CHAPTER ONE

1.1            BACKGROUND OF THE STUDY

Cost control is all knows as cost management or cost containment, which is a broad set of “cost accounting” methods and management techniques with the common goal of efficiency and improving business cost at least restricting their rate of growth. Business uses cost control methods to monitor, evaluate, and ultimate enhance the efficiency of specific areas, such as department division of product line within their operation. During the 1990s cost control initiatives received paramount attention from cooperate America , often taking the form of cooperate restructuring, diversement of peripherals activities mass layoffs, or out sourcing, cost control strategies were seen as necessary to preserve or boost cooperate profit and to maintain or to maintain or gain a competitive advantage.

According to (wheldon 1994) which states that cost control is the activities of any business enterprise which the determining factor towards the realization of set objectives. Further more, cost control provides the measurement of the degree to which its aims and objectives is attained, thus it has a definite place in the activities of any organization. Cost control technique can help a company pose good financial results and overcome difficult situations with ease, though it is not essential to be a finance experts to understand the definition of cost control, planning and actual implementing the techniques can be quite a big challenge.

In the tie of recession, many firm resort to cost control techniques such as reducing the extra facilities to the employees such as recreational facilities. The technique might also include cutting down the expenditure incurred on traveling by air and luxury hotel accommodation in order the cash flow. As a part of the cost cutting measure, few firms may postpone or cancel their plans of acquiring new companies, investing in new business and buying new machinery or system. These techniques should be utilized to save money and bring back financial strength of the company.

Cost control is used by different organization are different and are largely dependent on their business model and strength of their balance sheet. The better the implementation of these techniques, the better would be the future of the concerned organization.

1.2     STATEMENT OF PROBLEM Two inter-related function of modern day manager are; planning and controlling. Management must not only ensure that adequate plan of cost is made at the beginning of a period but adequate arrangements are put in place to ensure periodic measurements of performance and the institution of the control factors to check noticeable deviation from standard or set objectives. Business activities result in the occurrence of cost and excessive cost could lead to a reduction in profits which is contrary to the purpose of any business Endeavour, whose purpose is to maximize profit. Manufacturing firms are faced with the problem of how to embark on cost and their effectiveness. Moreover, the problem of inefficiency under the utilization of resources which has tremendous effect on our economy should be taken into full consideration. Ubeku (1983) said that “resources are not well managed in our economy”.          The main problem organization are facing is the inability to make enough profit and achieve high performance due to the in ability to reduce and control cost. Companies are unable to install the appropriate cost reduction and control techniques in the business. It follows that it is essential to monitor the cost of producing. So how then can cost control and reduction be effectively applied in n organization to help management attain its goal? According to Adeniyi (2009), he said that “cost reduction campaigns are often introduced at a rush, desperate measure instead of a carefully organized, well throughout exercise”. That is to say that cost reduction techniques which might be adopted by a company may not yield positive result because such technique were introduced at a rush and not analyzed properly  1.3     OBJECTIVE OF THE STUDY

The main objective of this study is to examine the effect of cost reduction and control technique on the performance of firms in Nigeria. The specific objectives are:

To investigate if the cost reduction and control of manufacturing firms has effect on their performance.

To find out whether the cost of sales has effect on the performances of manufacturing firms.

 To ascertain if selling and distribution cost has effect on the performances of manufacturing firms.

 To find out whether administrative cost has effect on the performance of manufacturing firms.

1.4   RESEARCH QUESTIONS

This study for effect of cost reduction and control has the following question to help achieve the stated objective;

  Do cost reduction and control have effect on the performance of manufacturing firms?

Do costs of sales have effect on the performance of manufacturing firms?

Do selling and distribution cost has effect on performance of manufacturing firms? 

Do administrative costs have effect on the performance of manufacturing firms?

1.5     RESEARCH HYPOTHESES

This study for the purpose of effect of cost reduction and control will test the following null hypothesis (Ho) and alternative hypothesis (H1);

HYPOTHESIS 1 Ho:   There is no significant relationship between cost of sales and performance of manufacturing firms in Nigeria. H1:   There is a significant relationship between cost of sales and performance of manufacturing firms in Nigeria. HYPOTHESIS 2 Ho:   There is no significant relationship between selling and distribution cost and performance of manufacturing firms in Nigeria. H1:   There is a significant relationship between selling and distribution cost and performance of manufacturing firms in Nigeria.

HYPOTHESIS 3

Ho: There is no significant relationship between administrative cost and performance manufacturing of firms in Nigeria. H1: There is a significant relationship between administrative cost and performance of manufacturing firms in Nigeria.