delimitation of the study, limitation of study, definition of terms follows and the chapter concludes with the summary.

1.2     Background to the Study

An increase in manufacturing costs and reduced sales revenue which has added to reduced profitability in the Manufacturing sector has produced the need for me to address the problem through this research. Mapakame (2014) reported that businesses and in particular the manufacturing companies are finding it difficult to increase their profits and sales volumes due to various factors. In an economy where consumer‟s disposable incomes are very low, a few companies are experiencing any meaningful increases in market share or sales volumes. Reduced growth prospects are being accompanied by increased costs. Generally, the costs of production and other operational costs in this economy are very high as noted by Lynton-Edwards Securities (Mapakame, 2014, p. 4). Reduced sales volumes and high cost of production has led to reduced profitability in these industries. Faced with limited sales growth prospects, companies have to focus on costs which are a major determinant in profitability level. Costing techniques have had and need to be used in manufacturing companies to control and reduce costs to such levels which aid profitability (Mapakame, 2014).

Bloch (2014) reported on how the manufacturing sector has declined with many enterprises ceasing operations and others downsizing production levels. Factors which contributed to this decline since 2008 include rampant hyperinflation, which consequently led to increased production costs, reduced consumer disposable income and minimal availability of investment. Bloch (2014) reported that, although there has been improvement after dollarization, inflation was combated and an „upward surge in manufacturing costs‟...immense surges in wages and salaries, materials and other costs‟ were main contributors to increased costs. There is no doubt that increased costs affect negatively the operations, profitability and performance of an enterprise (Bloch, 2014).