Impact On Profitability Of Commercial Bank In Nigeria Of Interest Rate Deregulation


The objective here is to review what other writers and researcher in the field of accountancy have said and written about cost accounting and control especially as it relates to production of goods, since Livestock Feeds Plc is engaged in that are of business.

This is important to the research because it will provide direction for conclusion to be drawn and enable the discovery of new ways agric sector of our economy.


Several authors have defined cost accounting in various ways:

Nwafa (1999) sees cost accounting as the collection, accumulation, classification, coding, analysis, processing and recording of cost information to assist the management in planning, control and decision making.  He went onto say that if cost can be controlled and reduced, its interest minimum means that the maximization objective of every organization can be easily achieved, he also went further to enumerate the purpose of cost accounting which is summarized below:

(1)     It helps to determine total cost incurred in production of product, project or any activity.

(2)     It helps to relate sales revenue generated with total cost incurred, so as to determine the profitability of a produced project or activity.

(3)     It helps to set up budget.

(4)     It helps in day running of a business by providing relevant information which can assist on decision making.

(5)     It helps to establish methods of controlled cost.

(6)     It helps to establish methods of valuing item such as valuation of cost of stock, depreciation of fixed assets etc.

According to Nwafa (1999) cost accounting can be practice in all organization and any other human endeavour but it is more profound in the manufacturing sector.

Lucy (1996) defined cost accounting as the establishment of budgets, standard costs and actual costs of operations activities or products and the analysis of variances, profitability or the social use of funds.  He opined that the concentration of manufacturing facilities into factories give impetus to the development of recognizable costing system and the cost accounting system of any organization is the foundation of the internal financial information system.

According to “J. C. Eze, W. U. Ani, F. Okechukwu”, cost accounting is an area in accountancy which develop very rapidly in the recent years, and there can be no doubt about its growing importance in the modern production methods.



Lucy (1995) observed that managers or organizations attempt to make decisions, prepare plans and control activities by using information they can obtain from both formal and informal sources.   According to him, information in date that have been interpreted and understood by the recipient of the message.

Walter (1993) express view that the cost accounting work deals not only with cost ascertainment, also with figures, which show current results as compared with budget and the analysis of any variations, so that management can continue to provide management with prompt and accurate information as to the cost of certain section, the details of how such cost has been arrived at.  In order for this to be done, cost center must be identified depending upon the size and nature of the business, said without a system of cost accounts.   Cost accounting information needed by government or management as exemplified by the objectives enunciated by Walter (1963) are as follows:

(a)     An attempt should be made to sell more products or is the factory already operating to capacity.

(b)     If an order or contract is excepted, is the price obtainable sufficient to show a profit.

(c)      Why is it that the financial accounts for cost year showed such a small profit, despite the fact that the outfit of product A was increased substantially.

(d)     If a machine is purchased (as recommended by the works engineers) to carry out a job, present done by hand, what effect will it have on profits.


Lucy (1996) defined cost as “the amount of expenditure (actual or national) incurred on or attributed to, a specific thing or activity”.  He recognized that cost are always related to some object or function or services known as cost unit.

A cost unit is a unit of product or service in relation to which costs are ascertained.

Horgen et al (1997) sees it as “anything to which cost are separated.  He went on to give example of cost objects as product, services, project, customer, department and programme.  Cost units may be units of production e.g. tons of cements, typewriters, gallons of wine or units of services e.g. consulting hours, number of invoice processed, patients might, kilowatt hours etc.  according to Lucy.

According to J.C. Eze, W.U. Ani and F. Okechukwu, see elements of cost as the total expenditure incidental to production, distribution, administration and selling.  They classified cost into (3) three material, labour and expenses, usually expenses are regarded as overheads and they are sub-divided according to their function.  In practice they are broken down into production, selling, distribution and administrative overhead.

Nwafa (1999) similarly classified cost into three basic elements material, labour and expenses that is classification according to nature.  This is further classified as direct and indirect cost.  They are respectively explained as obtained in the literature.



This can be defined as the material that is identified with a unit of production on the material that actually becomes part of the cost unit.  Example the cost of wood in the making of furniture.



These are material that cannot be identified with a specific products, since their usage is for the benefit of all products.

However, not all items that can be identified with particular product are classified as direct material, where the cost is likely to be significant, the expenses of tracing such items do not justly the possible benefits from calculating more accurate products costs they are better left as indirect materials.



This consists of those labour costs that can be specifically traced to or identified with a particular product.  Example of direct labour include the wages paid to employers for the time they are engaged in working on direct materials.  The direct labour cost is traceable to specific product.   Example wages paid to machine operations.  By contracts, the salaries of factory supervisor or wages paid to the staff in the stores department cannot be specially identified with the product and thus form part of the INDIRECT LABOURT COST.   The wages of employees who do not work on the product itself but who assists in the manufacturing operation are thus classified as part of the indirect labour costs.



These consist of expenses incurred specially for a particular product, job, batch or services, royalties paid per unit for a copyright design.  Plant or tool lives charges for a particular job or batch.  The addition of direct materials, labour and expenses is termed PRIME COST OF PRODUCTION.



This consists of all manufacturing costs other than direct labour, direct materials and direct expenses.  It therefore included all direct manufacturing expenses.  Example of indirect manufacturing expenses in a multi-product company include rent of factory and depreciation of machinery.  It is not possible to attach overhead costs accurately to products, since overhead costs are incurred for the benefit of all products, and the amount of the overheads that should be allocated to a particular products can only be an estimate.

Accountant resolves these problems by ascertaining the total overheads for a period and then sharing these costs among the products that have been manufactured during the period, on some sensible basis such as machine hours, labour hours, floor area occupied etc. though such basis of appointment may be questionable.

According to (Drury) distinction between direct and indirect cost depends on the cost objective, cost are classified as direct or indirect depending on the cost objective for control.

Drury submitted that “the allocation of cost to products is inappropriate for costs control, since the manufacture of products may consist of several different operations, all of them are the responsible of different individual.  The product cost will therefore pinpoint cost to area of responsibility. To overcome this problem, the costs and revenue must be traced to the individuals who are responsible for their incurrence” the system is known as responsible, which will be traced later.



Planning process controls and planning without considering the type, frequency and method of control will largely be a waste of time.  Part of the planning process, therefore involves the design of an appropriate control system.  Control is an important element in organizational success.

The accounting techniques for control are fully developed in this subsection and effort is made to highlight the place of planning in the overall control process.



The main cost accounting techniques for cost control, as recognized by eminent scholars are budgetary, control and standard costing.

Lucy (1996) submitted that these are important qualitative control system but they, by no means the only ones found in typical organization, other control system include quality control, production control and inventory control.  These are in addition to control systems concerned with qualitative factors such as systems for monitoring quality and schemes of staff appraisal which all collectively useful as well.



In the opinion of Lucy, it is the qualitative expression of a plan of action prepared in advance of the period to which it relates and

Colin Drury (1992) stated that budget is usually for a period by one year.

Lucy (1996) stated that budget control is an aspect of responsibility accounting which is a system of accounting in which cost and revenues are analysed in accordance with area of personal responsibilities so that the performances of the budget holder can be monitored in financial terms once the plans for the department have been agreed and embodied in a budget.  The aim of budgetary control in the opinion of Lucy (1996) is to provide a formal basis for monitoring the progress of the organization as a whole and of its components parts, towards the achievement of the objectives specified in the planning budget.  The budgetary control system provides some of the feedback necessary to be able to make corrections to current operations.

To be able to make valid comparison between actual cost and realistic allowance, according to the erudite writer, it is essential for them to be “flexible budgets” where each items of cost is analyzed into fixed and variable costs so that when actual cost can be legitimately compared, the only sensible type of budgetary for control is a flexibility budget.  All revenues are accumulated for each individual responsibility center, so that deviations from budgets can be attributed to the person in charge through the issuance of performance reports at regular intervals so as to intimates the managers involved of such deviations.

According to Drury (1982), it is difficult to decide the item of cost which is controllable.

Controllability of costs depends on the level and scope of man agent authority, and on the time involved.  For example, the manager cannot control the cost of insuring a machinery of the producing department but may be controlled by the manager of the insurance department.

Having discussed the concept of budgetary control as one aspect of responsibility accounting, an example of techniques (standard costing) is pertinent.  Standard cost as recognized in the literature is a technique which establishes predetermined estimate of the cost of produces and services.

The setting of standards, as obtainable in the literature, is a detailed lengthily process usually based on engineering and technical studies of time, material and methods.

The culmination of the standard setting process is the preparation of standard cost and card for the product showing the target cost for the following period. It is important to in practice to revise standards on period basis, say, half yearly or yearly.



There are usually behavioural aspects associated with standard costing and budgetary control, some of which mention have already been made as recognized by researchers which hamper motivation with its concomitant negative effect on organizational success.  The first point of call, according to several writers is that of the standard costing and budgetary control techniques should be over relied on since it is not a substitute for good and qualitative management.

Though budgets can be used to motivate managers i.e. as performance measurement (C. Drury 1992) submit that dysfunctional consequences can arise leading to managers engaging in behaivours which may not be organizationally desirable.  Costs can be slashed arbitrarily to maintain budgetary estimates even when incurrence of such costs for the longer term benefit as opposed to short term, goals of the organization sharp practices could occur, and this is an illustrative example of lack of goal cognizance.  In buttressing further his point, (Drury 1962) in quoting deaden, he gave example where managers were reluctant to replace equipment and make new investment even when they know that these actions were in the long-run economic interest of the company, there refusal being urged on the heavy book losses that would be unfavourably reflected incurrent performance results.  He advised that facts behind the fingers must be identified so as to motivate managers and ensure the upliftment of organizational goals.

As always observed “goal congruence” remain as one of the fundamental human problems associated with responsibility accounting.  It is believed in the literature, that the goals of the individuals and groups should be harmonized with that of the organizational, so that they, act on their own self interest are also acting in accordance with the higher organizational goals.

However, it is widely believed that goals congruence is difficult to achieve in practice since objective are rarely clear.  Cut and there may be numerous objectives in a particular organization, different managers may perceive their objectives differently and conflicting reward structures and other practical realities may exist.  The organizational should, therefore, institute a positive structure that will counter these.

Lucy 91986) asserts that the attitude of the people who have to operate the budgetary system is of critical importance since budgets are often seen as pressure system imposed by management.  To avoid adverse relations from the people involved, he advises that there should be full and genuine participation, clear goal definitions and goal communicational of which will contribute to the budgetary process being a motivating rather than a disruptive force.

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