cost volume profit analysis as a management tool for decision making
TRANSCRIPT
PROJECT PROPOSALThe research investigation will be focused on the use of cost-volume-
profit analysis as a management tool for decision making using Nigerian
Breweries Plc as a case study.
Cost-Volume-Profit (CVP) analysis narrowly called break-even analysis,
is the application of marginal costing and seeks to study the relationship
between costs, volume and profits at differing activity levels and can be a
useful guide for short-term planning and decision making.
There are series of relationship between costs, volume of production and
profit. An understanding of these relationship are useful to management.
Cost-volume-profit relationship as a decision making device that considers the
inherent relationship between cost, volume of production and the profit that is
made.
This research study is divided into five chapters. Chapter one is
introduction which includes background of the study, statement of the problem,
objectives of the study, significance of the study, research questions,
hypothesis, scope and limitation of the study and definition of terms.
Chapter two deals with review of related literatures on cost-volume-
profit analysis as a management tool for decision making. Chapter three deals
with research design and methodology. Chapter four involves presentation,
analysis and interpretation of data and finally chapter five will entail summary
of findings, conclusion and recommendations as well as Bibliography.
TABLE OF CONTENTS
Title page
Dedication
Acknowledgement
Abstract
Table of contents
CHAPTER ONE
1.0 Introduction
1.1 Background of study
1.2 Statement of the problem
1.3 Objectives of the study
1.4 Significance of the study
1.5 Research Questions
1.6 Research Hypothesis
1.7 Scope and Limitation of the study
1.8 Definition of terms
CHAPTER TWO
2.0 Literature Review
2.1 An Overview of Cost-Volume-Profit Analysis
2.2 Cost-Volume-Profit Limitations
2.3 Break-Even Analysis A Traditional View of the
Cost-Volume-Profit Relation
2.4 Graphical Approach to break-even Analysis
2.5 Formular method of finding break point
2.6 The multi- product cost-volume-profit analysis
2.7 Decision making function
2.8 Other tools for decision making and control
CHAPTER THREE:
3.0 Research design and methodology
3.1 Sources of data
3.2 Primary sources of data
3.2.1 Personal/Oral interview
3.2.2 Questionnaire method
3.3 Secondary sources of data
3.4 Population and sample size determination
3.5 Method of data collection
3.6 Method of validating the instrument
3.7 Method of data analysis
CHAPTER FOUR:
4.0 Data Presentation, Analysis and Interpretation
4.1 Preliminary information
4.2 Data analysis
4.3 Testing and interpretation of hypothesis
CHAPTER FIVE
5.0 Summary of Findings, Conclusions and Recommendations
5.1 Summary of findings
5.2 Conclusions
5.3 Recommendations
Bibliography
Questionnaire
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY:
Orjih (2001), defined cost-volume-profit analysis as “specific way of
presenting and studying the inter-relationship between costs, volumes and
profits”. According to him, it provides information to management in a most
lucid and precise manner. It establishes a relationship between revenues and
costs with respect to volumes. It indicates the level of sales at which costs and
revenue are in equilibrium. This equilibrium point is commonly known as
Break even point. The break-even point is the point of sales volume at which
total revenues is equal to total costs. It is a point of zero profit.
According to Brown et al (1997), “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 or reduced
demand for their products. Whichever 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 may be faced with the alternative of 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 for the type of products offered and the action of
competitors.
In order to solve the problem created by the above situations, profit
planning, cost control and decision making require an understanding of the
characteristics of costs and their behaviour at different operating levels. One of
the most important tools developed by accountants to assist management in
meeting these challenges is cost-volume-profit analysis.
1.2 STATEMENT OF THE PROBLEM:
This study entitled “cost-volume-profit analysis as a management tool
for decision making” goes to suggest how the application of cost-volume-profit
analysis has helped managers in making decisions of the firm to ensure its
growth and survival.
The challenges facing management are enormous particularly during this
period of economic depression and they are as follows:
1. Management is faced with the problem of how to make use of the
available scarce resources in order to achieve the objective of profit
maximization.
2. Advanced state of competition and rivalry where only the fittest
enterprises survive.
3. Shortage of funds to buy the needed raw materials.
4. Low capacity utilization.
1.3 OBJECTIVES OF THE STUDY:
The research will be focused on cost-volume-profit analysis as a
management tool for decision making (A case study of Nigerian Breweries
Plc).
The purpose of the study will be:
(i) To evaluate the extent to which the use of cost-volume-profit analysis
has helped in achieving the profit maximization of Nigerian Breweries.
(ii) To identify problems encountered in the practical application of CVP
analysis and suggest possible solutions.
(iii) To examine some other techniques that help in decision.
(iv) To highlight the superiority of using cost-volume-profit over other forms
of techniques.
1.4 SIGNIFICANCE OF THE STUDY:
This study, “cost-volume-profit analysis as a management tool for
decision making” (A case study of Nigerian Breweries Plc) will educate the
entire public on how cost-volume-profit analysis is an effective tool applied by
managers in decision making in their firms.
This study will be of immense benefit to the following groups of
persons:
(a) Business organizations especially Nigerian Breweries Plc.
(b) Cost Accountants and Financial analysts.
(c) Students of accountancy profession and other allied profession.
(d) Institute of management and technology (IMT) community.
(e) Researchers on related study.
(f) The general public.
1.5 RESEARCH QUESTIONS:
In this study, “cost-volume-profit analysis as a management tool for
decision making” (A case study of Nigerian Breweries Plc) the following
research questions come to mind: They are:
(i) Is Cost-Volume-Profit analysis used as a management tool for decision
making in Nigerian Breweries Plc?
(ii) Has the application of the cost-volume-profit analysis helped Nigerian
Breweries to be efficient and effective in its operations?
(iii) What other technique apart from cost-volume-profit analysis does
Nigerian Breweries employ in decision making?
(iv) Are these other techniques superior to cost-volume-profit analysis?
(v) What problems do Nigerian Breweries encounter in decision making?
1.6 RESEARCH HYPOTHESIS:
The hypothesis to attest to the questionnaire’s belief that cost-volume-
profit analysis is a management tool for decision making can be tested as
follows:
Ho: Cost-volume-profit analysis is extensively applied in Nigerian Breweries
Plc.
H1: Cost-volume-profit analysis is not extensively applied in Nigerian
Breweries Plc.
Ho: The application of cost-volume-profit analysis has helped the decision
making and growth of the firm.
H1: The application of cost-volume-profit analysis has not helped the
decision making and growth of the firm.
1.7 SCOPE AND LIMITATION OF THE STUDY:
This topic, “cost-volume-profit analysis as a management tool for
decision making” (A case study of Nigerian Breweries Plc) should have
intended to cover all the Nigerian Breweries located in different States of the
Federation but the researcher intends to limit this topic to only 9 th Mile Depot,
Enugu State due to time constraints, distance and financial handicap. The
study of Nigerian Breweries 9th Mile Depot Enugu shall also serve other States
of the Federation since the same techniques are applied in other depots.
Therefore, the researcher will rely heavily on the Nigerian Breweries 9th Mile
Depot since they have adequate information data relevant to the study.
1.8 DEFINITION OF TERMS:
COST: Nweze (2000) defined cost as “a measurement in monetary terms,
of the amount of resources used for specific purpose.
PROFIT PLANNING: According to Orjih (2000), “profit planning refers to the
operating decisions in the areas of pricing costs, volume of output and the
firm’s selection of product line”.
ECONOMIXC DEPRESSION: This is a period when there is little economic
activity and many people are poor without jobs.
COST CONTROL: Strahlem (1977) defined cost control as “the regulation,
limitation or confinement of cost”.
DECISION MAKING: Barfied et al (1994) defined decision making as “the
process of choosing among the alternative solutions available to a course of
action or a problem situation.
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