Costing as an Essential Instrument in Materials Management and Control
This study which covered one of the cement fibre manufacturing industries in the country was a mixture of library research and empirical or survey method of research. Both primary and secondary sources of data were utilized in gathering relevant information. The primary survey sources consist of questionnaire and oral interview while the secondary sources were gathered from existing literature on the subject matter of the study.
Tabular presentation of data analysis was used whereby the effect and relationship one data had with another was quantified ‘ by simple representation and the hypotheses were statistically tested. This study has proved that costing is a veritable instrument for materials control in any industrial organization. Given the importance of effective material management in any industry, this study recommends the recognition and of course the creation of good working environment to enable the department function effectively.
Finally, the study made a case for the development of the study of costing beyond the exiting level in our tertiary institutions.
To actualize this, industrial operations should liaise with government to ensure that the curriculum of various institutions are developed to incorporate the increased importance of costing and at the same time see to the adequate funding of the programme.
1.1 BACKGROUND OF THE STUDY
The turbulent change in the Nigeria industrial sector since 1986 following the introduction of the structural Adjustment programme is no longer news. The resultant shock which pose threats and challenges to manufacturing industries are external factors which require as the only option the internal strategies response if the industries must survive. Since the challenges to the , existence of’ the
work environment, it is posed by this turbulent change industries are external to their therefore clear that the only survival strategy is proper administration of the internal variables as nothing can be done to control the internal factors precipitated .by hard times.
That is why this research work is aimed at identifying the role which costing plays in ensuring effective materials management and
con.tro1 in an industry Costing is an analysis of allocating cost to production or services or time period so that the costs of various
activities undertaken by a business are disclosed and can be set against revenue to reveal profitability of these activities.
Any business or industry has its objectives and costs are the resources used up to achieve those objectives.
A cost Accountant. organizes the system that records and measures such resources, and provides firm information to
management on which further decisions can be based with confidence. Almost every decision made by management has repercussion upon cost.
Costing not only provides facts from which policy decisions can be made but basic principles of costing can be applied alike to .transaction of large and small undertaking. the If a cost accounting system is to be fully effective J : there must be a proper system for the control of materials from the time a requisition to purchase is made until the material is issued to production. Material represents an important asset and is often the largest single item of cost per unit of production, the success or failure of a concern ! i
may be influenced by efficient or inefficient material ,purchasing, storage, utilization, control and management.
Material management is an essential factor in the attainment of organizational objectives especially in a manufacturing industry, given the fact that materials are the principal substance for any manufacturing or production process. Material management and control
involves the tedious process of organizing, planning and controlling of all activities involved in the procurement, reception, assurance and storage of all materials. Where materials are not systematically controlled, excess stocks of some items are likely to occur with a
consequent unnecessary typing up to capital and loss , through obsolescence and deterioration.
At the sa.me time, shortage of other materials may arise just when they urgently needed and production will then be delayed.
furthermore, haphazard buying and lack of control is bound to result in the purchase of’material of too good or too poor a quality for the purchase for which it is intended and also in the carrying of a greater variety of stocks than is required. The purchase of material is a highly specially function. By ordering tbe right quantity and quality of material at the most Favorable price, and by ensuring that
it arrives at the right time, the efficient buyer is able to make a valuable contribution to the success of a business but it is impossible to produce reliable costing information if the records of material issues are unsatisfactory.
The materials purchased by a concern may be classified either as stock items that are taken into store and held until required or as direct deliveries to the point of consumption. The control of those items delivered directly are also part of the stocks of the organization and should be rigorously controlled as they are outside the direct influence of the control stores. The function of stock control is to protect the materials in stock and to obtain the maximum stock turnover- consistent with the maintenance of sufficient
.stocks to meet ail requirements.
It was the manufacturing facilities into factories that.gave impetus to the development of recognizable costing system. Today costing has grown. in importance that it is widely used beyond manufacturing industries. Costing aims at providing management with information relating to cost with a view to assisting them in prudent management hence the task of management. is to plan, communicate,motivate, organize and control as management efficiency is measured form the overall objective of the organization.
This underscores the i.mportance of efficient material costing and management control in any organization. The application of costing in material handling in any organization will ensure that materials meant for production are optimally utilized for the purpose. When
this is done the production cost per unit of output will be affordable, thus enhancing profitability.
This is in contrast to a situation where materials are not handled with any control procedure. The resultant effect will be lack of
adequate control, lack of wastage, material stock out, idle time and inadequate ut.ilization of stalled capacity.With the ever increasing growth in business and level of competition, business organizations are developing modern method of operation in order to keep afloat.
It will be equivalent to operating in the dark ages if a business organization does not, operate with such reliable data as minimum stock level, maximum stock level, re-order level and economic order quantity. At the sa.me time product cost cannot be controlled if at any point in time management is uninformed about the quantity and cost of material issued to production as well as the quantity and
value of material inventory in stock al: any given time. It therefore follows that materials management embrace all those techniques aimed at instituting controls in all aspects of material handling.
This involves the procedure which aims at ensuring effective and efficient accounting for material inventory with the aid ‘of selevant sources documents like purchase order, goods received note, materials requisition voucher, stores issue voucher, materials costing and evaluation. The manufact.using industry used as case study (Emenite limited) uses the following raw materials; cement, waste papers, WAS- C06, C44, C333 and N4, High Blaine Calcium carbonate, Low Blaine Calci11m carbonate, Kaolin, solomhala also called cellulose virgin, polyelectrolyte, demolding oil, acetic acid and a.ntif0a.m. This gigantic manufacturing outfit was chosen because of its successful performance story over the years.
Enlenite Limited is a s~.uxessiufli bre cement bui ldi~g material manufacturing company based in Enugu. It is situated at NO 7 old Abakaliki Road, Emene Enugu, Enugu state Nigeria. The company is an affiliate of ETEX Group in Belgium, it was established in Nigeria on 06’h October 196 1 as Turners Asbestos industries Limited. It started operations in 1961 after being commissioned by the
Premier of then Eastern Region of Nigeria, Late Dr. Michael Iheonultara 0 kpara.
The name of the company was changed in 1976 from Turners Asbestos industries Limited to Turners Building Products (Emene) Limited to reflect the diversification of its production line from Asbestos roofing sheets to include a , variety of other building ma.terials. Furthermore, the name of’ t l ~ c company was ~hi111ged li-oin Turners Building . Products (Emene) Limited to Emenite Limited in 1989 when the company became indiginized but it is being nlan.aged by expertriates from the ETEX Group headquarters in Belgium.
Costing as an Essential Instrument in Materials Management and Control
1.2 STATEMENT OF THE PROBLEM
The primary objective of every business set up is to make profit. No company will achieve this feat if it ignores any measure which will promote operational efficiency and this calls for costing of materials ad control. Today the probiem of materials management and control is the concern of every business organization.
It has also been observed that though most manufacturing organizations have adopted various measures aimed at accounting for
their material stock, adequate costing techniques have not been employed in this direction. With these challenges in view, there is need to set up an organized structure in order to ensure effective operations hence a cost accounting department charged with the responsibility of materials control and management must have to be put in. place. Furthermore, since materials are the principal
substance to any production process, it implies that material form the basis of organization continuous existence.
This goes to suggest that large volume of capital is committed to materials procurement. Regrettably, despite the age long practice by some professional accountants in industries, must industrial organizations ignore the importance of costing material management and control hence the interest of the researcher.
1.3 OBJECTIVE: OF THE STUDY
The primary concern of this study is to determine the impact of costing as an essential instrument and as a survival strategy in material management and control and to highlight various method available to organization in costing and valuing materials among which are FIFO,LIFO, APM, BSM, NIFO, HIFO etc.The study will also aim at investigation the inability of some management to recognize and appreciate the benefit of costing department in their system. To do this, the study has set out a number of objectives which it will strive t.o accomplish. They are specifically
1. To find out the impact of costing in material management and control.
2. To find out if the company (Emenite Limited) effectively uses costing in her materials management and control.
3. To find out if the company has a Cost department.
4. To find out the problems associated i.n the application
of costing in the management and control of materials.
5. To establish if costing is necessary in an industry and in materials management and control
1.4 SIGNIFICANCE OF THE STUDY
This study will provide a resource material to all students of Accountancy and all Accountants both in industrial, commercial, public and private sector. Practicing Accountants will benefit from the inputs made in this study as it will serve as a guide to clients’ consultancy . services in the area of control, costing and management of materials.
A careful application of the contributions made will help organization in determining their true state of affairs
at the end of a given period hence adequate awareness would have been created as to the need to employ costing
techniques in the material handling procedures in organizations.
1.5 ASSUMPTION AND HYPOTHESES
The basic assumption in this research work is that materials management is the pivot of industrial growth.
HO: Materials management is no