EFFECTIVENESS OF STANDARD COSTING AS A CONTROL TOOL FOR PERFORMANCE EVALUATION IN MANUFACTURING INDUSTRIES

Introduction

Civilization sincerely is a welcome phenomenon. The business world is not left out in its resultant effect. Thus, the degree of complexity and sophistication of situations obtainable in the present days business has called for not just experience but effective and formidable managers. The practicality commitment and inefficiency of every manager could be measured based on his ability to plan organize, direct, cirutrol, co-ordinate meteorite and evaluate his business activities these function centers on the resultant checksum makings the process of which are route which have no close substitute as far as the profit making and progress of any business is concerned.

Hence it is early detached that the profit making to cover the cost and the survival o every industry has informatively become an increasingly difficult task therefore mangers are faced with entire managerial decision making crises. Sequel to that the ability of every management to have the managerial decision making process. under control become pertinent as such industry strive to push and present its product is a position it could be preferred to the products of other firms in the same line of business. This gare rise to management accounting which improved from the old quantitative approach to accounting to encompass the quantitative approach to accounting practices (Nweze 1999: 158) management and cost accounting is one of the largest part of the entire business management is essentially an embodiment of product costing planning and decision making activities toward the enhancement of the product quality and evaluation of the performance of the various employees geared toward the attainment of the overall objective of the organization or industry, it is all accounting in the broadest sense (Size 1979:15) This product costing which encompass standard costing aims at the ascertainment of the cost of that product.

Nevertheless the efficiency of every manager hers in his ability to manipulate and harness successfully all the factors needed for effective production. This creates the need for development of certain measured for the control of activities of subordinate with respect to cost volume of output and profit. However cost is the most crncral because its may sometime assume a limiting factor. Mores, it affects profit and its central lead to profit realization (Brown 1975: 172). According to Keller (1996:172) every firm which aspires for efficient productive additive and long term profitability should plan and control its cost of production. In line with this firm should aim quality specification and other representation made to the customers.

Precisely the cost incurred by manufacturing firm in their cruise of production most importantly need to be controlled owing to the sense that they forms the bases for which product cost is analyzed. These cost include the direct material cost direct labour and factory overhead or indirect manufacturing costs.

Many organization prepare their budget annually usually at the beginning of a fiscal year. This budget is expected to cover all the organizations phases of business activities and more so acts as a guide for measuring their overall performance. This budget is a total concept and might not make any meaning to the component departments of the organization. It is then broken to a unit concept which is what standard cost is associated with for the purpose of control and performance appraisal. Standard costs are part of as overall operating budget of an organization that has been elaborately and carefully defined; in that they are developed in such minute details that any derivation from such standard can be traced to its source and responsibility for such derivation established.

At this point it become necessary to point out that for standard costing to operate efficiently as a control, cost centers must be established with clearly defined areas of responsibility so as to cover only those matters which clearly comes within the control of its supervisor. It may be a location equipment or items so that deviation can be traced directly to the cost centers from where it occurred without muddling up the control structure of the firm or industry. This study centers on the use of standard costing in the production cost control and performance evaluation in manufacturing industries, but because of time and cost involved in covering the number manufactures. The researcher. Focus his attention to the Anambra state more manufacturing industry (ANAMMCO)_ Emene Enugu.

1.1 Background Of The Study

Knowing that a standard is an establish basis or measure against which actual result of performance is bench marked. Standard cost is a predetermined or established cost, or target or goal which the management of a firm or industry aims at achieving given a conducive operating condition with a view of attaining maximum efficiency in its production. I is a pre- determined or forecast estimates of cost to manufacture a single unit or a number of cost to manufacture a single unit or a number of units of product during a specific immediate future period (Keller et al 1966: 171) There fore, standard costing is a costing technique which compares the standard cost of a units of product with the actual cost to determine the efficiency of operations with the ultimate intention of carrying out any remedial action whenever necessary.

Based on the fact that they are pre- determined units cost estimates deviation are bound to occur and these are pin pointed in that they represents measures of performance. These deviations are termed variance, and are isolated for an in-depth analysis to reflect in the variance aids to the initiation of corrective and control action, so as to direct the operational activities of the firm to conform with the standard cost as determined prior to those activities.
One basic principle is that standard cost (whatever type) is used as a control of production cost, employees excesses and thus ards to the performance apprcrisal bearing in mind the over all objective of the firm or industry. As opined by Ama (2001: 7) the task of control accounting is to produce data at regular interval in a standard form so that the firms actual performance can be compared with plans and budgets and differences analyzed by causes. By implication the progress of every manufacturing firm cannot be achieved on a total neglect of this cost control technique.

The Anambra motor manufacturing company Ltd (ANAMMCO) a manufacturer of automobile engines is not an exception to these assertion. For cost reduction and minimization it is necessary that firms adopt standard costing and make effective use of it as a cost control measure with which to evaluate its performance

The Anambra motor manufacturing company limited the case study of the researcher was established by the federal military government of Nigeria in its effort to move the country forward the attainment of industrial development and technological advancement and independence. This in 1975 started with as inter aha negotiation of joint venture agreement with among other manufacturing of vehicle DAMLER BENZ AG OF THE FEDERAL REPUBLIC OF GRRMARY. This partnership agreement between the federal military government of Nigeria and Daimler Benz AG was signed on the 12th December 1975. On duly 8, 1980, the first executive president of Nigeria Alhaji shelar Shagari commissioned the plast located at Emene Enugu state which occupies a spiraling 3000, 000 square metre. Official production commenced on January 1981 with a staff strength of 794 staff comprising 782 Nigeria and 12 foreign expatriates. The plant has an installed production capacity of 75,00 commercial vehicles per annum.
The company originally has the plan to produce truck for the Nigeria market but have today chirersifred to a product range which include for rapid industrialization of Nigeria. Track such as L700, l1418 and ACTROS were not only produced but they have gone step further in the designing fabricating, manufacturing and production as well as sales of buses and other utility vehicles. Among its product range include; MBO 800, MBO1418, MBO 1721, MBO 4000 MARCOPOLO/ BUSSEAR, FIR FIGHTING VEHICLE Ambulatory mobile clinics refruse collector and other various specialized types of vehicles.

Despite the fact that prices o these product are dictated by in falconry trend in the economy. This does not value not the cost factor in producing the vehicles so as to maintain a lower production cost which invariably helps the company to under and its rivals.,

1.2 Statement Of Problem

The problem of control as a function of the business manager and evaluation of the performance of the entire organization has become a hydra – leaded outlook. Moreso, the economic hardship characterized b y high rate of inflation, fluctuation in the prices of goods, high cost of production among other task has led many companies to find ways of their production facilities in operation till a time when the economy is expected to improve. Such companies adopt cost control over production cost as to reduce and eliminate wastages.

Standard Costing is one of the cost control techniques which has been developed for years. And its widely application by many companies has proved it to be effective in supplying use information for cost control.
It is also worthy to note that standard costing in itself cannot control costs but can only be useful when the information supplied by this is applied to cost. With standard costing, technique efficiency can be determined through comparism of the actual incurred cost with the existing standard but for the fact that production input are procured in an open market, it is affected by the inflation rate. This become a problem to the cost accountant in supplying accurate cost information. Therefore a cost information supplied today may become outdated in the next day.

In addition quality maintenance of the product given the current economic hardship and high cost production is concern to both the management of the company and its consumers. To guarantee the customers loyalty and there by ensure continuous profit, the quality have to be maintained through it might be costly. It is left for this company to decide on whether to use high quality material which might be costly or low quality material at lower cost but would lower the quality of the product.

In the view of a company to survive this economic hardship operate effectively, efficiently and ensure privtitability, it must take care of its cost of production which is the basis on which profit is realized. It is the purpose of this study to examine care fully how a company operating is an inflationary care fully, how a company operating in an inflationary economy maintain an effective standard costing system.

1.2.1 The Objective Of The Study

This research aim at knowing how the manufacturing companies precisely the Anambra motor manufacturing company (ANAMMCO) Ltd, the case study of this research used standard costing lechnrque in controlling its production cost so as to maintain cheaper prices its product (irrespective of the inflation crises is the country) in order to ensure continuous demand and then guarantee profit.

As an evaluative and descriptive study it tries to find out how well applicable, this concept of standard costing is in this ANAMMCO limited if compared with what has been written by some scholars. Specifically the following step will guide the investigation

1. An analysis of the manufacturing cost as it relates to a unit product.
2. Determine the effectiveness of the application of standard costing system in controlling the production cost.
3. Identifying the variance that do occur and how they are analyzed for management control of cost.
4. Giving suggestion as to the improvement of their standard costing system for an effective control for good performance evaluation.

1.3 Significance Of The Study

This research is mainly carried out as a requirment in the partial fulfillment of the award of higher National Diploma (HND) in accounting.

It is also expected to help the researcher and other interested studies to have an insight of the practicability of the wholesome theoretical as seen in many textbooks on the concept of standard costing technique.

This additionally brings to the notice of the Nigeria would be entrepreneur and already existing companies the need to appreciate the use of standard costing in controlling costs and basis for performance evaluation.

1.4 Research Questions

This study on the effectiveness of standard costing as a control trol for performance evaluation will be based on the following question

1. Is standard costing practicable in the operational activities of manufacturing industries?
2. Does standard costing have anything to do with reduction of the production costing of a firm?
3. Of what use is variance analysis?
4. Does standard costing data influence managerial decision making?
5. Can this standard costing system help is the elimination and redaction of wastage?

1.5 Formulation Of Hypothesis

In view of this study the following assertions will be tested:

1. Ho Standard costing technique has not significantly contributed in cost control in production industries.
   H1 Standard costing technique has significantly contributed in cost control in production industries
2. H0 Standard costing technique does provide current gauge of performance appraisal
   H1 Standard costing techniques provide current gauge of performance appraisal
3. H0 Variance is not a good measures of evaluation
   H1 Variances is a good measures of evaluation.

1.6 Research Method

In order to source out data this study the researcher intends to use the primary and secondary data which is the most common sources of data.

The primary data will be sources through the use of questionnaire face to face interview and close observation as the case may be .

Text books, journal and periodical of published and unpublished nature which will be used mostly in the chapter two of this work makes up the secondary data.

Since the topic involves the use of only the senior staff of the management and few members of the accounting department of the company the whole population will be used.

More over a data sound meaning if not tested. The researcher intends to test there hypothesis using chi- square (x2) technique of testing hypotheis

1.7 Scope And Limitation Of The Study Scope

This research is intended to cover the control of production costing which include direct material cost direct labour cost and factory overhead cost, through the use of standard costing system and also the analysis of variance which might arise as a result of comparing the actual cost incurred with the existing standard cost determined by the management accountant. It is also worthy \\to note that this will cover standard cost cosign and types also delineation given by some authorities will be reviewed.

Limitation

Since this requires constant transportation to Emene where the company of my case study is located the in availability of the fund required for this possess the first limitation to this. This is followed by the inability of the management to divulge certain information which they consider sensitive and the publication of which is detrimental to their operations. Moreso, the attention of the members of top management whom may not be chanced on several occasions proved a limitation to this research

I must also comment on the limited time gives for the completion of this research which is amplified when considered that the researcher have to attend to other aspect of his study other than the research work alone since both research work and academic studies are run concurrently.

1.8 Definitions Of Terms

1. Quantitative accenting approach:

This is that approach to accreting which concerns itself with only data that can be qualified in monetary terms.

2. Qualitative accounting approach:

This unlike the number one above take cognizance of data that matters but can not be qualified in monetary terms.

3. Limiting factor:

This is that factor that can be a constraint to the expansion of production. It is sometimes termed they factor.

4. Cost control:

This as used in this study an operating function but not an accounting function. It is the manipulation of cost through operating personnel precisely, it is the employment of all the management devices in the performance of an important operation so as to meet the already established objectives of quantity and quality with the lowest possible outlay of input

5. Cost centre:

This is a desirable are of activity within a business to which costs can be attributed. In the content of manufacturing firm. It is those manufacturing units or departments in respect of which cost can be ascertained and over which cost can be controlled.

6. Cost reduction:

This is also an operating function this aim at the employment of the management derives in the performance of some important operation so as to reduce cost firm what it use to be. This can be achieved through a change in the system of production labour intensive to capital intensive)

7. Performance:

This is the act of measuring appraising and comparing the operational results of different profit centers of an organization.

8. Variance:

This is the difference between the actual performance and the expected performance expressed by the standard costing. Simply put, it is a difference between standard cost and actual cost.

9. Benchmark:

This is used in this study means the process of companism between what is and what is supposed to be.