THE EFFECT OF COST CONCEPT ON THE MEASUREMENT OF PERFORMANCE VARIABLES

THE EFFECT OF COST CONCEPT ON THE MEASUREMENT OF PERFORMANCE VARIABLES

CHAPTER ONE

1.0  Introduction

1.1 Background to the Study

Cost and profit in business undertakings form part of what determines the financial position of a business concern. Since management is concerned with profitability, which is a measure of business performance, especially in a manufacturing concern, the need for higher sales will arise and this will facilitate the need to increase production capacity, which in turn brings about increase in cost. Brumbaug (2008) was of the opinion that corporate bodies should watch the cost and the profit will take care of itself. The implication is that cost should be controlled rather than embarking on unscientific cost reduction that may translate to lowering the quality of product. Management is normally forced to adopt various methodologies and techniques in order to regulate (control) rather than reduce cost. Cost increases as various production activities are embarked upon and the need to keep cost in check arises because standards for production will be set and actual production will be made thereby bringing about variances which can only be reduced or eliminated through effective cost control. Sikka (2003) was of the opinion that cost control system consists of methods and procedures that help to regulate the cost of operating an undertaking and ensures that cost do not go beyond a certain level. As profitability amongst others is the essence of any business, there will be the need to incur reasonable costs and management is to ensure careful and efficient use of resources so as to achieve the set standard or target. Cost control is operated by setting of standards and maintaining the performance according to standard because, as management aspires to increase productivity for more profit, there will be increasing cost and collection of cost will be made by each area of responsibilities. This study aims at discussing the effect of cost concept on the measurement of performance variables.

1.2      Statement Of Research Problem

The rising cost of doing business in the country has been of utmost concern to business men and the entire citizens. This has even accounted for capital flight, closure of businesses and the movement of business organizations to neighbouring countries, where cost of doing business is relatively low compared to what is happening in Nigeria. The use of effective cost concept “control” system is needed to measure the organizational performance.

1.3      Aim and Objectives

The general aim of study is to examine the effect of cost concept on the measurement of performance variables. The objectives of this study would be to ascertain how cost control affects the financial performance of a business, if budget help to ensure effective cost control and profit growth, and possible requirements for ensuring effective cost control system.

1.4 Scope And Limitation Of Study

The project work seeks to concentrate on the effect of cost concept on the measurement of performance variables. This research would face such limitations as the gathering of materials and information relevant to the discussion of this topic in current times. It will also face such limitations as time factor.

1.5 Significance Of Study

The significance of study of this work shall include:

Ensure that from the finding management decision can be made thereby leading to a more viable company.

Managers whose interest is basically to achieve an overall operational efficiency, thereby establishing and closing the gap between the objective of variance analysis and its application

Student of accounting and finance are also experts in the field of management accounting.

1.6 Research Methodology

This research in its writing would adopt the doctrinal approach in carrying out its study. The review of literature was done using the variables of the research objectives. This was accomplished by employing past research works, academic journals and textbooks. The comparative survey, exploratory and secondary data.

THE EFFECT OF COST CONCEPT ON THE MEASUREMENT OF PERFORMANCE VARIABLES