PRODUCTION COST CONTROL IN A MANUFACTURING ORGNAIZATION
( A CASE STUDY OF THE PROTECTS DEVELOPMENT ISNTITUTE ENUGU
PREFACE
            The primary objective of this research project work is to examine critically the various cost control measures being used by manufacturing organization using project development institute as a case study; and to propose alternative course of action if necessary.  Concentration has therefore been made on the important factor necessary for the fulfillment of this objectives.
            Also, in the research is the danger or rather the consequences of uncontrolled cost  the need and possible methods of cost control.  The methods have been found necessary in intimating manufacturing organizations with the act of controlling their production costs which will avail then the opportunity or maximization profit without much prices increases.
            It is therefore suggested in the study that manufacturing organizations and public corporations should get acquainted with the techniques developed in this projects report and apply them wherever possible in controlling their production cost.
            Chapter one of this projects report is introductions chapter two discusses the literature review, while chapter three and four deal with the methodology of data accumulation and analysis of data.  The final chapter, chapter five, gives the conclusion and recommendation of this wok.
PROPOSAL
            The target of most business organization is maximization of profit. Profit exists when the income obtained is above the expenditure.  It is the excess of revenue over cost or expenditure.  At times profit can only exist when there is an increase in selling price of the product or reduction in the cost of manufacturing.  Since excessive price increase is dreaded by the public, it becomes vital to achieve the business objectives through production cost control of each product.
            The necessity of production cost control is to bring about this research which is to be undertaken to give actual background on the cost control, the need for the control, cost items to be controlled and the effect of uncontrolled production costs on the organization.
            In the course of this research, the researcher will encounter some constraints such as time constraints, financial constraint ad inadequate materials
            Some recommendations will be made which if implemented will enhance abundant or more profit, quality product and control of raw materials.
LIST OF TABLES
1.                  Elements of a control system---
2.                  Flow of cost-----
3.                  Economic order Quality-
TABLES OF CONTENTS
CHAPTER ONE
INTRODUCTION
1.1              BACKGROUND OF STUDY
1.2              STATEMENT OF THE PROBLEMS
1.3              OBJECTIVE OF THE STUDY
1.4              SIGNIFICANCE OF THE STUDY
1.5              SCOPE AND LIMITATION OF THE STUDY
1.6              DEFINITION OF TERMS
CHAPTER TWO
LITERATURE REVIEW
2.1              PRODUCTION COST CONTROL
2.2              COST REDUCTION
2.3              COST CONTROL
2.4              PRODUCTION COST
2.5              ACCOUNTING FOR ELEMENTS OF PRODUCTION COST
2.5.1        ACCOUNTING FOR MATERIAL COST
2.5.2        ACCOUNTING FOR LABOUR COST
2.5.3        ACCOUNTING FOR OVERHEAD COST
2.6              CONTROL
2.6.1        MATERIAL CONTROL
2.6.2        LABOUR COST CONTROL
2.6.3        PRODUCTION OVERHEAD CONTROL
2.7              COST CONTROL METHODS
2.7.1        BUDGETARY CONTROL SYSTEM
2.7.2        STANDARD COSTING
2.7.3        VARIANCES
CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY
3.1              AN OVER-VIEW
3.2              SOURCES OF DATA
3.3              SAMPLES USED
3.4              METHOD OF INVESTIGAITON
3.5              INFORMAITON FROM THE USE OF QUESITONNAIRE
3.6              PROBLEM ENCOUNTERED IN DATA COLLECTION PROCESS AND LIMITATIONS
CHAPTER FOUR
DATA ANALYSIS AND DISCUSSION
4.1              PRODUCTION COST ASCERTAINMENT AND CONTORL
4.2              MATERIAL COST
4.1.2        LABOUR COST
4.1.3        OVERHEAD COST
4.1.4        FIXED COST
4.2              COST CONTROL SYSTEM-BUDGETARY CONTORL
4.2.1        THE PRODUCTION BUDGET
4.3              INTERNAL CONTORL SYSTEM
4.3.1        OVERTIME AND PREPARATION OF WAGES
CHAPTER FIVE
FINDINGS, RECOMMENDATION AND CONCLUSION
5.1              FINDINGS
5.2              RECOMMENDATION
5.3              CONCLUSION
APPENDICES
APPENDICE A
NOTE
APPENDICES B
QUESTIONNAIRE
APPENDICE C
ORGNAIZATION CHART
BILIOGRAPHY
CHAPTER ONE
INTRODUCTION
1.1              BACKGROUND OF STUDY
            The purpose of this research is a modest of attempt to verify the indiscriminate increase in the prices of commodities produced by manufacturing organization in this part of the country which has attracted the attention of many citizens, especially those who know the implications of this continuous rise continuous rise in prices on the people and on the nation’s economy.
            This rapid increase in price of manufactured goods can be attributed to cost of production of goods and it is for this reason that the need for the control arises. Moreover, in compliance with the current drive towards structural Adjustment programme (SAP), these organizations are now caught up  in the need to control their production cost.
            This research paper will, therefore, attempt to give a comprehensive account of the control of costs in the field of production with particular emphasis on manufacturing organizations.
            The feature of every organizations the pursuit of a goal and this goal or objective exists in different dimensions.
            It is evident, therefore that every manufacturing organization, whether sole, partnership, corporation, among others, must have an objective and the primary objective of these organization  is to maximize profit.  Any other objective such as social service is purely secondary and generally dependent n profit.
            Profit is the excess of total income over total cost during a specific period of time.  It follows therefore, that for organizations to make profit, they must control over the cost of their productions and services.
            Manufacturing is the transformation of materials into finished goods through the use of labour and factory facilities.  It is clear that currently, the price of materials are so exorbitant to the extent that manufacturing companies are in a serious profit squeeze.  They are struggling to maintain satisfactory earnings in a situation where costs are rising  but some industrialist contend that profit increases are becoming more difficult to obtain ever at less proportionate degree to costs.  Foreign and domestic competition as well as governmental efforts to prevent further inflation put serious restraints on additional increases.  In addition to these, are governmental, (both or state and federal levels, stabilization measures aimed at re-structuring and improving the economy, and their attendant cost effect. Some of these measures like the second tier  foreign exchange Market (SFEM)and structural adjustment programme have had the effects of not only causing increased prices as a result of increased cost of inputs, but have gone further to multiply in –built imported inflation by the incremental exchange rate of he Naira against the convertible currencies that are used in importation.
            These governmental structural re-adjustment measures have contributed to a great in rendering most profit seeking long range plans of companies ineffective.  Thus, most, of these companies are compelled by the prevailing economic circumstances to be more interested in research and development for the expansion of profit margins of already existing products.  This will as well help them to avoid diversification.  This quest for increased profit margins in the light of the near fixed nature of revenue, implies that the achievement of same depends wholly on prudent management of costs.
            To maintain the level of earnings or to increase earnings following these situations, many companies are taking strong steps to control costs, if not reduce costs, do away with waste and increase productivity.  The industrial revolution which brought about improvemenrs in tehcnological techniques do help to control and reduce costs but are in most cases not adequate.
            The members of management board of most companies are putting pressure onthier orgnaizations at every poisnt. Jobs are being timed and standards set in manufacturing department where timing and standards did not exist previously.  These procedures have also been extended into office operations.  Budgets are being made more detailed” they are tighter. Religiously adhered to and are controlled more vigorously.
            These developments are typical of a current emphasis in Nigeria business.  In those wise, the manufacturing organization are not left our.  In order to ensure their survival and also to create more positive impacts on the economic growth, many methods of cost control are being utilized.  The purpose of this research work therefore, is to examine critically the various cost control measures being used by manufacturing organizations using project development Agency (PRODA) as a case study, the consequence of these measures (long range as well as short range), and  to purpose alternative courses of action if necessary with more promising long range results.  The project development agency was chosen as the case study because it is a large outstanding institute which has embarked on the manufacturing of many products in this country, and because of the indiscriminate rise in prices of their products which is attributed to the cost of productions.
            The institute was established by East central stated Edict No.11 of 1971.  It was a post-war creation of the then administrator of east central stated, Ukpabi Asika to Channel through applied research and technological innovation, the energies and newly found self-confidence of the indigenous engineers, scientists and technicians into the solution of problems of industrial development of the state and Nigeria in general.
            Before it was officially promulgated as a statutory corporation in April 1971, Projects development agency (PRODA) existed as a department under the east central state ministry of trade and industry.  In April 1976, the institute was taken over by the federal military government when the former east central state was saplit into Anambra and Imo states.  As a result of this, it became one of the research institutes under the defunct national science and technology development agency (NSTDA).  Thus the name automatically changed to project development institute.  However, the acronym remains (PRODA)
OBJECTIVES
            Its functions and objectives were set our in edict No.11 1971 of east central state as follows:
i.                    Developing projects from the laboratory or design stage through pilot schemes to, where necessary, mass production prototype.
ii.                  Carrying out technical analysis of the projects so developed at the pilot stage.
iii.                Publicizing proven projects including plant, equipment and productions.
iv.                Developing standards, both for the manufacturing processes and quality of the goods to be produced by the projects and the viability of which has been demonstrated.
v.                  Conducting on request any government or private interest in technical evaluation of established industries in the state with a view to improving their performance.
vi.                Advising government in its formulation of policy on its industrialization.
            The institute which is situated in Enugu, Enugu state of Nigeria has manufactured many products some of which are: 270-egg kerosene-heated chicken egg incubator which is intended for use by the individual farmer.  This chicken egg incubator simulates the conditions which obtain under the mother-hen when she sits on eggs.  The institute has also embarked on the “Empirical formulation of Raw Glazes” to suit pottery bodies.  Test pieces of the ceramics bodies for which these glazes by dipping, dried and fired to a range of temperature (10500c to 1280oc) .  This glaze was found to be gaze resistant, and gave a very pleasant sheen at temperatures above 120o0c.
            The institute has manufactured A2 – Burner kero-oven.  This kerosene heated domestic oven is used for the braking of bread and cakes, and the drying grains.  Also there was manufacturing of local carbonization plant by the institute.  The aim of manufacturing this plant is to eradicate the inevitable delay in the erection of a carbonization pilot plant, and there is need to attempt a larger-than-laboratory scale carbonization of Nigerian coals employing whatever materials/technology that may be immediately available.  PRODA has manufactured “experimental Machine”.  The purpose of this machine is to ascertain whether cassava, in its whole unsliced form can be satisfactory batch-peeled in a rotating drum by the action nibbling bodies mixed with the cassava.
            PRODA is the manufacturer of Asphalt or bitumen based mastic adhesives as cut back in hydrocarbon solvents.  These are widely used for bonding Vindasbestos floor files to wood or concrete subfloors in rapid on the job installations.  Also, in the list of the products of ceiling boards, electrical insulation; Electrical motor; foundry; Garri processing machinery; pilot plant, paper based machine, washing machine,  Traffic control system, solar energy utilization; laboratory Glassuare and others which are still under production.  Quality is the key word which determine the  success of the whole operation.  Only the best ingredients are used for production in PRODA.
ADMINISTRATION AND STAFFING: Although the governing board has responsibility for general management as set out in the national science and technology Act 1980, the day to day running of the institute is the function of the director of research.
            Administratively, the institute is organizes into divisions science, engineering, ceramics and administration.  The active divisions, from point of view of research and development functions are science, engineering and ceramics.  In order that both their research and development work and their production work are given equal emphasis, each of these activity divisions is in turn organized into research unit
            The institute has a total staff strength of about 691 of this population of staff, 369 were engaged in research, technical services or production work while 197 rendered administrative service of the senior staff strength of 165, the staff who worked on  research projects either as research officers or technical officers numbered 143. The number of staff in the research office cadre was 26 and of these, 14 were engineers while 12 were scientists of various specialization, the remaining workers were posted to  other sections of the institute.
STATEMENT OF THE PROBLEMS
            The federal military government structural adjustment programme, second tier foreign exchange Market with much emphasis on making the country self reliant in food production and in the reduction of Out “acquired importation dependency syndrome” acquired during the so called oil boom period calls for alterness of the manufacturing organizations in general and the food production industry in particular.  But the continued fluctuation in the oil market and its accompanying effects create an uncertainty to the existence of future business, and the costs of achieving the desired objectives is prohibitively high.  Manufacturing companies are therefore, faced with the dual objectives of ensuring the survival and  growth of the national economy on one hand and their survival and profitability on the other.
            Moreover, the fact that the main objective of most manufacturing company is profit maximization is indisputable.  In order to achieve this objectives, it becomes imperative to make positive attempts that will control, if not reduce the total operational cost of the business from item to time.  To achieve this, some components of the operational cost which usually constitute or absorb greater proportion of the organization working capital must be given efficient and effective control. These components are expenditures such as cost of raw materials, labour cost and overhead cost.  All these constitute of production cost.
            The principal constituent of total operational cost of manufacturing organization is the production cost.  In other words, the ability of management to effectively control this items (production cost) will keep actual production cost in line with the budgeted or realistic standard thereby eliminating unnecessary and avoidable variance between both.  In ability to do this could lead to business inefficiency and failure.
            It is therefore, the option of the researcher that study of the production cost control in project development agency, manufacturer or many products, would provide and insight to the best way of controlling overall production cost in manufacturing industry.
1.3       OBJECTIVES OF THE STUDY
            The sole objectives of this study are:
i.                    To examine the control systems in operation at the projects development institute Enugu.
ii.                  To evaluate them as to their effectiveness or otherwise
iii.                To find out all the inherent deficiency
iv.                To make recommendation for solving identified problems
v.                  Possibly improve and update any obsolete technique in line with recent trends.
1.4       SIGNIFICANCE OF THE STUDY
            It is a fact that production cost constitutes the major proportion of operating cost in manufacturing organization.  Therefore, for such manufacturing company to survive, grow and pay back its shareholder by making reasonable profit, the effective and efficient control of such a cost by management becomes very vital
            When COs its not properly controlled and maintained by ensuring that actual results are in alignment with predetermined standards, it could results in higher operating cost, lower profit margins and finally dissatisfaction among owners and prospective owners.  It is quite natural that no manufacturing company can afford to invest its scarce resources inareas in which it has not latitude to control, it is then clear that he importance of studying the methods of controlling production cost cannot be over emphasized
1.5              DEFINITION OF TERMS
COST CENTRE:  A cost centre is defined as “a location, person or item of equipment (or group of these) in respect of which coasts may be ascertained and related to cost units”.  It is one of the activities or department within a budget centre containing one or more operatives or items of machinery which incure costs.
COST:            The amount of expenditure (actual or notional) incures on or attributable to, a specified thing or activity.
COST UNIT: A quantitative unit of product or service in relation to which costs are ascertained.
CONTROL:  Control is the monitoring of activities to see that organizational goals and objectives are achieved as planned.  It is the measurement of the set out goals of a firm to achieve an aim or objective  in order words, the provision of a system whereby responsibility for deviations from the plan can be assigned to individuals.
MANUFACTURING:  Manufacturing is the transaction of materials into other goods through the use of labour and factory facilities.
MANUFACTURING ORGNAIZATION:  It can be defined as the industry that turn primary products into manufactured goods
BUDGETARY CONTROL:  This is the establishment of department budgets relating the responsibilities of executives to the requirements of a policy ad continuous comparison of actual with budgeted results either to secure by individual action the objectives of that policy is to provide a firm basis for its”  revision.  Accountants, budgetary control is a technique which embraces all activities of he business and serves to support the key aspects of the management control process.