Cost Control And Cost Reduction As A Means Of Improving Profitability In A Business Organization

Introduction

The success that any producer may record in selling his goods or services profitably is likely to depend upon his ability to control his cost and upon the extent to which he can keep them below the selling price imposed upon him by competition.

Therefore, cost control can simply be defined as the regulation, limitation or confinement of cost.and it can also be defined as the regulation by management action of the cost of operating an undertaking ,particularly where such action is guided by cost accounting.

It covers the control of materials usage and prices of wages cost separating the effect of efficiency from rates of pay, or maintenance and service cost, and all other items of indirect expenditures.

In an organization it is an act of making necessary adjustments after comparing the actual cost with a standard or targeted cost the control process include the steps of establishing standards and taking corrective measure.

Studies dealing with potential cost control and various adjustments to which may results in cost control are therefore very essential for improving the efficiency with which the conduct of any business is performed, such a resultant improvement can be of immence benefit to both the marketers and the altimate consumers of the products of the business.

Effective cost control consists of two aspects they are operational cost control consists which has to do with type of control, which exist in the very small firms where the sole owner could personally control cost through personal observation and direct supervision of operation. Accounting cost control on the other hand involves creating a sound system records keeping which will establish accountability for cost and the employment of current, pertinent and concrete accounting and statistical reports to reveal how people who are responsible for cost are discharging their responsibilities.

1.1 Statement of Problem

This project is set out to examine the problem of the existing small scale industries, a case study of Okin Biscuits Limited Offa, Kwara state.

Smalls scale industries have common problems nationwide, but some of the major one that is being faced by Okin biscuit limited Offa will be discuss in this research.

Problem of marketing their problem products is one of the problems facing the organization. Because there are some other industries with the same products but better marketing strategies are been put in placed.

Lack of capital and low sales is another problem that is facing the organization.

Another problem is inadequate trained manpower since one of the major aims of a privately owned industries is to maximize profit, they find it difficult to engage in sufficient and adequate trained personnel. They tend to manage the few at hand, hence there is insufficient technical advice as there are inadequate technical training facilities for staff and these could lead to poor quality products in some cases.

1.2 Objective of the Study

To find out the production process of the industry

To find out the problem facing the industry and how to remedy them.

To find out the occupational importance of the industry in forms of employment provision.

To find out the benefit of the industry in terms of their production.

1.3 Significant of the Study

The study will go a long way to help small scale industries to improve their profitability.

This study will help the management to know the causes of increase or decrease in profit making

The study will also be of tremendous importance to small scale industries to know cost control and cost reduction techniques.

The study will help to indicate source of was wastages either of time, materials or the usage of machineries.

1.4 Scope of the Study

The study will focus on cost control and cost reduction techniques that is being used by the management to improve the level of profit with particular reference to Okin biscuits limited, offa.

1.5 Research Methodology

The method used in the research work is based on primary source which cannot of both the oral interview and questionnaire.

1.6 Definition of Terms

The following terms are defined so as to bring out their meanings and to distinguish them from the ordinary usage.

i. Budget:

The institute of cost and management accountants (ICMA) gives the following definition in the terminology.

Budget: This is a financial or quantitative statement prepared and approved prior to a defined period of time. It provides a focus for the organization, aids the coordination of activties and financial and/or quantitative plan of operation for a forth coming accounting period.

ii. Budgetary Control:

This is a system of controlling cost which includes the preparation of budgets, coordinating the departments and establishing responsibilities, comparing actual performance with that of budgeted and actual upon results, to achieve minimum profitability.

iii. Controllable and Uncontrollable Cost:

Controllable cost is defines as those cost that are directly influenced by a given manager within a given period of time.

Uncontrollable cost on the other hand are cost that can not be influenced by a given manager within a given period of time.

iv. Cost Control:

This is the guidance and regulation of operating cost by management action. It also involves of methods of controlling cost within a pre-determined target cost control action lead to excessive spending.

v. Cost Reduction:

This is an active, dynamic concept which attempts to extracts more from the factors of production without loss of effectiveness. Cost reduction activities are planned effort to reduce expenditure.

vi. Fixed Cost:

This is a cost which is incurred for an accounting period and which within certain output limits tends to be unaffected by the function in the level of activity.

vii. Variable Cost:

This is defined as cost which varies with the level of activity.

viii. Limiting Factor:

This are factors which influence must first be assessed in order to ensure that the functional budgets are reasonably capable of fulfillments

1.7 Pans and Organization of the Study

This project work comprises of five (5) chapters;

Chapter one of the projects deals with the introduction of the study which comprises of the following: Statement of the problem, objective of the study significant of the study, scope of the study, research methodology, definition of terms and finally plan and organization of the study.

Chapter two treats the current literature review which includes cost control and cost reduction, direct and indirect cost. cost classification, fixed and variable cost, cost control techniques, planning, budget, and budgetary control; standard costing and variance, cost reduction techniques, where cost reduction is needed, direct cost overhead.

Chapter three highlights the research methodology which consists of introduction, population of the study, sampling sign and size, sources of data, data collection instruments, method of data analysis and profile of case study.

Chapter four discuss the presentation of the results, which consist of capitalization, cost control techniques area where cost reduction are concerned, sources and causes area where cost reduction are concerned, sources and causes of unnecessary cost, wastes and deposition. Action taken to reduce waste, cost reduction techniques, effect of cost control and reduction and lastly programmes on the activities of the case study.

Finally chapter five throw light on the findings, summary, conclusion and recommendation.

Summary, Recommendation and Conclusion

5.1 Summary

Since resources are scarced the need for cost control to promote efficient utilization of these resources cannot be over emphasized, due to the fact that the environment in which business operate is dynamic, historical cost is not enough, predetermined cost is subject to constant revision in the light of new technology and processes should be established.

There is need to create an atmosphere of cost consciousness cost reduction programme should be based on continuous analysis of cost behaviour and interrelationship and attention should be given to adequate physical facilities; inventory control, procedure and personnel effectiveness.

Furthermore, most report should not only concentrate on monetary information, adequate attention should also be given to non monetary information.

Internal report play an important role in the general subject of cost control and cost reduction, internal report can be linked to efficiency thermometer of business. It internal control is weak it may be the root cause of leaks and abuse it may also expose the employee to undue temptation.

5.2 Recommendation

This study is not an antidote to cure the cost control and cost reduction of any business organization, but if the recommendations are considered and implemented, it will doubt improved the cost of such organization.

Every department in the organization should apply cost control and cost reduction programme, each department should contribute to the company"s income regarded of its functions.

The use of the standard costing and budgetary control for controlling cost is recommended, permanent cost effort should be pursued by management.

Conference should be scheduled at regular interval where department heads. Cost control section and top managements will discuss matter of broad interest.

Out government also can help in cost reduction by improving social infrastructures.

There is also need for the organization to employ competent and skill labour in order to be able to carry out the programme and to achieve organizational goals of the industry.

Finally, I boldly and strongly recommend budgetary control to those who will like to make use of this project in their studies.

5.3 Conclusion

It is highly important to point out here that these recommendation need not to be rushed so fast as to create confusion and have boomerang effects.

If you want to raise the earning of your company and of your industry in particular, you will not achieve it by complaining about the terrible problem that confront you that will only tend to create an unconditional atmosphere, instead, take the problem vigorously with the weapon at knowledge resources and with managerial competence.

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