1.1 Introduction
Financial performance is the company’s financial condition over a certain period that includes the collection and use of funds measured by several indicators of capital adequacy ratio, liquidity, leverage, solvency and profitability. Financial performance is the company’s ability to manage and control its resources (IAI, 2016). This term is also used as a general measure of a firm's overall financial health over a given period of time, and can be used to compare similar firms across the same industry or to compare industries or sectors in aggregation.
As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitations of the Study and Definition of technical terms.
1.2 Background of Study
The studies of modern cost accounting yield an insight into both the accountant and management roles in an organization especially with relation to product costing. Management in most cases wants to know how to determine the cost of the products and often depend on cost accounting information for guiding their decisions. Decision making can be seen as making purposeful choosing from among a set of alternative cause of action in light of some objectives. Cost accounting information has a main purpose of accumulating cost of an organizational products and services. Managers of manufacturing companies can use cost accounting information as a guide in setting selling prices and for inventory valuation and profit determination (Adeniyi, 2000). However, this research is aimed at determining the relationship between cost accounting information and product costing in some selected paint manufacturing companies in Port Harcourt, Rivers State, Nigeria.
It is worthy to note that cost accounting is a process of collecting, analyzing, summarizing and evaluating various alternative courses of action. Its goal of the information obtained from cost accounting is to advise the management on the most appropriate course of action based on the cost efficiency and capability. Cost accounting provides the detailed cost information that management needs to control current operations and plan for the future including product costing. Since managers are making decisions only for their own organization, there is no need for the information to be comparable to similar information from other organizations. Instead, information must be relevant for a particular company. Cost accounting information is commonly used in financial accounting information, but its primary function is for use by managers to facilitate making decisions (Wikipedia, 2015).
Unlike the accounting systems that help in the preparation of financial reports periodically, the cost accounting systems and reports are not subject to rules and standards like the Generally Accepted Accounting Principles (GAAP). As a result, there is wide variety in the cost accounting systems of the different companies and sometimes even in different parts of the same company or organization.
According to Adeniyi (2000), product cost control/reduction involves the pre-determination of cost and comparison of pre-determination budgeted or standard cost with the actual cost. Product costing which is closely linked with the budgeted is predetermined per unit cost, usually analyzed into elements including Direct Material, Direct Labour and Factory overhead. Standard cost is an effective aid to control, due to the link with budget plans and decision making, because it represents anticipated cost, that is, a cost which will exist in the future and is likely to be affected by decisions made by the management.
Therefore, in Nigeria where the research was carried out, the activities that was conducted is to know the Costing Accounting Systems and Financial Performance on Some Selected Companies in Port Harcourt.
1.3 Statement of Problems
The private sectors driven economic trend in Nigeria, calls for serious cost accounting information consciousness among manufacturing companies. In light of this, manufacturing companies in Nigeria faced with the task of not only profit maximization, but a quest for survival through proper product costing amidst competition, legal, government, economic and environmental constraints.
Moreover, external factors such as inconsistency in fiscal policies do not lend themselves to be manipulated by manufacturing companies in Nigeria. Example is deregulation etc, have left Nigerian Manufacturing Companies with low capacity utilization with its attendant high cost of fixed overhead per unit production, high cost (fluctuations) of foreign exchange which causes high cost of raw materials and plants and machinery which will invariably influence product costing.
The effects of high cost of local quality products are that the consumers boycott these quality products to cheaper one on high quantity but low quality. These limits the scope of market for these manufacturing industries and in the unlikely prospect of export, the final consequences is rationalization of work force. Furthermore, nonchalant attitude of many managers or lack of professional cost accountants to cost accounting information, has affected the product costing of many Nigeria manufacturing companies, including government owned companies. Relevant, reasonable and unreasonable costs are incurred and charged to profits of the companies. This affects the growth of the companies, and also affects their qualities/quantities which are the greatest intents of the consumers. In the light of this, the researcher is out to examine the relationship between cost accounting information and product costing of some selected paint manufacturing companies in Port Harcourt, Rivers State, Nigeria.
1.4 Aim and Objectives of Study
The aim of the study is to scrutinize the Costing Accounting Systems and Financial Performance on Some Selected Companies in Port Harcourt. In achieving this aim, the following specific objectives were laid out as follows:
- To determine the usefulness of cost accounting system in Some Selected companies in Port Harcourt
- To examine the relationship between cost accounting system and Financial Performance in some selected companies in Port Harcourt
- To ascertain other factors influencing Financial Performance in Some Selected companies in Port Harcourt
1.5 Research Questions
The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:
- What is the usefulness of cost accounting system in Some Selected companies in Port Harcourt?
- What is the relationship between cost accounting system and Financial Performance in some selected companies in Port Harcourt?
- What are the other factors influencing Financial Performance in Some Selected companies in Port Harcourt?
1.6 Research Hypothesis
In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.
- H0: There is no significant relationship between cost accounting system and Financial Performance on Some Selected Companies in Port Harcourt
- H1: There is significant relationship between cost accounting system and Financial Performance on Some Selected Companies in Port Harcourt
1.7 Significance of Study
It is expected that findings from this study will help manufacturing companies in Nigeria to see areas of shortfall and remedial solutions. Managers of such firms especially paint manufacturing companies will benefits from the study as they will have more understanding on cost information system and product costing.
Following the completion of this work, and the result made available to them, the processors will be in a position to re-examine their cost accounting information and product costing techniques and update them so as to enjoy these benefits available to firms with good cost accounting and product costing methods.
With adequate application of good cost accounting information and method of product costing, the firms will expand and consumers will enjoy value for quality products.
Finally, the company’s expansion will improve economy of employment opportunities and this study will help to highlight the problems of manufacturing companies.
1.8 Scope of Study
The study focuses on the Costing Accounting Systems and Financial Performance on Some Selected Companies in Port Harcourt.
1.9 Limitations of the Study
During the course of this study, many things militated against its completion, some of which are:
- Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
- Research material: availability of research material is a major setback to the scope of the study.
- Frequent power failure: This made the researcher append more money on fuel to ensure sustainable power.
- Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
1.10 Definition of Terms
Budgeted Cost: This is an information system through which cost can be estimated and controlled. Management most often base its price policy on budget cost or estimated price through observed trends in economic activities.
Cost Analysis: This is the process of classifying and estimating the total amount of expenditure to be incurred in the course of manufacturing a product or rendering a service.
Cost Control: This is the control of expenditure within predetermined levels. It is concerned with understanding how and why costs change setting of performance standard and monitoring of actual results against these standards.
Budgetary Control: This is a system of accounting in which cost and revenue are analyzed in accordance with areas of personal responsibilities so that the performance of the budget holders can be monitored.
Cost Reduction: This is reduction in unit cost of goods and services without in pairing suitability for the use intended.
