USEFULNESS OF COST – VOLUME – PROFIT ANALYSIS IN MANUFACTURING ORGANIZATION

1.0     BACKGROUND OF THE STUDY

1.1     INTRODUCTION

In all business, the implementations of cost volume profit analysis is very important and can ever be over emphasized and to achieve this goal, target and objectives, are beckoned on the decision of the mangers. However, cost volume profit analysis is a tool used by managers of business organization or manufacturing firms in making sure that proper decision are made in other to achieve the targeted goals or objectives of such business.

This research work intends to cover the responsibilities and the relationship of cost volume profit analysis that could be positive or negative in business decision making. And the use of cost volume profit analysis to determine the firm operating income and the act income as discussed by “thurmas V.” 2008. It also aimed at establishing a minimized cost and creating room for a maximized profit through the use of cost volume profit analysis.

More so, in an organization where we have multiple product lines, the use of cost volume profit analysis is of relevant in the product line having higher contribution to profit than the other in business organization. it is a tool used to show the relationship between various ingredients of profit planning and if properly applied, will enable the company to satisfy the industry and stakeholders of such business.

Furthermore, some underlying assumptions are draw from the reference materials which are covered in this research work. Some areas of are covered in this research work. Some areas of concerned include the limit to the implementation of cost volume profit for manufacturing organization to enable the preparation of simple income statement.

Finally, despite the enormous important of cost volume profit analysis (C.V.P), some demerit association with it are in the aspect of some assumption used in the implementation of cost volume profit analysis which do not exist for more-than one accounting period.

1.2     STATEMENT OF PROBLEMS

Among all the problems listed by previous researchers that are associated with this research work. This work intends to address the following problems:

a.  The result of the analysis can only be relied upon within the relevant range i.e with the activity level that the associated cost can be accurately determined.

b.  The likely set back that may have take place if cost volume profit analysis is not adequately applied in manufacturing organization.

c.   The likely change of fixed cost at difficult activity level make the assumption that fixed cost is a faculty assumption.

1.3     OBJECTIVE OF THE STUDY

a.  To determined the extent to which cost volume profit analysis can be relied upon for proper decision making.

b.  To identify the intended solution provided by applying the usefulness of cost volume profit analysis in decision making in manufacturing organization.

c.   To determined or ascertain the changes in fixed cost at different level of activity, it is important as its concern taking decision for multiple product line in manufacturing firms cannot be our emphasized.

1.4     RESEARCH HYPOTHESIS 

This study set out text among other things that include the following hypothesis.

Ho: That the present cost volume profit analysis applied for decision making is not useful.

Hi: That the present cost volume profit analysis applied for decision making is useful.

Ho: That the present cost volume profit analysis applied in manufacturing organization is not useful

Hi: That the present cost volume profit analysis applied in manufacturing organization is useful

Ho: The assumption that fixed costs remain constraint is not relevant for decision making in manufacturing organization.

Hi: The assumption that fixed costs remain constraint is not relevant for decision making in manufacturing organization.

1.5     SCOPE OF THE STUDY

This is research intends to cover the cost volume profit analysis adopted by various manufacturing companies especially for their production activities. As a matter of fact, only the branch of Innoson technical Enugu will be limited to the study; however generalized view will be taking on other Nigerian branches which gave room for their studies.

1.6     SIGNIFICANT OF THE STUDY

The study has both practical and academic significance as document below:

Practical Significance

This research work will be of paramount importance to manufacturing company, their manager and production staff of the company. This work will also serve as a guide in the performance of their respective duties. It will help them in appreciating the importance of cost volume profit analysis in decision making of their companies.

Academic Significance

It will be of a great help in our educational process in the aspect of management decision making and for individual  in the aspect of man power development. It is also important in the upgrade of student educational qualification as it concern cost volume profit analysis for decision making.

1.7     LIMITATION OF THE STUDY

Some major restrictions faced in the cause of the study are time and fiancé to undertake the research work. The time constraint is so much finance on the other hand prevented the research from getting the necessary materials and gathering of enough information for this study.