ABSTRACT
This study was carried out to investigate an analysis of cost-volume-profit and profitability target using senior staff of Guinness Nigeria Plc, Edo State as a study area. To achieve this objective, four research questions and two research hypotheses were formulated to guide the study. The data collected were analyzed using simple percentages and tables to analyze research questions and Chi-square statistical tool was used for testing of research hypotheses. A structured questionnaire was used as the major instrument for data collection from the staff of Guinness Nigeria Plc, Edo State. After the careful analysis of the data, the following findings were revealed that; there is effect of sales value on the profitability in firms and there is relationship between sales value and total cost of firms. The study concluded with some recommendations that the management should guide against basing their cost volume profit decision on the relationship depicted in the cost volume profit analysis alone, should accompanied by other decision tools such as a found budgeting system.
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
Cost-volume-profit (CVP) analysis is a method of cost accounting that looks at the impact that varying levels of costs and volume have on operating profit. The cost-volume-profit analysis, also commonly known as break-even analysis, looks to determine the break-even point for different sales volumes and cost structures, which can be useful for managers making short-term economic decisions. The cost-volume-profit analysis makes several assumptions, including that the sales price, fixed costs, and variable cost per unit are constant. Running this analysis involves using several equations for price, cost and other variables, then plotting them out on an economic graph. CVP analysis also manages product contribution margin. Contribution margin is the difference between total sales and total variable costs. For a business to be profitable, the contribution margin must exceed total fixed costs. The contribution margin may also be calculated per unit. The unit contribution margin is simply the remainder after the unit variable cost is subtracted from the unit sales price. The contribution margin ratio is determined by dividing the contribution margin by total sales.
CVP analysis is also used when a company is trying to determine what level of sales is necessary to reach a specific level of income, also called targeted income. To calculate the required sales level, the targeted income is added to fixed costs, and the total is divided by the contribution margin ratio to determine required sales dollars, or the total is divided by contribution margin per unit to determine the required sales level in units.
Now-days Cost Volume Profitability analysis has become a powerful instrument in the hands of policy makers to maximize the profits. Apart from this, the concept of cost volume, profitability is relevant in the short run. The relationship between cost, revenue and profit at different levels may be expressed in graphs such as break-even charts, profit volume graphs or in various statements forms. Maximum profit is the ultimate goal of almost all business undertakings. The most important factor influencing the earning of profit is the level of production. (ie. Volume of Production). Profit depends on a large number of factors which are the cost of manufacturing, and the volume of sales. Volume of sales depends upon the volume of production and market forces which turns in related to costs. Management has no control over the market. In order to achieve a certain level of profitability, it has to exercise control land management of costs, mainly variable cost. This fixed cost is a non-controllable cost. Departments have to make a better product mix for profit planning and to maximize the profit of a concern. These decisions can include such crucial areas as pricing policies, product mixes, market expansion or contractions, outsourcing contracts, idle plant usage, discretionary expense planning and a variety of other important considerations in the planning process. Given the broad range of context output, which evenly breaks the cost and revenues used in its broader sense; it means that system of analysis, which determines profit, cost and sales volume at different levels of output. The Cost Volume Profitability furnishes the complete picture of the profit structure. In other word, cost volume profit is a management accounting tool that expresses the relationship among sale, volume, cost and profit. The Cost Volume analysis uses the techniques of break-even analysis, operating leverage, margin of safety and effect of changes in sales and contribution on margin and net operating income. The level of sales needed to achieve desired target profit, in order to predict changes in net operating income
Every firm’s prime motive is not only earning a profit, but also maximizing it. Cost Volume Profitability analysis is a tool to get profit. C-V-P analysis is helpful for developing alternative strategies in sales planning and cost estimation. A certain relationship exists among the variables like selling price, sales volume and taxes. Cost Volume Profitability analysis is an accounting technique showing the relationship between these variables. C-V-P analysis, though most often illustrates business cases, is equally applicable for not profit making organizations allocate scare economic resources most effectively among the competing alternatives. Allocation of scarce resources among the various demanding sectors is the most important issue of national planning
1.2 STATEMENT OF THE PROBLEM
Cost-volume-profit (CVP) analysis is a managerial tool and can be used to achieve corporate profitability in any organization. Cost-volume-profit (CVP) analysis is a tool that can be used in firms that are faced with problems having cost, volume and profit implications. It is a true fact that certain cost elements of a firm not only vary but are usually large in proportion e.g. material and labour. Therefore, the main concern of this research study is to proffer solution to the following problems:
- Non-employment of sales value in the determination of profitability in firms.
- Lack of relationship between sales value and total cost of firms.
- Non-incorporation of sales value in investment decision in firms.
- Inadequate financial data for cost and profit analysis in firms.
1.3 OBJECTIVES OF THE STUDY
This research study will be focused on cost-volume-profit analysis and profitability target. The main objective of this study are as follows:
- To determine the effect of sales value on the profitability in firms.
- To know the relationship between sales value and total cost of firms.
- To make provision for the incorporation of sales value in investment decision of firms.
- To justify the need for adequate financial data for cost and profit analysis in firms.
1.4 RESEARCH HYPOTHESES
For the successful completion of the study, the following research hypotheses were formulated by the researcher;
H0: There is no effect of sales value on the profitability in firms.
H1: There is effect of sales value on the profitability in firms.
H02: There is no relationship between sales value and total cost of firms.
H2: There is relationship between sales value and total cost of firms.
1.5 SIGNIFICANCE OF THE STUDY
The study will be very significant to students especially accounting students, Guinness Nigeria plc, others companies and the general public. The study will give a clear insight on An Analysis of Cost-Volume-Profit and Profitability target. (A case study of Guinness Nigeria Plc). The study will also serve as a reference to other researchers that will embark on this study
1.6 SCOPE AND LIMITATION OF THE STUDY
The scope of the study covers An Analysis of Cost-Volume-Profit and Profitability target.( A case study of Guinness Nigeria Plc). The researcher encounters some constrain which limited the scope of the study;
- a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study
- b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study
1.7 DEFINITION OF TERMS
Cost-Volume-Profit: Cost-volume-profit (CVP) analysis is a method of cost accounting that looks at the impact that varying levels of costs and volume have on operating profit. The cost-volume-profit analysis makes several assumptions, including that the sales price, fixed costs, and variable cost per unit are constant
Profitability: The degree to which a business or activity yields profit or financial gain.
