IMPACT OF BUDGETARY CONTROL ON THE PROFITABILITY OF MANUFACTURING COMPANIES

1.0INTRODUCTION

When a person decides to make a motor trip, he usually first secure an up to date road map in order that he may study the various high ways shown on the way, he then selects the route that appears to be the most satisfactory one to reach his desired destination. Before starting his journey he will probably call his local highway department or automobile club to make certain assumptions that the route is reasonably free of detour. Having assured himself that the route is the most satisfactory one, in the light of current highway condition, he will take his map and endeavor to follow the selected route as closely as circumstances permit.

The business which employs system of budgetary control may be likened to the motorist who carefully planned his trip consulted his map and kept in touch with all the highway conditions on route. The budget considered the highway map which shows the road to take to reach his destination. It is rather generally agreed that the successful completion of business activities requires careful plans to be made which should be viewed and carried out.

1.1BACKGROUND OF THE STUDY

The process of preparing and using budget to achieve management objectives is called “budgeting”. Budgeting is an essential element which is vital to management accounting technique which can benefit all aspect of business if it is understood and properly used. The growing complexity of the business environment and the ever increasing competition among firms in the modern time makes planning /budgeting an inevitable tool for business success.

Successful management is no longer just a matter of flair, skill and determination, a conscious effort is needed to harness available resources towards the achievement of enterprise objectives. Therefore budgeting is one of the tools adopted by management for effective cost planning, control and increase in productivity.

Wildarsky (1984:213) argued that because a budget served diverse purposes, it mean different things to different people, among the various possible interpretations given by him include:

-It is a plan

-It is a prediction

-It is a link between financial resource and human behavior to accomplish policy objectives.

-It is a mechanism for making choices among alternative expenditure.

RUFUS WIZON (New York) said without a budget a business may in order aim lessely. It may never know where it is going or where it should go. Even with a budget a business may not reach its planned objectives or destination, but the exercise of budgetary control will note the deviation from the plan and thus provide the opportunity for necessary corrective action. The making of such plans and the continuous review and execution are the essence of budgetary control.

A brief history/achievement of the company

Vita foam Nigeria PLC is a manufacturing firm that manufactures and distributes polyether, foam products, furniture and upholstery products also adhesives in Nigeria. It was incorporated in 1962 and is headquartered in Oba Akran Avenue, Industrial Estate Ikeja, Lagos, under the chairmanship of Chief Samuel OlaniyiBolarinde. It was listed on the floor of Nigerian stock exchange in 1978. this company offers flexible polyurethane foams for beddings, mattresses, sofas, pillows, cushions and carpet underplays as well as provides special high load bearing foams and super soft cushioning foams primarily under Galaxy, vita supreme and vita super brand names.

The company is one of the major companies that have contributed to the Nigerian economy with turnover of 576 billion during the 2002 financial year, which is expected to be doubled within the few years. The contribution of the company to the economy cannot pass for a drop of iceberg. In the area of employment, the vita foam Nigeria plchas provided for employment too many that would have been left unemployed.

The company established a N40 billion research and development centers to enhance its research activities commissioned in June 17, 2000 and managed by a Nigerian Scientist.

However, in 2002, it remained the leader in their traditional business of foam manufacturing and this position is complemented by the steady development of their foam business. Recently vita foam has embarked on a re-engineering exercise with corporate rebranding company and commissioning of new products. The exercise is aimed at improving productivity, profitability and ensuring greater returns to shareholders.

1.2STATEMENT OF THE PROBLEM

Most often budget and budgetary control research concentrated on its impact in the Federal Government budget and its attempt to control the use of public fund. There is no doubt that some other write-ups on budget and budgetary control has concentrated greatly on profit oriented organization, the issue failed to emphasize on the issue of budgetary control which is the bedrock for which budget implementation could be more effective and plans realization efficient.  

Budgets are attention directed and forward looking on financial statement. Budget tends to ensure goal congruence and elicit managerial efforts which are both wrapped up in motivation. Budgets relate to objectives and policies to managerial responsibilities, and facilitate accountability. In profit seeking organization budgetary control provide relevant information relating to what the organization wants to achieve and the measure it would adopt to translate its plans into reality. Time has come to direct our searching eyes of budgeting to budgetary control in our manufacturing companies.

1.3PURPOSE OF THE STUDY

The objective of the study is based on the statement raised in the proceeding paragraph. They are:

-To ascertain that budgetary control is implemented and to consequently determine how the actual performance can be used to match the budget provided.

-To determine whether budgetary control is practicable by vita foam Nigeria plc.

-To determine whether the cost of instituting budgetary control is matched with its benefit.

-To determine if administrative cost is incurred when trying to control actual performance.

1.4RESEARCH QUESTIONS

The following questions are considered pertinent for the purpose of this study and will emphasize on the best answers and solutions to these problems.

-Does the manufacturing company see the impact of budgetary control schemes as the stepping stone towards organization success?

-Will adequate budgetary control schemes bring a necessary impact on the profitability of a manufacturing company?

-Does efficient motivation on the part of the management and subordinate improve the firm’s performance towards achieving the budget control goal?

-Are they effective?

1.6    Scope of the Study

The study is restricted to cover the private sector, and suggest solution and recommendation on the topic of discussion which is budgeting as an effective tool for planning, control for increasing productivity.

1.7    Limitation of the Study

Like any other project, this study is not without limitations, the study emphasis being of the budgeting as an impact of budgeting planning and control on productivity in Northern Cable processing manufacturing company, Kaduna. Some of the difficulties encountered in carrying the study include:

1. 1. Inability of the researcher to obtain adequate and relevant data from the organization. Especially on sensitive economic issues that organization are secretive about.
   2. Financial constraint is another limitation, finance have bee inadequate such the researcher has been unable to move around and get data and material required for the study.
   3. Material such as company documents (official) which involves their operation and procedure of the organization activities have been inadequate due to lack of proper record keeping and equipped libraries.
   4. The uncompromising nature of most respondents especially to questionnaires and verbal question.
   5. Lack of time to carryout out the persona observation of the enterprise operations properly.
   6. Sometimes the statistical method used for data analysis might not be best available.

1.8    Definition of Terms

• • • Budget: A budget has been defined as a quantitative plan usually in monetary terms of the forthcoming accounting year or for the ensuing period.
    • Budgeting: Budgeting planning is short term planning is the process of preparing detailed short term (usually one year) plan for the function activities and department for the organization, thus converting the long term corporate plan into yearly action.
    • Zero Base Budgeting (ZBB): Is formal defined by the (Chartered Institute of Management and Accounting) CIMA thus a method of budgeting whereby all activities is revaluated each time a budget is set.
    • Programme Planning and Budgeting System (PPBS): Is a radical approach to budgeting based programme which are grouping of activities with common objectives.
    • Budget Manual: The budgeting manual is an important aid to communication and instructional information manual not a list of agreed financial budget.
    • Flexible Budgeting: A flexible budget is one which is designed to dynast the budget cost level of suit the level of activities actually attained.
    • Planning: Planning can be defined as the establishment of activities and the formulation, evaluation and election of the polities strategies tactics and action required to achieve these objectives.
    • Strategic Planning: The formulation, evaluation and selection of strategies for the purpose of preparing a long term plan to attain objectives.
    • Tactical Planning: Is the process of preparing detailed short term (usually one year) plans for the functions, activities and department of the organization thus converting the log term corporation plan into action.
    • Control: Control is concern with the different use of resources to achieve a previously, determine objective or set of objective within a plan productivity (total factor basis).
    • Productivity: Productivity can be expressed on a total factor basis or on a partial factor basis productivity on a total factor basis.