COST CONTROL AND PROFITABILITY OF SELECTED MANUFACTURING COMPANIES IN NIGERIAN is a well-researched topic, it can be used as a guide or framework for your Academic Research.
Profitability in manufacturing companies in Nigeria depends on the ability of the companies to grow their earnings and tame their cost profile through cost control techniques. Many manufacturing companies seem not to understand these costs and the impact they have on profitability.
This study examined the effect of cost control on the profitability of selected manufacturing companies in Nigeria. The population of the study was the 78 manufacturing companies listed on the Nigeria Stock Exchange as at 31st December 2017. A sample frame of 23 companies listed on the consumer goods sector was selected out of which five companies were considered for a period of 10 years (2005 – 2017).
The study adopted a judgmental sampling technique. Data were obtained from the audited financial statement, and the accounts have already validated by regulatory authorities. The study took descriptive and inherently (regression) statistics. It was found that there is a significant negative relationship between the cost of raw materials (CoRM) and profit before tax of manufacturing companies in Nigeria.
The study concluded that cost control has a significant positive effect on the profitability of manufacturing companies in Nigeria for the period under review. Therefore, it is recommended adequate management and alternative sourcing of raw materials.
Manufacturing companies in Nigeria have witnessed an unexpected high operating cost with the attendant reduction in profitability in recent times. The power generating capacity of the energy sector has diminished with an adverse effect on manufacturing companies.
Akintoye, Onakoya, Amos, and Ifayemi (2015) posited that poor infrastructure gave rise to higher costs and compromise the quality of the product, which accounts for the significant competitive disadvantage of most manufacturing companies. Adeleke (2014) opined that quite a good number of manufacturing companies in Nigeria have ceased to operate, and more prominent companies have acquired many or at best, merged with other more prominent manufacturing companies.
Some have relocated their operational base to neighboring countries (Abdul and Isiaka, 2015). Few manufacturing companies that are still operating within the Nigerian market have resulted in using cost control as a strategy for sustaining their earnings.
Cost control strategies are expected to be an integral part of any profit-making venture that wants to continue in business especially in the current downturn as no firm will stay in business if it does not put precise mechanisms in place to check its costs so that the expenses do not surpass the estimated projections.
If charges are not properly checked the outcome can be detrimental to the smooth running of the business. Company management must match budgeted and actual costs and strive to ensure that they always remain within the estimated projections.
Profitability is germane to the survival of any business entity and is of significant interest to the stakeholders (owners, government, employees, and their host communities). Many companies in Nigeria, especially the manufacturing sector, have not been achieving this expectation to owners, government, employees, and their host communities in recent times (Nwosu, 2014).
It is when a company makes a profit that it can fulfill its obligations to the stakeholders, payment of tax to the government, payment of dividend to shareholders, payment of enhanced remuneration to workers, and investment in corporate social responsibility in its operating environment.
The reverse will be the case for unprofitable companies. Profitability, to no small extent, depends on the capacity of the company to grow its earnings and tame its cost profile through cost control techniques. Until companies operating in the manufacturing industry understand the actual costs associated with raw materials and the impact it has on profitability and can review the benefits of alternative approaches, they will continue to be complacent thereby accepting average profits when much more can be gotten (Prempeh, 2016).
Adeleke (2014) opined that many had been acquired or merged with bigger ones to remain in operation). All these increase the rate of labor turnover in manufacturing companies and further prevent the effectiveness of the learning curve theory. Therefore, this study focuses on the effect of cost control on the Profitability of selected manufacturing firms in Nigeria.
Edom, Inah, & Adanma (2015) indicate that profitability is not synonymous with efficiency. The efficacy of the profit maximization objective largely depends on the efficiency and effectiveness of cost control. Cost control ranges from limiting telephone calls to only calls that are for business purposes, internet and utility bills, and employee payroll. Professional services and outsourcing may also be adjusted (Abdul & Isiaka, 2015).
The concepts of cost control as it affects profitability will be discussed to bring out the inter-relationships between them. The next section deals with the various theories relating to the variables used in the research. It attempts to review the multiple approaches to cost control and profitability.
The concluding part of the chapter deals with the review of various empirical studies both within and outside Nigeria to identify their methodologies, conclusions, and gaps in those studies. The concept of cost control has assumed multiple definitions, especially in recent times. The term means keeping costs within acceptable limits.