ABSTRACT
This study investigated the cost control of selected building construction project in Benin City (a case of the Nigerian CZ Building & Construction Services Benin city, Edo state). In the management set- up, cost control is used as an indispensable tool, which aid organization to attain their corporate objectives of profit maximization. This study reveals the cost structure in construction type, cost control adopted to minimize waste of resources. Critically, the opinions of those that occupy the key positions of the organization such as the chief accountant, the logistic manager, technical officers etc. were sorted and it was of immense help to this study. For the achievement of the objectives of this research, data were collected by use of oral interview and questionnaires. Data collected were subjected through analysis using simple percentage, frequency and histogram distribution while the stated hypothesis were tested using chi-square (X2) to ascertain its reliability and objectivity. The result of the research shows that the organizations adopt cost control measures and this control accords management the opportunity to achieve corporate performance and profitability. The management should emphasize more on the training of employees on the application and measures of cost control and enlighten them on the relationship, which exits between cost control and profitability. Finally, the organization should try an embrace the technological and economic trends in the society in order to have a vital edge over its profitability.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDYÂ
Cost control is a vital element in the management aspect of functional activities that covers all aspects of an enterprise. It was first performed in a routine manner by clerks, but with the advent of professional management skills, it has evolved in to a more sophisticated function with a far reaching effect on a company’s profit. This study will critically examine the constituents of cost management, such as production cost and control, purchasing cost and control, marketing cost and control, and other non-construction cost and control. Various cost control techniques will also be highlighted to provide the management of CZ Building & Construction Services a pool of casting techniques that will assist them in maximizing profit.
The dynamic nature of our times has put so much on business that their survival can no longer be taken for granted but must be sort for. That a business strength progressed or outpaced its competitors depends largely on the quality and strength of its management. People always make enquires pertaining to the issues that arouse their interests-How, where, when, how and what it will cost to get the necessary information, that will aid the attainment of the organizational goals.
In all human transactions, we do talk of cost almost each minute of the day. All our daily expenses are been resolved in terms of cost-what cost, how cheap, how costly.
In our offices we passively talk of cost savings, cost of materials, overhead service cost, labor cost and many others.
In an economist’s point of view, we visually hear the same song-marginal cost, opportunity cost, cost curve, total cost and what else?
The above submissions attempt to suggest that cost perhaps is a most important concept in our everyday lives and most diversely conceived.
Hence, the objective of every business organization is charged with both financial and non-financial objectives, which drive them towards the actualization of their set organizational goals
According to Pandy, the financial motives of an organization comprises of:
- Maximization of shareholders wealth
- Profit maximization and
- Service to customers.
While the non-financial objectives are
Making financing and career development a priority.
Responsible to the community and Developing cordial relationship with the host community.
Above all, profit maximization rank the most prominent of the reason of going into business organization. For business to attain its aim, it tends to cut across cost
reduction, thereby meeting its minimal cost budgets-profit.
However, Okafor (1983:142) opine that profit is the ultimate measure of overall performance. When management has planned, organized and controlled its human and material resources properly, corporate activities attain a level of effectiveness, which shows up in profit. Probably, profits are acid test of the individual firms performance.
In appraising a company we must first understand how profit arise. The concept of profit maximization is very useful in selecting the alternatives in making a decision at the firm level. Profit forecasting is an essential function of any management. It relates to projection of future earnings and involves the analysis of the corporate behaviours, the sales volume, prices and competitors strategies etc.
The main aspects covered under this area are the nature and control strategies adopted by managerial decision making as towards attaining corporate goals with its budget limit.
Cost control helps firms to improve its profitability and competitiveness. Jhingan et el (2004:267) added that cost control has a regulatory effect. For better performance and better results certain means of control have been evolved. Such cost instruments are budgetary control and standard costing. Cost reductions are analyzed via variance analysis.
1.2 STATEMENT OF THE PROBLEMÂ
This study is confronted with the view of discovering whether organization especially construction companies adopts certain cost control measures in their products marketing, as well as production processes, which ultimately have an impact on their profitability and cash flow analysis.
In this aspect of control, it incorporates cost reduction processes and a cost reduction programme, initiated to take the goal of bringing down the margin of business costs from a current level perceived as not too safe, to a desired level, with the ultimate intention of reaching a targeted profit margin
1.3 OBJECTIVE OF THE STUDYÂ
This research study is directed towards enabling management of CZ Building & Construction Services to know the importance of cost control and its effect on profit maximization. It provides the management with the following;
- To examine the relationship that exist between cost and control in profit maximization.
- To examine the cost control instruments mostly used for cutting down expenses thereby attaining maximum profitability.
- To examine the extent to which cost can be controlled by the firm for the reasons of profitability.
- To examine the cost factors relevant in controlling costs in an organization.
- To ascertain the effect of the adjustment in the cost on the profitability of a given company.
1.4 RESEARCH QUESTIONSÂ
For emphasis on the study, the following research question can be used to throw more light on the study;
- What relationship exist between cost and control in profit maximization?
- What cost control instruments are mostly used for cutting down expenses thereby attaining maximum profitability?
- To what extent, if any, can cost be controlled by the firm for the reasons of profitability?
- What cost factors are relevant in controlling costs in an organization?
- What effect does the adjustment in the cost of an organization exert on the profitability of a given company.
1.5 RESEARCH HYPOTHESIS
H0: Inefficient application of cost control leads to a decline in the profit level of an organization, when other factors are constant.
H1: Efficient and adequate application of cost control leads to increase in profit, while all other factors are constant.
1.6 SCOPE OF THE STUDYÂ
This research will reveal the essences of cost control in construction firm, the cost structure of the sector, cost control measures adopted to minimize waste of resources and invariably the major procedures embarked to ensure that actual results are in line with the set standard; so that waste are measured and appropriate action taken to correct the activity. The study was limited to the Nigerian CZ Building & Construction Services, Benin city, Edo state.
1.7 SIGNIFICANCE OF THE STUDY
The result of this research work is expected to widen the view held by potential managers and other corporate bodies, who have been in one way or the other perhaps, been have parochial view of the needs of cost control. It will be of great benefit to construction and processing industry(s).
Potential stakeholders will firms they intend to extend credit/funds to the company(s) because this will broaden their view and knowledge on management projection.
The target audience will enjoy the increase in quality product with corresponding reduction in prices.
Relevant industries will be exposed to determine the increased level of demand, which invariably increase profitability.
Tax authorities and auditors are not left out of the benefits derivable from cost control. Increase revenue will subsequently boost infrastructures facilities.
1.8 DEFINITION OF TERMSÂ
Cost: It is the amount of resources put into the production of goods and or service. It’s often expressed in monetary terms and is also’ seen as the expenditure resulting from providing goods and services.
Cost Control: Control means compelling events to conform to plan. Therefore cost control is the process whereby management seeks to influence costs so as to keep them within planned limits.
Cost Center: This is a desirable area of activity within a business to which costs can be attributed. Such centers incur expenses but do not directly generate revenue, for instance the personnel department, accounting department, public relation department etc.
Impact: This is the degree to which a particular management policy and or measures yield desire result.
Budgetary Control: Is part of overall system of responsibility accounting. Establishment of budgets for each area of functional responsibilities so that the performance required in order that the objectives of the business as a whole may be achieved. That is regular
comparison of actual with budgeted results.
Standard Costing: Standard costing is a method of ascertaining costs whereby statistics are prepared to show;
- The standard cost
- The actual cost and
- The difference between variance.
Management: This is the process of combining and utilization of organizational resource towards the achievement of the common, or organizational objectives.
Efficiency: This explains the ratio of output to inputs. It is the amount of output per unit of input, that is the amount of resources used to produce a unit of output.
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