OVERHEAD COST AND CONTROL IN A MANUFACTURER INDUSTRY (A CASE STUDY OF EMENITE NIGERIA LIMITED ENUGU)

ABSTRACT

The primary aim of any business enterprise is to make profits: however, the level of profit made is a function of cost incurred and revenue earned.

          This research work was an appraisal of costs and control, a case study of Emenite Nig. Ltd Emene Enugu.

          The responses from questionnaire were analyzed using table and percentage, while chi-square (x²) distribution was used for professional testing.

          Professional and academic opinion on the topic was adequately considered based on the findings and material observations made.

Some recommendations were accepted and implemented.

The manufacturing industry will be able to make better-cost valve profit discussions, which will result in increased efficiency of the manufactory sector in the Nigeria economy.

TABLE OF CONTENTS

CHAPTER ONE

1.1        Background of the study                           

1.2        Statement of problems                               

1.3        Objective of the study                       

1.4        Hypothesis                              

1.5        Scope of the study                                               

1.6        Significant of the study          

1.7        Limitation of the study                     

1.8        Definition of term                             

References                                        

CHAPTER TWO

2.0 LITERATURE REVIEW

2.1 Theoretical Review                               

2.2 Empirical Review                                                     

CHAPTER THREE

RESEARCH DESIGN AND METHODOLOGY

3.1 Research Design                                                     

3.2 Sources of data                                                       

3.3 Population and sample size                           

3.4 Method of investigation                                 

CHAPTER FOUR

PRESENTATION AND ANALYSIS OF DATA

4.1 Presentations and Analysis of Results                     

4.2 Test of Hypothesis                                         

CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

5.1 Findings                                                                  

5.2 Conclusion                                                                       

5.3 Recommendation                                 

BIBLIOGRAPHY                                                   

APPENDICES                                                       

CHAPTER ONE

INTRODUCTION

1.1    BACKGROUND OF THE STUDY

A pre-determined factory overhead rate is used equitable to allocate overhead because of the problem in tracing overhead costs to a specific jobs or problems.

To ascertain the cost of a product, an estimated position of these manufacturing overhead costs is added to the prime cost to arrive at the total manufacturing cost.

Overhead cost, unlike other cost element, have some peculiar character which if not properly manage will continue to pose problems to efficient managerial decision making in an organization. For example, when material are purchased for production, the cost of these material can be compared with output obtained from processing them. Wages paid to an employee can also be compared with his output. The cost per unit of the output of one worker can be compared with that of another.

          In applying factory overhead, the base selected should be closely related to functions represented by overhead cost being applied.

The following bases are used in applying factory overhead;  

a.             The direct material cost base; This is the percentage of estimated material. Cost multiplied by the material cost for the job or product to obtained the factory overhead to be charged to the other.

b.             The direct labour cost base; This is the percentage of estimated factory overhead to estimated direct labour cost multiplied by the direct labour cost for the job or product to obtain the factory overhead charge.

c.              Direct labour hour base: This is where the factory overhead rate is determined by dividing the estimated direct labour hour. This rate is then multiplied by the number of direct labour hour worked on a job or product to determine the overhead by charge.

d.             The machine hour base: Factory overhead cost here is determined by dividing the estimated factory overhead by the estimated machine hour. This rate is multiplied by the number of machine hours used in completing a job or product to determine overhead charge.

1.2         STATEMENT OF PROBLEM

i          In spite some  measures taken by the manufacturing   companies to ensure effectiveness of overhead cost and control in their industries, yet there is still failure to comply fully with material budgeting procedure which give room for inclusion of items not needed or inflation of quantity of materials for procurement approval which may have an adverse effect on the purchase cost.

ii        Poor timing of workers which leads to inadequate

Overhead cost and control.

iii.                  Improper selection of an average operator who is unskilled in his trade or occupation and whose service will be less important to the company.

1.3             OBJECTIVES OF THE STUDY

      The following research question will guide this study:

i     In what ways can the various method of overhead cost be apportioned and absorbed?.

ii.           What are the relationship between the overhead cost of production   and the budgeted cost of production?

iii.          What are the nature of overhead cost analysis in management decision?

1.4              HYPOTHESIS

To effective find a solution or a useful result to the problem, the following hypothesis were formulated:

i        The low  quantity of goods produced in a manufacturing   company is due to the ineffectiveness of overhead cost to the  production companies.

ii.             Steady decrease in the production companies are caused by unskilled and untrained workers employees in some manufacturing companies.

iii.           Lack of raw materials for production brings about ineffectiveness in cost control and of overhead cost.

1.5    SCOPE OF THE STUDY

This research work will be restricted to medium size manufacturing companies. A case study of Emenite Nigeria limited Enugu (Emenite) from 2006 to 2009.

1.6    SIGNIFICANCE OF THE STUDY

This significance of the study will lies in the awareness of sensitivity of net income to the various components of overhead cost.

A sample survey shows that overhead cost account is for substantial products of the firms. Therefore, there is need to feel concerned about how these cost should be classified, apportioned and controlled.

This research work will assist the manufacturing companies in the following ways:

i.     Increase the companies profit margin

ii.   Help in the reduction of overhead cost.

iii.  Help in the proper classification of overhead into fixed and variable overhead.

1.7               DEFINITION OF THE TERMS

Some technical terms used in this study are defined as follows:

i.             COST: This is defined as the amount of expenditure incurred or attributed to a given product or service.

ii.           OVERHEAD: This is defined as the aggregate of indirect material costs, indirect wages (indirect labour) and indirect expense or other cost which cannot be identified with or allocated to cost center or cost units.

iii.          COST ALLOCATION: This can be defined as the charge of a cost item directly to a cost center or units responsible for its occurrence.

iv.          COST APPORTIONMENT: This is the division of costs among two or more cost centers in a fair proportion, that reflects the relative benefits received.

v.            COST UNIT: This can be defined as a quantity of product, service or time in relation to which cost may be ascertained or expressed. Example: unit of soap, a ticket etc.

vi.          COST CONTROL: This is the regulations of the execution action of the costs of operating an undertaken particular where such action is guided by management control.

vii.         COST ABSORPTION: This a term used to describe a costing system whereby overheads are added to the cost of goods sold.

viii.       OVERHEAD RATE: This can be defined as the expression of overhead in relation to some specific characteristic of a cost center as a means of providing convenient bases for its apportionment or absorption. 

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