COST-VOLUME-PROFIT ANALYSIS AS A TOOL FOR PROFIT PLANNING AND CONTROL
CHAPTER ONE INTRODUCTION
1.1 Background of study
1.2 Statement of problem
1.3 Objective of study
1.4 Scope and limitation
CHAPTER TWO: LITERATURE REVIEW
2.1 Planning function
2.2 Managerial control function
2.2.1 Elements or steps in controlling
2.3 The Concept Of Profit
2.4 Profit Planning And Control An Overview
2.5 Component Of Comprehensive Planning And Control
2.6 Need For Profit Planning And Control
2.7 Limitation Of Profit Planning And control
CHAPTER THREE: SUMMARY OF FINDINGS
3.1 Summary of finding
“There have been some academic assertions to the effect that accountants and managers who are employed in the industry do not use most of the mathematical decision making tools, cost-volume-profit analysis inclusive”.
1.1 BACKGROUND OF STUDY
“Some industries today are encountering problems raised by expansion through increased sales and the introduction of new products. Many on the other hand are facing problem of contraction due to the introduction of substitute materials, products. Whenever is the case, it is vitally important that management should be in a clear position to plan for these changing levels of activity”.
Apart from the problem of contraction and expansion, during the period of economic depression a business 0may be faced with the alternative or closing down or selling its products at a price below the total cost. Also profit planning and control is made more difficult by the changes in the general pattern of demand 0for the types of products offered and the action of competitors.
In order to solve the problem created by the above situation profit planning, cost and decision making require an understanding of the characteristics of costs and their behaviour at different operating levels. One of the most important tools develop by accountants to assist management in meeting the challenges is the cost volume-profit-analysis (C.V.P) otherwise known as the behaviour analysis.
Cost-volume-profit analysis is a management tool that could be used in making vital decision when a firm is faced with problems having cost, volume profit implications. Problems within this area do abound 0and occur frequently that appropriate decision on them are near daily requirements. Some of them are profit planning, product planning, product pricing, selection of promotion mix, selection of distribution channels make-or-buy decision and 0add-or-drop decisions.
According to J.M Pandey “the analytical technique used to study the behaviour of profit in response to changes in volume, costs and price is called the cost-volume-profit analysis it is the device used to determine the usefulness of the profit planning process of a firm.
1.2 STATEMENT OF PROBLEM
High aggregate import ratio of raw materials, machines and expertise used by manufacturing firms and coupled with the ever declining value of the naira resulted in cost problem with rising cost. Consequent increase in the 0cost of foreign exchange is that some manufacturing firms that could not cope with the situation were pulsed out of business cycle. While those that survived could not meet up their former capacity utilization level resulting again in volume problems because of rising cost of production and the low capacity utilization which means low volume of output, the manufacturing firms in their attempt to make up fix prices that are exorbitiveness and excess stock, which has the overall effect of reducing profit hence profit problem.
Management is faced with the problem on how to make use of he available scarce resources in order to achieve the objective of profit maximization. In this study, answers should be provided to the following questions.
1) Is cost-volume –profit analysis extensively applied in firms.
2) Has the application of cost-volume-profit analysis helped in the profit planning of the firm and ensure its growth.
OBJECTIVE OF STUDY
Profit planning and control are essential ingredients or a successful management at all levels. Infact the efficiency of management is ensured by the amount of profits in a given accounting year.
The purpose of this study therefore will be:
1) To evaluate the extent to which the use of cost-volume-profit technique has helped in achieving the profit maximization application of the CVP analysis and suggest possible solutions to enhance the overall performance of manufacturing firm.
2) To examine some other technique that helps in the profit planning and control.
3) To highlight the superiority of using cost volume profit over the firms of techniques.
1.4 SIGNIFICANCE OF STUDY
In a competitive world the key factor are costs, prices, turnover and profit and these are factors, which no manager can ignore. The significance of the study were as follows:
i) The study of cost-volume-profit analysis would help the management or firms know which of their products result in large profit margin.
ii) It will afford the management the opportunity to knowing changes in cost, which occur as a result of shift in policy concerning products, produced.
iii) The likely affect of changes in the mix product produced and sold, and the behaviour of cost in relation to different sales volume.
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