FACTORS AFFECTING THE CONCEPT OF PROFITABILITY AS A GUIDE TO POLICY DECISION
(A CASE STUDY OF SOME MANUFACTRING INDUSTRIES IN OSHIMILI SOUTH LOCAL GOVERNMENT AREA OF DELTA STATE)
ABSTACT
Before we delve into this issue, let us look from the realistic point of view, the concept of profitability. It can be seen as that concept which provides management with alternative course of action according to the various degree of profitability, stating dearly in relevant cost accounting form the costs and benefits associated with individual projects which enables management to select the most profitable. Majority of the policy decision of manufacturing industries are generally directed towards profitability. Policy decision made under this concept ha direct effect on increasing and enhancing the general profitability of the manufacturing industry concerned.
Unfortunately, this laudable guide has been relegated to supportive role in some manufacturing industries because of certain factors militating against it. Such factors have in most cases affected the profit position of industries and in extreme cases to huge losses, which sometimes drag such companies involved to unexpected liquidation.
Hence, this project work tried to know those factors affecting the concept and respective effects on the profit position of the selected industries.
In view of covering the three dimensional focus of the research, the project focused on three major areas:
(1) The exogenous factors affecting the concept of profitability.
(2) The endogenous factors affecting the concept of profitability.
(3) Political factors affecting the concept of profitability. These three areas combined to give a broader view of the factors militating against the concept of profitability.
CHAPTER ONE
Introduction 1
1.1 background of study 3
1.2 Statement of study 5
1.3 Purpose of study 6
1.4 Research question 7
1.5 Scope and limitation of study 8
1.6 Definition of terms 9
CHAPTER TWO
Literature Review 12
2.1 Cost 12
2.2 Costing Method 24
2.3 Management Problems 37
2.4 Social factors 41
2.5 Ecological factors 44
2.6 Government Influences / Political factors 46
2.7 Technological factors 47
2.8 Roles required of Oshimili South Local
Government Area Authority 48
2.9 Roles required of both the state and federal Government 49
CHAPTER THREE
Research Decision and Methodology 51
3.1 Data collection and Analysis 51
3.2 Techniques of method of Data Collection 51
3.3 Primary Sources 53
3.4 Secondary Sources 54
3.5 Description of Sample 55
CHAPTER FOUR
Data Presentation and Analysis 57
4.1 Presentation of Data 57
4.2 Interpretation of Data 62
CHAPTER FIVE
Summary of Findings, Recommendation & Conclusion 64
5.1 Discussion of Findings 64
5.2 Conclusion 66
5.3 Recommendation 67
Bibliography 73
CHAPTER ONE
INTRODUCTION
The concept of profitability can be defined as that concept which provides management with alternative courses of action according to the various degrees of profitability, stating clearly in relevant cost accounting forms, the costs and benefits associated with individuals projects which enable management to select the most profitable.
It is obvious that majority of the policy decisions of manufacturing industries are generally directed towards profitability. The policy decision made under this concept has direct impacts on increasing and enhancing the general profitability of the manufacturing industries concerned.
The origin of this concept can be traced back to ero of industrial revolution. Before industrial revolution, industries were run by family concern just to maintain a status. Due to increase in trade brought about by the industrial revolution, most business grew from the usual family arrangement to large groups. Resources were pulled together and handed over to other people to manage for the owners.
Naturally, resources owners must except a profitable return from their investments. The urgent obligation force management to seek ways of carrying the activities so as to make profitable returns to the resources owners.
The growth and complexity in the industrial sectors gave rise to the need for policy statement or decision on certain issues. Materials must have to be bought in enough quantity to avoid stock out and at the same time check over stocking.
Labour, which is one of the factors of production must be allowed to operate in a conducive environment so as to reap the benefit of him labour prior to commencement or expansion general ecological consideration must be reviewed. Thereafter site is acquired, structures erected, machine and equipment installed.
On take off, the manufacturing industry must move the changing technology, meet its social responsibilities, operate under government regulations, pay tax as at and when due, meet the expectations of the shareholders. Moreover, high administrative cost of changing technology, fierce competition, cost of government restrictions poor capital base, and the need for maximization of shareholders wealth must be highlighted and adjusted in such a way. That the total cost of manufacturing a product will not only be less than sales revenues but also give a good profit margin.
The researchers go on taking decision on the above issues, group that factors affecting the categories, thus:-
(a) Endogenous factors
(b) Exogenous factors
(c) Political factors
- BACKGROUND OF STUDY
The nature of this research work required theoretical approach and analysis, which will cover the three-dimension focus of the research.
The research focused on three major areas:-
- The endogenous factors affecting the concept of profitability as a guide to policy decision.
- The exogenous factors affecting the concept and
iii. The political factors.
The study of these factors will help the researchers to determine the effect of those factors on the profit position and make subsequent recommendations. The framework for analyzing the factors affecting the concept of profitability were.
- EXOGENOUS FACTORS
- Theory of location of industry which states that nearness to raw materials, availability of labour affects the profitability of manufacturing industries eg the location of extractive industries depend on where the raw-materials are to be found.
- Theory of nearness to market: Heavy goods are expensive to transport. Because of this, the theory therefore, states that such goods be produced near the market.
iii. Other general economic factors: There must be a ready supply of labour especially skilled labour. There must be good transport facilities for movements of both raw-material and finished goods.
- Location of other industries: Industries are often set up hear others in order to take advantage of external economics, an industry enjoyed being close to other industries in the same business or trade.
- ENDOGENOUS FACTORS
These emphasize on the theory of operations management which is of the view that workers have the same objectives with that of management and work towards common ends of management, which assumes a responsible attitude towards organizational decision – making procedure.
On the political factors, the instability of government, restrictions on certain industrial activities and active intervention were also theories, which will help the researcher to find out the factors affecting the concept of profitability.
- STATEMENT OF PROBLEM
The research work entitled “Factors affecting the concept of profitability as a guide to policy decision (A case study of some manufacturing industries in our locality) attempted to determine the factors affecting the concept of profitability as a guide to policy decisions.
Other Problems Include:
(a) What problems affects the effective application of the concept.
(b) What are the reactions of industries to these factors affecting the concept?
(c) To what recommendations made based on the findings about the factors affecting the concept.
- PURPOSE OF STUDY
This research work is informed by the need to explaining the causes of the unfulfillment of the profit objectives of the selected industries through the concept. The profitability of industries encourage them to assume their social responsibility and participate effectively and concretely in the economic growth of the economy of the local government concerned, and the locality where the industry is sited in general. A thorough knowledge of these factors will help existing companies in profit planning.
The research work looked into the policy decision of some of the selected industries and factors affecting their execution. The research work delved into the concept of profitability from which it determined the exogenous, endogenous and political guide to policy decisions were exposed.
- RESEARCH QUESTIONS
It is very important that certain questions be asked in order to obtain information that will enable the researchers complete the study successfully. These questions are as follows:-
(1) Can scarcity of raw materials affect the profit motive of your company?
(2) To what extent can technological changes affect the profit intention of your company?
(3) In what way(s) does the economy affect your company.
(4) To avoid running short of raw materials, can your company buy what it will need in future today?
(5) As a customer, what factors will influence your decision in buying a particular product?
(6) In a situation, where it is profitable to expand your company but ecological factors do not permit such expansion, will your company abandon the idea?
- SCOPE AND LIMITATION OF THE STUDY
The scope of the research study will be within the locality where the industry is sited
LIMITATIONS:
The concept of profitability is a vast area of research. There are certain factors, which hinder the study of this concept. They are as follows:
TIME: The time factors affects the study of the research work, ie the second semester is very short and as a result of this, we have other things to do or cover. The time allocated to this study is very short.
FINANCE: Inadequacy of finance is another factor affecting this research of the concept of profitability. Students in this group are faced with hardship. A lot of their money had been spent on handouts and books.
- DEFINITION OF TERMS
There are certain words or terms that need to be explained or defined. This is to enhance understanding of the contents of the research work.
- Concept of profitability: This could be defined as concept which provides managers of manufacturing industries with alternative courses of action according to the various degree of profitability stating clearly in relevant cost accounting form the costs and benefits associated with individuals project which enable them to select the most profitable.
- policy: This means principle and objectives which guide decision making on particular matters and which expresses broad indention or attitudes of the industries. It can be general outline plan of action setting out terms of operation.
- Industry: It means a class of firm that are sufficiently similar in their main activities or products to be grouped together for the purpose of description
- Manufacture: It could be defined as a process by which raw-materials are being transformed into finished goods using plants and equipment.
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