THE EFFECT AND APPLICATION OF STANDARD COSTING IN MANUFACTURING COMPANIES

ABSTRACT

This research was carried out to evaluate the effect and application of standard costing in manufacturing companies with particular reference to some selected companies in Enugu state. While carrying out this research work these are the areas that this research work concentrated. The first chapter is the introductory part of the research work. This chapter also contains the background of the study, statement of problems, research Question etc. Data for the study was sourced from two main sources. Which includes Primary data: Questionnaires and oral interviews was used to collect information from the respondents.

Secondary data: Journals, magazine and other relevant materials relating to the area of my investigation will be review. Extensive literature review was carried out on direct literature and indirect literature on books, journals and past works. The research instrument used in this study includes oral interview and questionnaire.  The questionnaire is structural as to contain both close and open ended question. Simple tables, pie-charts and percentages were used in treatment of data while chi-square was used in the research work. Based on the findings, conclusions were drawn and recommendations were also in the last chapter of this work which is the fifth chapter.

INTRODUCTION

1.1      BACKGROUD OF THE STUDY

Knowing that a standard is an establish basis or measure against which actual result of performance is bench marked. Standard cost is a predetermined or established cost, or target or goal which the management of a firm or industry aims  at achieving given a  conducive operating condition with a view of attaining maximum efficiency in its production. I is a pre- determined or forecast estimates of cost to manufacture a single unit or a number of cost to manufacture a single unit or a number of units of product during a specific immediate future period (Keller et al 1966: 171) Therefore, standard costing is a costing technique which compares the standard cost of a units of product with the actual cost to determine the efficiency of operations with the ultimate intention of carrying out any remedial action whenever necessary.

Based on the fact that they are pre- determined units cost estimates deviation are bound to occur and these are pin pointed in that they represents measures of performance. These deviations are termed variance, and are isolated for an in-depth analysis to reflect in the variance aids to the initiation of corrective and control action, so as to direct the operational activities  of the firm to conform with the standard cost as determined prior to those activities.

One basic principle is that standard cost (whatever type) is used as a control of production cost, employees excesses and thus adds to the performance appraisal bearing in mind the over all objective of the firm or industry. As opined by Ama (2001: 7) the task of control accounting is to produce data at regular interval in a standard form so that the  firms actual performance can be compared with plans and budgets and differences analyzed by causes. By implication the progress of every manufacturing firm cannot be achieved on a total neglect of this cost control technique.

1.2   STATEMENT OF PROBLEM

The problem of control as a function of the business manager and evaluation of the performance of the entire organization has become a hydra – leaded outlook. More so, the economic hardship characterized b y high rate of inflation, fluctuation in the prices of goods, high cost of production among other task has led many companies to find ways of their production facilities in operation till a time when the economy is expected to improve. Such companies adopt cost control over production cost as to reduce and eliminate wastages.

Standard Costing is one of the cost control techniques which has been developed for years. And its widely application by many companies has proved it to be effective in supplying use information for cost control.

It is also worthy to note that standard costing in itself cannot control costs but can only be useful when the information supplied by this is applied to cost. With standard costing, technique efficiency can be determined through comparism of the actual incurred cost with the existing  standard but for the fact that production input are procured in an open market, it is affected by the inflation rate. This become a problem to the cost accountant in supplying accurate cost information. Therefore a cost information supplied today may become outdated in the next day.

In addition quality maintenance of the product given the current economic hardship and high cost production is concern to both the management of the company and its consumers. To guarantee the customers loyalty and there by ensure continuous profit, the quality have to be maintained through it might be costly. It is left for this company to decide on whether to use high quality material   which might be costly or low quality material at lower cost but would lower the quality of the product.

In the view of a company to survive this economic hardship operate effectively, efficiently and ensure profitability, it must take care of its cost of production which is the basis on which profit is realized. It is the purpose of this study to examine care fully how a company operating is an inflationary carefully, how a company operating in an inflationary economy maintain an effective standard costing system.

1.3      THE OBJECTIVES OF THE STUDY

This study is aimed at evaluating the effect of standard costing in manufacturing companies in Enugu state the specific objective of this research work includes:

i.            To know if standard costing practicable in the operational activities of manufacturing industries.

ii.           To examine if standard costing have anything to do with reduction of the production costing of a firm.

iii.        To know is standard   costing data influence managerial decision making.

iv.         Evaluate the usefulness of standard costing system in the elimination and redaction of wastage.

1.4      RESEARCH QUESTIONS

The following research questions were formulated:

1.  Is standard costing practicable in the operational activities of manufacturing industries?

2.   Does standard costing have anything to do with reduction of the production cost of a firm?

3.  Does standard   costing data influence managerial decision making?

4.  Can this standard costing system help is the elimination and reduction of wastage?

1.5      RESEARCH OF HYPOTHESIS

In view of this study the following assertions will be tested:

1.  Ho standard costing is not practicable in the operational activities of manufacturing industries.

2.  H1 standard costing is practicable in the operational activities of manufacturing industries.

3.  H0 standard costing has nothing to do with the reduction of cost of production of the firms.

H1 standard costing has significant effect on the reduction of cost of production of the firms.

4.  H0 standard costing data does not influence managerial decision making.

H1 standard costing data influences managerial decision making.