CHAPTER
ONE
1.1
INTRODUCTIONS
Cost volume profit analysis is a systematic method of
examining the relationship between changes in volume (i.e.) output and changes
in total saves, revenue expense and net profit. As a model of these
relationships cost volume profit analysis simplifies the real word condition
that a firm will face like model which are abstraction from reality. Cost
volume profit analysis is subjected to a number of underlying assumption and
limitation.
Profit is the important measure of a firm performance in
the free market economy: profit is a guide for allocating resource affectively
on analysis of the effect of various factors on profit is an essential step in
financial planning and decision. Making. The analytical techniques used to
study the behaviours of profit in respond to the changes in volume, and prices
are called cost volume profit analysis (CVP). However. It should be noted that
formal profit planning and control also involves the use of budgets and other
forecast. As a starting point in profit planning, cost volume profit analysis
helps to determining the minimum sale volume to avoid losses and the sales
volume at which the profit goal of the firm will be achieve.
Therefore, the survive in today business world as started
by outer and brown (1984)”concealed in efficiency have to be tracked down,
standard set.
Forecast made and rigorous control must be started to
ensure even modest margin of profit. The efficiency and effective management
the variances of cost.
Price, output (volume) and ultimately profit will play
major determination roles in the growth and survival of an organization. The
break-even point is that point of activity (saves volume) where total revenues
and total expenses are equal. It is neither profit nor less point. The
break-even point can only be archive where there is decision involves price,
volume and cost that can be split in to two classifications. Cost volume
analysis is the analysis techniques used to study the behavior of profit in
response to the analysis techniques used to study the behavior of profit in
response to the change in volume, cost and price, it is a device used to
determine the usefulness of the profit planning of the firm in the short term.
Cost volume profit analysis sometimes termed break-even
analysis is an application of marginal costing and seeks to study the
relationship between cost volume and profit at different activity levels and
can be useful guides for short term planning and decision making. It is more
relevant where the proposed changes in activity are relatively small so that
established cost patterns and relationships are likely to hold good, will
greater changes in activity and over the long term existing cost structure of
the amount of fixed cost and marginal. Cost per unit are likely to change so
cost volume profit analysis is unlikely to produce useful guidance
1.2 STATEMENT OF RESEARCH PROBLEM
The focus of the
research is to identify the importance of cost volume profit analysis in
manufacturing company with emphasis on Nigerian bottling company Ilorin plant.
Hence in the course of the study effort has been made to find solutions to the
following research problem.
1.
For budget planning – it is
used to determine the volume of sales required to make profit
2.
A target profit levels and to
determine the margin of safety
3.
Determining product pricing
and sales volume decisions
4.
For determining optimum
production and sales mix
5.
To determining the importance
of capacity utilization on cost.
1.3
OBJECTIVE OF THE STUDY
The study has examined the importance of cost volume profit
analysis in manufacturing industry in Nigeria. Due to the role of cost volume
profit analysis which play in the effectiveness and efficiency management of a
business enterprise. The aims and objective of the study are:
i.
To examine the introduction of
cost volume profit analysis in Nigeria
ii.
To highlight the reason for
the introduction of cost volume profit analysis in Nigeria.
iii.
To critically examine the
likely problems for cost volume profit analysis in Nigeria.
Limitation
did not hinder effective completion and quality of the research work.
1.4 STATEMENT OF HYPOTHESIS
The general hypothesis that was tested
in the course of the research is as follow:
Ho:
the importance of cost volume profit analysis does not improve manufacturing
industry service delivery.
1.5 RESEARCH METHODOLOGY
Base on the topic of research, made
use of both primary and secondary source of information. Primary source which
include case study material from internets response from questionnaire while
secondary source include text books.
1.6
PLAN AND ORGANIZATION OF THE STUDY
The research work has been divided
into five chapter one contain the introduction and background of the study.
Statement of research problem, aims and objective of the study, scope and
limitation, statement of hypothesis, research methodology and plan and
organization of the study.
Chapter
two treats past and current literature review cost volume profit analysis,
assumptions underlying CVP analysis, arithmetic of cost volume profit analysis,
contribution theory, margin of safety, profit volume chart for multiproduct
firm, relevant range concept, cost volume profit analysis in a multiproduct
firms profit planning and foresting, evaluation proposals and segment of the
business, pricing and sales volume decision cost reduction, sales mix decision
simple device to understand accounting data, useful diagnostic tools, basic
information for further profit improvement studies, limitation of CVP analysis
chapter three treats brief history of the case study (Nigeria bottling company
Ilorin plant) method of data collection, instrument of data collection type and
sources of data, sample under study simple size and population under study.
Chapter
four discusses data presentation and analysis discussion findings.
Chapter
five contains summary of finding conclusion and recommendation.