ABSTRACT

Standard costing has been the right tool to be used by the management at a particular period. It has helped in planning, controlling and decision making in the operation of company. That is whether to reduce cost so as to minimize profit or to reduce price so as to be able to compete its industry. The source of data is primary source of datacollected was analysed using chi-square. It was found, that standard costing techniques as used by organization acts as an instrument of motivating the staff, enhance productivity and also prevent wastage. In conclusion, those standard costing techniques when used adequately by the organization will bring about reduction in unplanned cost and increase the profitability level of the organization. The recommendation it that variance should not only be referred to management as it found to be but also to commit to ensure good and effective decision.

CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND OF THE STUDY

Standard costing has developed from basic costing, accounting in response to the needs of modern business management which call for precise methods of control to ensure that all aspects of a business are functioning correctly. In setting standard for various activities, the management is able to monitor progress and take action when deviation occurs. Standard are set in all aspect of life as a moment of thought will confirm ranging from a train time table (how else would you know that you had arrived late) to the work of the weight and measures inspector.

Standard costing is a part of this control process and compares the results which are planned for. The emphasis is on costs; of course the system will be designed to set out in great detail, the cost of each product made together with the selling cost at a given level of production and efficiency.

JOHNSON (1979) and LUCEY (2002) stated that standard costing is a technique which establishes predetermined estimate of the cost of productions and services and then compares these predetermined cost to actual cost as they are incurred. The predetermined costs are known as standard cost and the difference between the standard cost and actual cost is known as variance. The process is by which the total difference between actual and standard cost is broken down into its element known as variance analysis.

The planned unit cost of the product components or service produce in a given period can be determined. The standard cost may also be determined on a number of bases (see standard cost in the definition of terms). The main uses of standard cost are in performance measures, control, stock variation and the establishment of selling prices.

Planning involves selecting missions and objectives and action to achieve them, it requires decision making that is choosing from among alternatives futures courses of action. Planning bridges the gap from where are to go. It makes it possible for things to occur that would not otherwise happen. Although we can seldom predict the exact future cost and factors beyond our control may interfere with the best laid plans, unless we plan we are leaving event to chance WELHRICH and KOONTZ (1993) “controlling of an undertaking consist of seeing that everything is carried out in accordance with plan which has been given and the principles which have been laid down. It objectives is to point out mistakes in order that they may be rectified and prevented from occurring again.

Decision making involves taking a decision now which concerns future courses of actions, the outcome which is not sure. Example, when we decide to publish this manual we were uncertain of what the level of demand would be, yet we decide to incur the high expenses of publication merely hoping to sell our publication (JOHN 1998).

Standard costing technique therefore represents an integral part of management accounting control techniques which will also include budgeting system and responsibility accounting system. Standard costing techniques may either be viewed from the perspective of marginal costing technique or absorption costing technique. By relating standard costing analysis will be determined on the total relevance cost of products excluding fixed overhead. But if it is viewed in the context of absorption costing technique then variance analysis will involve the total cost of product to the organization ADENIYI (2001)

In summary, we can say that basically, standard costing technique is the provision of relevant information to management on deviation of actual result from the set plan when such deviation warrant management corrective actions and would influence and assist them in planning, controlling and decision making.

1.2     STATEMENT OF THE PROBLEM

In the manufacturing sector, standard costing technique is one of the control measure established by management in order to achieve an effective and efficient operation.

In spite of this, there is still gross mismanagement, misappropriation of funds and irregularities in the manufacturing sector.

Most organization today especially profit oriented organization are unable to breakeven not to talk of making profit. This is mostly as a result of poor planning, controlling and implementation of set standard.

Also in most foam companies or industries, there is the case of wastage of materials, labouretc. incurring of unnecessary expenditures as a result of deviating from set plans target and standard all these also tend to pose as problem to such organization.

This study investigates the problems which have been hindering the standard costing techniques from performing their roles effectively in that manufacturing sector.

1.3     OBJECTIVES OF THE STUDY

In Nigeria today, the economic situation has been the most turbulent issue and this has presented a constraint and deeper challenges to business organization, be it industrial commercial or government in structure.

In view of the above statement, this project is carried out to:

1. Examine the motivation effect of standard costing on the staff of the organization.
2. Evaluate the predictive power of standard costing in planning, controlling and decision making.
3. Provide an analytical review of the various variance encountered by the organization.
4. Appraise the controllability and accountability that trail each item of the variances.
5. The study would look indebtly into the application of standard costing in manufacturing companies to aid management in their futuristic decision making.

1.4     SIGNIFICANCE OF THE STUDY

Taking VITA FOAM Nigeria Plc. as a case study, this research work will be of substantial help to the company and other related manufacturing organization on how standard costing technique system help on enhancing maximization of owners wealth.

Students or intending researchers will find it useful as a reference basis for their further research as other areas needing investigation are pointed out at the end of the research work.

1.5     SCOPE OF THE STUDY

The research work covered how costing techniques can be used effectively in control of organization operation and how it can be used to plan corporate goals.

The study also looked into the way management is monitoring and controlling the set standard, interpretation of variances and level of variances tolerated and also checks if the standard sets are ever reviewed.

The scope limit of this project will be based on the cost department of Vita foam Nigeria plc. Kaduna.

1.6     RESEARCH HYPOTHESIS

Hypothesis can be defined as an intelligent guess work. Hypothesis can also be defined as an assumption made but has to be tested and confirmed by the outcome of the research findings.

It is made up of two types;

1. Null hypothesis
2. Alternative hypothesis

For the purpose of this study, the following hypothesis are formulated

Null hypothesis H0

Standard costing in an organization cannot ensure effective management.

Alternative hypothesis H1

Standard costing in an organization can ensure effective management.

1.7     DEFINTION OF TERMS

1. Basic standard: long term standards which remains unchanged over the year.
2. Ideal standard: these are based on the best possible operating condition i.e. no breakdown, stoppage or idle time.
3. Current standard: this is a situation where a standard which is set for use over a limited period to reflect current conditions.
4. Attainable standard: current attainable standard based on efficient operating conditions.
5. Standard cost: a pre-determined cost or unit e.g. material cost unit.
6. Budget cost: this is pre-determined cost in totality.
7. Actual cost: this is the cost actually incurred during a particular period.
8. Variance: this is the difference between standard cost and actual cost.
9. Favorable variance: this is a situation where standard cost is greater than actual cost incurred.
10. Unfavorable (adverse) variance: this is a situation where actual cost is greater than standard cost incurred.
11. Variance analysis: this is the investigation of variance causes and responsibility so as to implement corrective measures.
12. Planning: identification of objective/forecasting future activity.
13. Controlling: when plans are made (strategic and operating) management need to institute control so as to ensure that operations are carried out according to plan.
14. Standard: is a yardstick used to measure and compare actual performance?