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THE ROLE OF MANAGEMENT ACCOUNTANT ON PROFIT MAXIMIZATION
(A CASE STUDY OF EMENITE PLC)
ABSTRACT
The management accountant is identified as one of the key officers in the accounting department of any manufacturing company. He has the duty of providing the required professional information reroute to achieving the organization goal. Some of his functions include planning and controlling activities, formulation of strategy decision taking optimizing the use of resources in the planning function he quantifies and interprets the effect of planned transaction and other economic event of the organization. The management accountant by virtue of his duty participants indirectly in the management process. This research work aims to bring to the knowledge of its user the role of the management accountant plays in the achievement of the goal of every manufacturing outfit which is profit maximization. The work is organized in five chapters, chapter one is the introductory part which include the background to the study, statement of the problems, significance, scope and hypothesis and definitions of terms. Chapter two is the literature review where the opinions of various authors where in related subjects are reviewed. Chapter three deals with the research design and methodology. This could be seen as a framework or a plan that is used in collecting and analyzing the data for the study. It reveals the sources of the data, the sample used and the method of investigation. In chapter four the data are being presented and analyzed, hypothesis stated were adequately tested and decision taken. Finally in the fifth chapter. The finding of the research work is disclosed and recommendations and suggestions are given for the benefits of the users.
CHAPTER ONE:
INTRODUCTION
- BACKGROUND OF STUDY 1
- STATEMENT OF PROBLEM 5
- PURPOSE OF THE STUDY 8
- HYPOTHESIS 8
- THE SCOPE OF THE STUDY 9
- SIGNIFICANCE OF THE STUDY 9
- DEFINITION OF TERMS 10
CHAPTER TWO – REVIEW OF LITERATURE
2.1 DEFINITION OF PROFIT MAXIMIZATION 11
2.2 FUNCTIONS OF MANAGEMENT ACCOUTANT
IN RELATION TO PROFIT MAXIMIZATION 17
2.3 WAYS OF REGULATING COST IN A
MANUFACTURING COMPANY 32
CHAPTER THREE – METHODOLOGY
3.1 THE DESIGN 39
3.2 AREA OF STUDY 39
3.3 POPULATION OF STUDY 40
3.4 SAMPLE AND SAMPLING TECHNIQUE 40
3.5 INSTRUMENT FOR DATA COLLECTION 41
3.6 VALIDITY OF AN INSTRUMENT 42
3.7 ADMINISTRATION OF RESEARCH INSTRUMENT 42
3.8 METHOD OF DATA ANALYSIS 42
CHAPTER FOUR – DATA PRESENTATION AND ANALYSIS
4.1 DATA CLASSIFICATION 43
4.2 TEST OF HYPOTHESIS 50
CHAPTER FIVE – DISCUSSION AND CONCLUSION
OF RESULTS
5.1 DISCUSSION OF FINDINGS 56
5.2 CONCLUSION OF THE STUDY 61
5.3 RECOMMENDATIONS 62
5.4 IMPLICATION OF THE FINDINGS 63
5.5 SUGGESTION FOR FURTHER STUDY 64
5.6 LIMITATION OF THE STUDY 65
REFERENCES 66
APPENDICES 68
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Modern business organization operates in an environment that is considerably complex. Since the 1970’s managers have had to cope with rising interest rate materials shortage, prices inflation and environmental regulations to mention a few. And the traditional method of analyzing problems and making decision have been found incapable of effectively handling this increasing complexities due to the changes that exist within the environment. It becomes an important characteristic of a good management to be able to evaluate the past changes to react to current changes and to be able to predict the future changes. In this direction management needs information continually which will help in the planning and controlling of the operation of the organization.
The need for accountability has given rise to cost accounting system which provides information that is useful to management for internal reporting objectives. Due to the complexities in the system of most organizations, the system of cost accounting is equally becoming complex and reluctantly body of professional with special expertise in this is created. This body of professional is called the management accountants and the area of study is known as management accounting.
Woody et al (1985) defined management accounting as the process of identification, measuring, accumulating of financial information used by management to plan events and control within an organization and to ensure proper use and accountability to its resources. From the above definition it means that the management accountant has a range of function to carry out in an organization.
According to ICMA “management accounting is the presentation of accounting information in such a way as to assist management in the creation of policies and in the day-to-day operation of an undertaking” to achieve this aim the management accountant is increased in the past, the present and the future. Useful information can be extracted from past result which together with report of current performance can point the way to immediate management action. In same vein management action. In the since vein forecasting the future enables the management to evaluate the current result more readily and may also reveal areas of business which requires corrective actions. David Fanning (1983) defined management accounting as “the application of professional knowledge and skill in the preparation and presentation of accounting information in a way to assist the management in the formulation of policies and in the planning and control of operation or the undertaking. It is designed to provide information for solving internal problems. The management accounting system of planning and control is designed to spur up and help chief executive to search and select short run and long run goals and implement plans apprising performance and pin-point deviations from plan.
To be able to do all these, the management accountant must posses some knowledge of accounting. He must have a thorough understanding of the operation of the organization in which these systems are implemented and the appropriate technology to apply in each case for the provision of management information. Information provision depends solely on the type of business. It is obvious that the management of a manufacturing company will need information that will enable them consider the factor affecting cost of production, cost classification, cost reduction, product pricing market shares of the products, choice of product lines, diversification and investment. However a trading company needs information that will concentrate decision on customers’ demands, advertisement and product branding. The management accountant uses data from the financial and cost accounting system to perform his task, he conducts special investigations and use accounting and other appropriate techniques from statistic and operation research. He considers the human element in all activities so that all times he will be provided with information which is relevant for carrying out his work effectively so as of maintain his value or even enhance it. In addition he interprets data and communicates same the management. The inability of the management accountant to perform his duties would result in shortage of information for long and short run planning system and the necessary control measures to be made. The basic objective behind the continuous existence of business organization is the need to increase its wealth through profit making. It actualize ranks lightest among the objectives of business organizations and the management needs accurate and timely information for decision making in order to achieve this noble objectives.
1.2 STATEMENT OF THE PROBLEM
There has been a considerable lack of appreciation lack of appreciation by many as to the intrinsic value of management accountants. Manufacturers like other business executors have had to appreciate where such value have stimulated the development of management accounting as information tools in business organization. Such events include the increased competition in business and rapidly developing technology. The resultant changes that have emerged have intensified manager’s need for information beyond that which is contained in the traditional income statement and balance sheet. Over the last three decades, product has become obsolete at an alarming rate.
The advent of scientific breakthrough has resulted in the development of many new basic components such as the transistor and electric (chips) which have literally revolutionalized many industries and their products. Scientific researcher reports that this revolution is only the beginning. Drastic changes have taken place in production method over the last three decades. The team “Automation” has crept in and today many products are produced ritually untouched by human hands. For example oil refinery operations are controlled by massive computer network machine.
Tools are electronically controlled and there are even some entire manufacturing plan where workmen do little more than monitoring instrument panels. Modes it management and method of decision making have been affected by the development of new and powerful quantitative tools such as linear programming probability analysis and decision theory. These new tools which have come to be from the mathematical and statistical sciences are becoming indispensable in day to day decision making.
The problem of increase cost of production have forced the companies involved to make many adjustment which include modification of product, changes in the method of production and even marketing and the discovering of new sources of financing production. Some companies go as far as reducing the quality of raw material and end up producing less quality product which cannot help matters in the long run. The economic impact of these and other factors have been far reacting as managers or companies are now competing and cost of production escalating. These have in effect expanded the role of management accountant as an information tools over the years. There is also the problem of poor inventory management which leads to overstocking thereby tying down the company’s working capital.
1.3 PURPOSE OF THE STUDY
It is the role of management accountant to analyzed information and the technique employed to the achievement profit maximization. The purpose of this study therefore is to intimate the top level managers the crucial role of the management accountant is the overall management process, planning and controlling in order to ensure profit maximization.
1.2 HYPOTHESIS
Ho: Cost is not classified by management accountant to provide useful information for profit planning.
Hi: Cost is classified by management accountant to provide useful information for profit planning.
Ho: The company fixed costs are not always constant over the relevant range of output.
Hi: The company fixed costs are always constant over the relevant range of output.
1.5 THE SCOPE OF THE STUDY
To keep the project within a management limit and in view to the limited time and resources available to the researcher he had localized and confined the study to the manufacturing company in Enugu.
1.6 SIGNIFICANCE OF THE STUDY
The management accountant makes the necessary information available to the management by the application of his skill and knowledge. The significance of this study is to bring to the notice of the management the vital role of the management accountant and how these could affect the operations and the attainment of the organizational goal. If these information provided are recommended for use by the management, then management would be able to plan and control the organization more effectively and efficiently such that the cost of operating the business will be at minimum while profit will be enjoyed.
1.7 DEFINITION OF TERMS
- Profit maximization: making great profit out of the little resources available.
- Role: A part which a person plays a in real life.
- Firm: A business concern or a company.
- Management accountant: this is a person who is responsible for keeping account i.e keeping records of amount of money spent or received and also providing management information.
- Journal: A newspaper or magazine that deals with a particular subject or profession.
- Linear programming: this is a material technique concerned with the allocation of scarce resources. It optimizes the value of some objectives.
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