ABSTRACT
This
research work is an appraisal of the
“EFFECTIVE APPLICATION OF BREAKEVE
ANALYSIS IN MANUFACTURING FIRMSâ€
This work is firmly directed towards,
the need and usage of breakeven analysis by managers and accountants in
manufacturing firms. Breakeven analysis
is a management tool that could be used in making vital decisions when a
firms is faced with problems having lost, volume and profit implication However,
breakeven analysis can be a valuable and reliable decision making tool if it is
exhaustively conducted and applied.
Based on the findings, some
recommendation on two to revert the situation towards effective application
were made which include:
Ø That
seminar, symposia and workshops on application breakeven analysis should be
organized by bodies like the Institute of Chartered Accountants of Nigeria
(ICAN), Nigeria Institute of Social Economic Researcher (NISER) Nigerian
Institute of Management.
Ø That the
Institute of Chartered Accountants of Nigeria should start the publication of a
new professional journals in Nigeria
devoted solely to the development of the theory and application of management
accounting principles and techniques.
Hence, we
therefore conduce that if the above mentioned recommendations are understood,
accepted and implemented. Our manufacturing firms will be able to make better
cost-volume-profits decisions, which will result is increased efficiency of the
manufacting sector or industry.
TABLE OF CONTENTS
Title page
Approval page
Dedication
Acknowledgement
Abstract
Table of content
CHAPTER ONE
1.0
Introduction
1.1 Objective/ purpose of the study
1.2
Significances of the Study
1.3
Scope of the Study
1.4
Limitation of the Study
1.5
Definition of Terms.
CHAPTER TWO
2.0
Definition
2.1 Functions
2.2 Ways of Regulations
CHAPTER THREE
3.0
Summary of Findings
3.1 Conclusion
3.2
Recommendation
THE EFFECTS OF FINANCIAL ACCOUNTING REPORTING ON THE
MANAGEMENT OF BUSINESS
CAPITAL
MAKET, ITS NATURE AND SINGNIFICANCE
EFFECTIVE
APPLICATION OF BREAK EVEN ANALYSIS IN MANAGEMENT OF FIRMS (A CASE STUDY OF
MANUFACTURING FIRMS IN ENUGU
METROPOLIS
NAME: NNAMANI
UDOCHUKWU CHUKWUMA
REG. NO: AC/N2003/148
DEPARTMENT: ACOUNTANCY ND II
TITLE PAGE
EFFECTIVE
APPLICATION OF BREAKEVEN ANALYSIS IN MANAGEMENTS FIRMS
BY
NNAMANI
UDOCHUKWU CHUKWUMA
REG.NO: AC/N2003/148
A PROJECT
REPORT IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE AWARD OF NATIONAL
DIPLOMA IN ACCOUNTANCY
PRESENTED
TO
DEPARTMENT
OF ACCOUNTANCY, INSTITUTE OF MANAGEMENT AND TECHNOLOGY (I.M.T), ENUGU
JULY, 2005
APPROVAL PAGE
We the
undersigned certify that this project captioned “EFFECTIVE APPLICATION OF
BREAKEVEN ANALYSIS IN MANUFACTURING FIRMSâ€
is adequate in scope and quantity for the partial Fulfillment of the
requirement for the award of National Diploma (ND) in Accountancy.
…………………… ……………………..
Project
Advisor/ Supervisor Date
………………………… ……………………..
Head of
Department Date
DEDICATION
I dedicate
this to the fountain of all knowledge, the source of all wisdom, the eternal
spring of all truth God.
Also to my dearly beloved Queen and
Mother, Mrs. E. M. Nnamani, my Dad Mr. P.N Nnamani, my sisters and brother, and
to my entire family.
ACKNOWLEDGEMENT
The
equation of knowledge is a cumulative process over a length of time during
which are gets in conduct either directly with individuals, Institutions and
ideas or indirectly. The academic debt one sustains in the process cannot be
adequately expressed.
It has not been easy task trying to put together all the
research materials and it will be wrong it claim to though all who have
contributed in various ways to make this
work a success.
My special thanks goes to my beloved
Queen Mother Mrs. E.M. Nnamani, my dear Sisters, Brothers, Brother-in-law for
without then unflinching love and support this programme and research work
would not have been possible.
My underserved gratification goes to
my able and Dynamic supervisor, Mr. J.V. Eze whose help is beyond
quantification. He took time and pains to scrutinize meticulously every part of
the manuscript and made corrections and
suggestions where necessary. His contributive comments and long standing
patience to a valuable improvement in
the research quality.
I wish to express y heart-felt
gratitude to my role model Chief Ogbuoji, whom without his help this work could
have become a mirage. My appreciation also goes to Engr. Ifeanyi Ukoma, Bar.
Ogbo, Dr. Don Odunze, Mr. Eddy Anya, Mr. Joe Egbeagara, Pastor Chidioke it
cannot go without mentioning that the exercise couldn’t have been possible
without their financial support, thoughtful understanding, moval session and
may God reward al of them a thousand fold.
Equally commendable in the good
understanding demonstrated by my very close and good friends.
ABSTRACT
This
research work is an appraisal of the
“EFFECTIVE APPLICATION OF BREAKEVE
ANALYSIS IN MANUFACTURING FIRMSâ€
This work is firmly directed towards,
the need and usage of breakeven analysis by managers and accountants in
manufacturing firms. Breakeven analysis
is a management tool that could be used in making vital decisions when a
firms is faced with problems having lost, volume and profit implication
However, breakeven analysis can be a valuable and reliable decision making tool
if it is exhaustively conducted and applied.
Based on the findings, some
recommendation on two to revert the situation towards effective application
were made which include:
Ø That
seminar, symposia and workshops on application breakeven analysis should be
organized by bodies like the Institute of Chartered Accountants of Nigeria
(ICAN), Nigeria Institute of Social Economic Researcher (NISER) Nigerian
Institute of Management.
Ø That the
Institute of Chartered Accountants of Nigeria should start the publication of a
new professional journals in Nigeria
devoted solely to the development of the theory and application of management
accounting principles and techniques.
Hence, we
therefore conduce that if the above mentioned recommendations are understood,
accepted and implemented. Our manufacturing firms will be able to make better
cost-volume-profits decisions, which will result is increased efficiency of the
manufacting sector or industry.
TABLE OF CONTENTS
TITLE PAGE i
APPROVAL PAGE ii
DEDICATION iii
ACKNOWLEDGEMENT iv
ABSTRACT v
TABLE OF CONTENT vi
CHAPTER ONE
4.0
Introduction
1.1 Objective/ purpose of the study
1.6
Significances of the Study
1.7
Scope of the Study
1.8
Limitation of the Study
1.9
Definition of Terms.
CHAPTER TWO
5.0
Definition
2.1 Functions
2.2 Ways of Regulations
CHAPTER THREE
6.0
Summary of Findings
3.1 Conclusion
3.3
Recommendation
CHAPTER ONE
1.0 INTRODUCTION
In
considering how the management accountant can be assistance in producing answer
to questions about the consequences of following a particular course of action.
Such questions might include: What would be the effects of profits if we reduce
our selling price and sell more units? What sales volume is required to meet
the additional fixed charge from a proposed plant expansion? Should we pay our sales personals on the
basis of salary only or on the basis of commission only, or by a continuation
of both? These and other questions can be considered using Breakeven Analysis
which is the most widly known form of cost-volume-profit analysis. For this
reasons, the two terms are used interchangeably by many.
Breakeven
analysis is a systematic method of examining the relationship between changes
in volume (that is output) and changes in total sales revenue, is a specific
way of presenting and studying the inter relationship between cost-volume and
profit. As a model of these relationships. Breakeven analysis simplifies the
real work condition which a firm will face. It provides information to
management in most lucid and precise manner and it is an effective and
efficient financial reporting system.
Breakeven
analysis is based on the relationship between sales volume, cost are profit in
the short run, the short run being a period which the output of a firm is
restricted to the same available from
the current operating capacity. In the short-run some input can be increased
but other cannot.
Hence,
breakeven established a relationship between revenue and cost with respect to
volume. It indicates the level of sales at which costs and revues are in
equilibrium. The equilibrium point in commonly known as the breakeven point.
The breakeven point is the point of sales volume at which revenue equal to
total costs. It is a point of no loss.
One of the
important prerequisites of using the
breakeven or C-V-F analysis is that costs can be separated into fixed costs and
variables costs, variable costs change in direct proportion to change in volume
of activity which fixed cost remains constant to any given volume of activity.
For the breakeven point to occur, its necessary that the firm has both variable
and fixed costs. If all costs of the firm
were variable no profits no loss situation will arise at zero sales
volume and profits would be varying proportionately with sales. On the then
hand, if all costs were fixed the breakeven would occur at a point were revenue
are equal to fixed costs and afterwards profits would be equal to the sales
volume.
1.1 PURPOSE
OF THE STUDY
Some
people do not know the benefits of effective applications of breakeven analysis which has a tremendous positive
effects on the profitability of manifesting firms this however is designed to
do the following:
Ø
To establish what will happen to the financial
result if a specified level of activity or volume fluctuates.
Ø
To highlight the numerous advantages of the
application of breakeven charts and ratios in decision making.
Ø
To ascertain the effective and efficient level
of operation for manufacturing firms.
Ø
To seek and find out the actual role of breakeven
analysis in manufacturing firms.
Ø
To verify whether management accountants to find
difficulties in their course of making use of the tool.
Ø
To seek ways of solving the breakeven analysis
problems.
Ø
To make recommendations on how to improve on the
set back suffered by the non-usage of breakeven analysis.
1.2 SIGNIFICANCE
OF THE STUDY
This study
will enable the management accountants know the advantages and interpretation
to management. This work will also help students who will study related courses
in future to make use of this work in their academic and research work. It is also working of note
that the recommendation in this research work will help to solve some of the
problems encounted by the accountants.
Nevertheless,
since the project work would be in the library there is always the
accessibility to these members of the public, they can read and become aware of
the better performance that is associated with the effective and efficient
application of the breakeven analysis in manufacturing firms. This will
increase their knowledge no doubt.
1.3 SCOPE OF
THE STUDY
A research
into the effective application of breakeven analysis in manufacturing firms is
a wide topic. It involves an extensive and objective research into the policy
objective and business activities of all the different types of manufacturing
firms in Nigeria both at the Federal and State Level, considering that there are different
historical, Political Social and Economic motives for setting up manufacturing
firms and differences in orientation at the Federal and State Level as well as
the large members of the manufacturing firms in existence, the study
consequently becomes Invariably a difficult one.
In an
effort to keep the research work within the spectrums considering limited time
and resources. The researcher has localize and confirmed the study of
manufacturing firms using three (3) manufacturing firms in Enugu Metropolis as
the case study.
The manufacturing firms are:
ü
Eastern plastics
Nigeria Limited
ü
Niger Gas Nigeria Limited
ü
Emanate Nigeria Limited.
1.4
THE LIMITATION OF THE STUDY
The examination of the these
effective application of breakeven analysis in manufacturing firms is the limit
of the study. This work is concerned with effectiveness of the use of breakeven
analysis as a result it is limited to measuring the adequacy and not the properties in the us e of this
decision tool. There are two major approaches to the analysis of
cost-volume-profit inter-relationship. They are
v
The Accountant Approach
v
The Economist Approach
For concentrated and through probe, this work examined
the accountants alternative and how it is used by accountants. Finance is also
a limitation to this study because to collect comprehensive data required,
funds are needed for the smooth conduct of the project.
Through
adequate confidentiality of subject answers in promised the data collected
cannot be said to be without bias. Some questions may be ticked wrongly by the
respondents just to feign usage of scientist decision making models. I am not
trying to asset “Bias response†occurred but have just made a statement with
probabilities undertones on what may have occurred during the data collection
stage of this research.
However
these limitations were not allowed to destroy the essence of the project work.
1.5 DEFINITION
OF TERMS
BREAKEVEN This
is a situation where neither profits not loss
is
made or incurred.
BREAKEVEN POINT These
are the relation which exists between
cost,
prices, volume of production and profits
of
business. They are also known as cost-
volume-profit
relationship.
BREAKEVEN RATIONS These
are the algebraic expression of
breakeven
relationships.
BREAKEVEN BAISCE ANALYSIS This is the primary cost-volume
profit
analysis that assumes
certainty.
CONTRIBUTION MARGIN This
is the difference between selling
price
and variable cost.
MARCUR OF SAFETY This
is the difference between the
breakeven
point and an anticipation or
existing level
of activity.
FIXED COSTS These
are costs that remains fixed in
total
over a givens range of productivity
and
for a given time.
SEMI-VARIABLE – COST This
is a cost that possess both variable
cost
and fixed cost characters this in that
part
of cost is fixed and the other part
varies with the
volume of out put.
COMPREHENSIVE BREAKEVEN INFORATION Breakeven point
margin
of safety. profit or loss at any
activity
level. Contribution any activity
level.
The P/V ratio of the breakeven
relations.
P/V RATIO this
is a ratio that tells the share of naira
sales
that is available for Contribution to
the
defrayment fixed cost and if
adequate
accumulation of profits.
Specifically,
it is the ratio of
contribution
to sales.
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