COST MINIMIZATION AS AN APPROACH TO IMPROVING EFFICIENCY IN SMALL SCALE INDUSTRIES

(Business Administration and Management)

COST MINIMIZATION AS AN APPROACH TO IMPROVING EFFICIENCY IN SMALL SCALE INDUSTRIES

TABLE OF CONTENTS

CHAPTER ONE

1.0              Introduction                                                   

1.1                                      Statement of the Problem                                          

1.2                                      Purpose of the Study                                     

1.3                                      Scope of the Study                                                    

1.4                                      Limitations of the Study                                                        

1.5                                      Significance of the Study                                                                              

CHAPTER TWO

Literature Review                                                                              

2.0       Concept of Cost Control                                                       

2.1              What is Cost Minimization                                        

2.2              Techniques of Cost Minimization                              

2.3              The Significance of Small Scale Industries               

2.4              Problems, Prospect and Challenges of

Small Scale Industries                                                

2.5              Governments’ Position About

Small Scale Business in Nig.                          

2.6              Application of Cost  Minimization in

Small Scale Industries                                                

2.7              Illustration Showing Costing Under Normal

Conditions and Costing in Nigeria.                           

Reference                                                                   

CHAPTER THREE 

3.0       Introduction                                                                           

3.1              Restatement of Research Questions                          

3.2              Restatement of Hypothesis                                        

3.3              Research Instrument                                                  

3.4              Population of the Study                                                         

3.5              Sampling Procedure                                                   

3.6              Analytical Tools                                                                     

3.7              Limitations of the Methodology                                            

CHAPTER FOUR   

4.1              Data Analysis                                                             

CHAPTER FIVE                

5.1              Summary of Findings                                                

5.2              Conclusions                                                                

5.3              Recommendations                                                     

Appendices                                                                            

 

CHAPTER ONE

1.0       INTRODUCTION

            A business whether small or big can be seen as an organization that is set up for the purpose of producing goods and services.  In addition to this, managers of either small or large scale industries are set up for the common goal of minimizing costs and maximizing profits.

            Brown S. P. (1967) defined cost as in the economic sense, to mean the summation of all outlays of an operational nature. He further stated it to mean an amount which represents interest on investment and/or profits.  All firms continually need to reduce costs, not only in times of recession, but in periods of expansion and consolidation.  Therefore cost minimization or reduction is a situation whereby a company cuts down on all unnecessary costs in order to achieve a higher level of profit.  This definition can be further illustrated with an example.

BRIEF ILLUSTRATION

            Let us assume the cost of producing product A is N10, and it is being sold at a price of N15 – “ CASE A”.

            In “CASE B” the cost of producing has fallen down to N5 with the same N15 being realized.  Reason for this reduction in cost, could be that some workers that weren’t useful, were land off; also the raw materials were used upto the maximum.  It will also be advisable for the manufacturer to produce at the lowest cost possible so that it will earn a higher margin of profit.

            Lipsey in his book, “Introduction to Positive Economics” defined  small scale industry as the unit that employs factors of production to produce commodities, that it sells to other firms, households and central authorities.  Aside from this definition, small firms can also be classified or defined in terms of respective total assets, fixed capital investments, manpower, relative position of the firm within its industry, number of employees, ownership, structure and management styles.  The 1989 industrial policy of Nigeria defined small scale as those with total investment of between N100,000 and N2,000,000 exclusive of land and working capital.  The Administrative staff College of Nigeria (ASCON) defined small scale industries as organization whose cost do not exceed N15,000, including the cost of land on which the enterprise is built.

            Cost minimization/reduction, if properly practiced, will greatly improve efficiency in small scale industries.  The process or rather decision to reduce costs have to be taken by the manager and it will lay down clearly defined goals for the rest of the company pursue.  Some of the costs to be minimized include purchase prices, use of materials, manufacturing costs, fixed assets cost and administrative costs.  Cost minimization is especially useful because it allows for efficient utilization of capital available to the small scale industries.

            Small scale industries are usually one-man industries or rather, a sole proprietorship company; raising of funds is usually from the owners personal income or donation from friends and relations. Small scale industries are mainly found in business like shop, hotels, restaurants and some small manufacturing companies.

            Small manufacturing industries have played dynamic roles in the Nigerian economy and these roles include high contribution to the gross domestic products, employed generation and technological development.

1.1       STATEMENT OF THE PROBLEM

            Development of the Nigerian economy indicates that the survival and growth of small scale is very crucial to the success of the current culture of self reliance.  The survival of any company is determined by the amount of profit realized as compared to its cost of production.  Small companies have been faced with different problems. The problems that will be noted, will be in line with the topic under study.

            The following, are some of the problems of small scale industries.

1.                  WASTAGE OF RAW MATEIALS: This arises when the raw materials are not efficiently and effectively allocated.

2.                  EMBEZZLEMENT O FUNDS: This is applicable to all organizations, whether small or big. When this happens, funds that are supposed to be used for enhancement of the work in the organization, would be embezzled, leading to insufficient funds.

3.                  LAYING OF EMPHASIS ON QUANTITY RATHER THAN QUALITY: Some small companies prefer to produce large amounts of goods that are of low quality instead of producing less goods that are of higher and better quality.

            In the light of the above, the researcher wants to find out the cause and proffer a suggestion to correct the variation.

1.2       PURPOSE OF THE STUDY

            The purpose of this study, first sets out to examine the following aims:

1.                  To identify ways of eradicating the problem of excess expenditure over revenue in small scale industries.

2.                  To determine the cost to be minimized in small scale industries.

3.                  To determine the process involved in minimizing costs.

4.                  To identify a proper understanding and importance of cost minimization to small scale industries.

5.                  To give suggestion on the future of small scale industry business in Nigeria.

1.3       SCOPE OF THE STUDY

            Ideally, the whole of Nigeria is expected to be covered by this study, but due to the problem of finance, time, distance and cost, the research would be limited to Enugu state and small scale industries in particular.

1.5       SIGNIFICANCE OF THE STUDY

            The study is carried out in order to appraise the performance of small scale enterprises and most importantly low minimization of cost can better the performances of the small scale enterprises.  Generally speaking, the study of this topic will be of benefit to the economy as a whole as it would lead to improvement in the gross domestic product.

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