AN EVALUATION OF COST REDUCTION TECHNIQUE IN ACHIEVING PROFITABILITY IN AN INFLATED ECONOMY

(A CASE STUDY OF NIGERIAN BREWERIES PLC)

ABSTRACT

This research work is aimed at An Evaluation of cost Reduction Techniques in Achieving Profitability in an Inflated Economy with particular reference to Nigerian Breweries plc, this work examined the following: To find out how effective, the resources of Nigerian Breweries PLC are being utilized to improve profitability. To know of cost reduction scheme are being applied in the industry. To find out the specific strategies adopted, the level of application and the specific areas where they are being administered their evaluation. To ascertain whether there is a systematized cost reduction schemes/programme under the personnel and or accounting department. An Evaluation of cost Reduction Techniques in Achieving Profitability in an Inflated Economy. These are the areas that the researcher concentrated while carrying out this research work. 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 include Primary and Secondary sources of data collection. Primary data: Questionnaires and oral interviews were 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 made in the last chapter of this work which is the fifth chapter.

TABLE OF CONTENT

Title page i
Certification ii
Approval page iii
Dedication iv
Acknowledgement v
Abstract viii
Table of content ix
CHAPTER ONE
1.0 Introduction
1.1 Background of the Study 1
1.2 Statement of the Problems 5
1.3 Objectives f the Study 8
1.4 Significance of the Study 9
1.5 Scope and Limitation of the Study 11
1.6 Operational Definition of Terms 17
Reference 20
CHAPTER TWO
2.0 Review of Related Literature 20
2.1 Cost 21
2.2 Concept and Definition of Cost Reduction 21
2.3 Inflation and Profitability 24
2.4 Difference Between Cost Reduction and Cost
Control 26
2.5 The Production Department 34
2.5.1 The Purchasing Department 39
2.5.2 The Sales Department 40
2.5.3 Personnel and Administration Department 41
2.6 The Planning Reduction 44
2.7 Cost Reduction Analysis 48
2.8 Cost Reduction Techniques 51
2.9 Break-Even Analysis 51
2.9.1 ABC Analysis 63
2.10 Absenteeism Control 64
2.11 Factors that Influence Profitability 66
2.12 Role of Profit in Business 67
CHAPTER THREE
3.1 Populations Collection 71
3.2 Test of Hypothesis 75
3.3 Analysis of Questionnaire 78
3.4 Method of Data Collection 82
3.5 Primary Data 85
3.6 Secondary Data 85
CHAPTER FOUR
Presentation, Analysis and Interpretation of Data 88
CHAPTER FIVE
Summary of Findings, Conclusion, and Recommendations
5.1 Summary of Findings 99
5.2 Conclusion 102
5.3 Recommendations 104
Bibliography 106
Appendices 108

CHAPTER ONE

INTRODUCTION

For a business to succeed, knowledge of certain management, techniques is ver necessary.
Mastering the techniques that can help one to achieve the basis objectives of building up a business and making it profitable.

1.1 BACKGROUND OF THE STUDY

The aim of all production is to satisfy peoples wants, however in carrying out this production, certain costs are incurred I order to achieve the stated organisational objective be it to satisfy peoples wants according to Hanson J. L to maximizes profit. For any business to achieve it s set objective there have to be adequate, strong and effective cost reduction measures (formal or informal) which should be adopted.

The effectiveness of the these measures however may have heaped some of these companies to still remain in business irrespective of the hash condition like inflation among others.

Many Nigerian business establishments presently, especially the manufacturing sectors are in serious profit squeeze. A number of factors account for this into ward condition which include, the increasing cost of running business in Nigeria, drastic fall in Nigerian foreign exchange market did not help matters. The situation is further aggravated by tripple digit inflation present in our (Nigeria) economy. The structural adjustment programme, ban on importation of certain basic raw materials, payment of long excise duties have caused some companies either to have closed indefinitely or produce at high cost, thereby making even the local goods high and sale volume low.

All have result in poor profit margin payout, retrenchment, compulsory leave and retirement with or without benefit which invariable affects the company as well.

Firms therefore are struggling to maintain satisfactory pay-off where costs are using and o price increase becoming more and difficult to sustain. To maintain earnings in the face of thee conditions, there is the need for these companies to make decision with regard to cost maintenance culture, increase productivity to enhance profitability and diversification into a complete new market area.
In addition to these, it will enhance competitive ability and generate reasonable profit margin for survival, growth and expansion of the business.

It is the view that most industries do not have approved they exist, are not well organisation.
This analysis therefore is designed to explore the various strategies and evaluate them and well as open to manufacturing firms in reduction system can go a long way at improving profitability and over coming inflation.

It is appropriate therefore to say that the identification of these problems of some industries and the solution to them will not only improve the profitability of its operations but also helps largely towards the improvement of the Nigerian economy.

This work therefore is assumed to be of some benefits to manufacturing firms and help than improve further than returns on investment and improving the Nigeria economy generally.

1.2 STATEMENT OF PROBLEM

The firms are in business to make profit. It does this by producing and selling some commodities.
Essentially, every activity whether productive of not, consumes resources. According to Lipsey (2009) “there are insufficient productive resources in the world to produce the amount of goods and services that would be required to satisfy every ones want”. The scarcity of these productive resources eg (human and material) made it imperative that there should be product and judicious use of them.
Most firms in Nigeria are faced with raising cost of production and low contribution margin.
Small firms in particular have peculiar problems and easily swept off their feet by conditions that other companies could accommodate.

Factors that can disrupt the profitability of Nigerian Breweries Plc in this our economy of hyper inflation includes:

i Inadequate capital structure

ii Inadequate to enjoy economies of purchase

iii Tiny market share r loosing their market share

iv Higher cost of research and development.
Having considered the above factors, certain questions needed to be answered include:

1. Is there any possible means of installing a cost reduction system so as to eliminate avoidable cost and or waste and enhance the Nigeria Breweries Plc’s profitability.

2. Do this firm have any cost reduction scheme or programme and if present, how effective and efficient are they ? Are they producing the desired result ?

3. Can the cost per unit of production of a given product be realized wit out affecting h quality and usefulness of product.

4. Are the firm resources being fully utilized or some of them lying idle and thus going to waste.

5. How, out of the various alternatives do we employ our limited resources to produce this assertments as efficiently as possible.

6. In a manufacturing set-up, what specific area requires reduction in cost and what level of cost reduction is require in a given cost level.

1.3 OBJECTIVE OF THE STUDY

Having identified these problems above, and the operational environment surrounding the company, which the researcher is aimed at solving, the following as what this study is aimed at achieving:

– To find out how effective, the resources of Nigerian Breweries PLC are being utilized to improve profitability.

– To know of cost reduction scheme are being applied in the industry.

– To find out the specific strategies adopted, the level of application and the specific areas where they are being administered their evaluation.

– To ascertain whether there is a systematized cost reduction schemes/programme under the personnel and or accounting department.

– To know if certain specific cost reduction techniques applied in one industry will still achieve some result elsewhere.

– To offer suggestions ion the specific cost reduction techniques to the company under review as well as providing an assistance where firms including the low ones.