The Concept Of Profitability Factors As A Guide To Policy Decision

The Concept Of Profitability Factors As A Guide To Policy Decision

The Concept Of Profitability Factors As A Guide To Policy Decision

The concept of profitability can be defined as that concept which provides management with alternative course of action according to the various degree of profitability stating clearly in relevant cost accounting from the cost and benefits associated with individual project which enable management to select the most profitable. The origin of this concept can be traced to the era of this industrial revolution.

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Before the industrial revolution, industries were run by family concerned just to maintain a status. Due to increase in trade brought about by the industries revolution, most business grew from the usual family arrangement to large group. Resources were pulled together and handed over to other people to manage for the owners.

Naturally, resources owner must expect a profitable reform from their investments. The urgent obligation forced management to seek way of carrying the activities so as to make profitable returns to the resources owners.

The growth and complexity in the industrial sectors gave rise to the need for policy statement or decision on certain Issues. Materials must have to be bought in enough quantity to avoid stock out and at the same time check over stocking. Labour which is one of the factors of production, labour prior to commencement of expansion, general ecological consideration must be reviewed thereafter site is acquired structures. Erected, machines and equipment installed.


The nature of this research work requires theoretical approach and analysis which will cover the three dimensional focus of the research. The study of these factors will help the researcher to determine the effect of these factors on the profit position and make sub-sequent recommendations. The frame work for analyzing the factors affecting the concept of profitability are:-

1. Theory for location industries, which states that nearness to raw materials, availability of labour, affects the profitability of manufacturing industries. E.g. the location of extractive industries depends on where the raw materials are found.

2. Theory of nearness to market which shows that heavy goods are expensive to transport to the market. Because of this, the theory therefore states that such goods be produced near the market.

3. Other general Economic factors:- There most be a ready supply of labour especially skilled labour. There most be good transport facilities for movement of both raw materials and finished goods.

4. Location of other industries:- industries are often set up near others in order to take advantage of external Economic, and industries enjoyed being close to other industries in the same trade or business.


The researcher embanked on this study in order to ascertain:

a. The cause of the unfulfilment of profit objective of the selected industries.

b. The policy decision of some firms / and industries and the factors that affect their execution.

c. Whether the profitability of industry encourage them to embank on social and economic responsibility in term of growth and development


The scope of the research study within Enugu North Local Government Area. This Local Government was created on 1st October, 1991. This Local Government is made up of there towns:

I Emene

II Ogui

III Abakpa, Nike

IV Some part or Ngwo


The concept of profitability to a vast area of research. There are certain factors, which hinder the study of this concept. They are as follows:-

a. Time:- The time allowed to this study is not adequate. The second semester is very short and I have other things to cover.

b. Finance:- finance is another factor affecting this research of the concept of profitability. Students faced with hardship, a lot of their money had been spent on handouts and books.


The importance of this study on concept of profitability factors as a guide to policy Decision should not be our-emphasize as if will go along way in solving the problems of the under listed area:

I. The future researcher as it is in both theory and practical form.

II. The account students in terms of cost analysis

III. The manufactures within and out going Enugu.

IV. It will also help foreign investors as well.


There are certain words or terms that needs to be explained or defined. This is to enhance understanding to the contents of the research work.

Policy: This is the principal and objectives which guide decision making on particular matters.

Industry: It means of firms that produced similar and related goods.

Manufacture: It is the process of changing raw materials into finished goods using plants and equipments.


Cost: According to J. weld this refers to sacrifices denouncing aspect of foregoing which a manufacturing industry make to obtain benefits. It could be termed the exchange value of certain benefit. Generally, it is possible to classify cost in three ways: behavioral, natural and functional. When I talk of behavioral classification I tack in terms of variability, normality and controllability. As P. Lucy discussed, variability of cost deals with or on how cost react or varies with production. Normally, on its own side, it tends to consider the question as to whether cost incurred in producing an item is normal or abnormal to that production situation. Normal cost under this heading are those that are relevant to products while those of abnormal cost are cost that can be avoided in the course of production example, ideal time cost. Controllability deals on whether a cost is controllable or uncontrollable, example, fixed and variable cost.

A good cost information should separate it into fixed and variable cost. Variable costs, are those cost w3hich varies or changes in direct proportion to change in level of production. They have the following characteristics.

They show variability of total amount in direct proportion to the volume of activity. They are comparatively constant per unit in the face or changing volume of activity. Control of their Incurrence and consumption is affected by responsible departmental head. Directly following variable cost are semis- variable costs.

There according to w. m. Harper are those cost which vary with changes in the level of production but whose variation is not indirect proportion to change in production. It’s components are mixed cost, stepped cost, and increasing at an increasing rate cost and increasing at decreasing rate cost. Fixed cost are those cost that do not change with changes in the volume of production.

The increase of this cost will require additional installment of equipment and its assignment is often made by management decisions. It is made up of starting cost committees cost, running cost and discretionary costs.

In the production of goods all there cost are added to some other costs element, when summed up gives the total cost which is defined as the total of all the cost incurred. It can be termed the prime cost of productions plus an equitable share of overhead. This total cost helps management to fined the unit cost and in pricing polity.


Since raw material, labour and the main components, the idea of cost is applied to J. Bathy is the function enduring that sufficient goods of all descriptions and quantity are retained in stock in terms of quality. Variety, location for which they are bought to meet all material requirements. It ensures that there is no stock out of materials which has a direct effect of disrupting production or over stocking which increases cost of stocking. Material control and monetary.

Unit control which covers production and purchasing departments. It seems that physical unit quantity of material will be available for production to meet production schedule, Its function is to prevent stock out and over stocking. Monetary control covers the treasure, top management is concerned with budgeting the amount needed for material. A good material control procedure enhances the following feature:

1. Adequate materials are bought and kept, materials of appropriate quantity and specification are bought only when needed.

2. Suppliers of materials must represent a good balance between quantity.

3. Material should be properly received and inspected.

4. Appropriate storage facilities should be provided.

5. The documentation accounting system and control at each stage should be well designed and effective. Where all there feature are present, It will enhance the ability to place others at the right time from the right source and to acquire the right quantities of material at the right place, this will minimize the total cost and maximizes profit within a specific time are resources allocation, and ensure the maintenance of an inventory of efficient size and diversity for efficient uninterrupted operation. This leads us to the method of inventory control.


This involves the periodically status of materials at hand for quality obsolesce and quantity. It could be done fortnightly manly or quarterly. In – this method, high value items are usually recurred frequently. They have shorter review period while low value items have higher review period. At each review period, orders are placed to some levels desired.

MINIMUM – MAXIMUM METHOD:- This is based on the premise that quantities of most items are subject to definable limit example – minimum stock level. Minimum stock level is the level below which stock must not fall. It provides a margin of safety in term of stock holding maximum stock level, which enhances the maintenance of financial favourable inventory, is the level above which stock level must not rose. Re- order level is the level at which stock is replenished.

TWO BIN METHOD: this is used in keeping two inventories on one item under this situation while one is finishing the company makes requisition and start using the second while waiting for the requisition. It is used in consumables.


This involves economic order quantity, which is a proof of when material ledger and shows that the balances have dropped to order point. This method involved fore casting, using level lead-time establishing safety stock requirement and determining and economic order quantity.

The procedure for each of this plan is as follows:

The company determines the usage in unit over fore cost period and the price per unit for each item is determined. The total cost of that item is determined by multiplying the project price by price per unit.

Though all these method are relevant to material costing is a good knowledge of the economic order quantity certain things are considered among which are:

1. Volume of safety stock needed to protect the company against material shortages that will interrupt production.

2. Economy is purchasing and is considering such that the company can attract each discount.

3. The volume of production and sales anticipated and considered.

4. Consider operating cost or varying cost .

5. The lead time; it is the time between when an order is made and the time goods ordered arrives.

In the day to day management of manufacturing Industries profit projections are made and resources are applied to achieve the project target. It is disheartening to see these projections come out as more dreams though all loose ends were tightened. This type of situations result from poor knowledge of material costing which is the most factor in production. To achieve the desired profit a good knowledge of material costing is necessary in terms of control, determine the cost of issuing materials to productions department and profit though buying and selling.


LABOUR COST:- labour must be applied to material in order for them to be converter into finished goods. The hired labour must be paid for, labour cost therefore is the cost of human effort in an entrprise. It requires constant measurement, plenty of control adequate analysis. Above all, management has to create conditions conducive for labour to work. Labour is animating. It is volatile and can react, so it is necessary for management to create adequate accounting procedure for labour services.

This need on management to control labour leads to what is known as labour cost control procedure which includes;

1. TIME KEEKPING:- this involves the determination of the amount of purchased for each work as well as determining the amount of time that is actually devoted to each job. This helps to calculate the earnings of that labour. The time that is devoted to each job is used in costing the job; that is calculating the labour cost attributed to the job. Time keeping help management to exercise control on the use of labour.

2. PAYROLL ACTIVITIES:- This concerned the determination of the amount to each workers and the maintenance of the records of the earning of the employees. The combination of time keeping and payroll activities gives rise to labour cost accounting which involves the distribution of labour cost to job process department. It follows the following procedures;

The first step is to obtain the accurate amount of time that is purchased from each employee. This is done by recording when the employee clocks-in clocks- out. The procedure for clocking –in and out is recorded through gate- time – keeping. Gate – time – keeping is the recording of the time when an employee enters and leaves the companies premises. When he comes in he clocks –in and when he leaves the gate he clocks – out. In fixing the rate of calculating overtime the company adopts either the double time method or hallf time method. The double time methods are used on Sundays and public holidays while the half time method is used for working days.


Computation of overtime: Normal rate plus premium above the normal rate. Sometimes in order to check excessive overtime, the time ticket method is used.

Time ticket shows the specific use that has been made of the time received from each employee.

In clock card, an employee can eater the company’s premises and end – up not doing anything but still clocks out at the end of the day. The time ticket indicates how many hours that have been actually put in by the employee. This also helps the company to determine the idle time. Idle time is the difference between the clock and the job card.

A good knowledge of labour costing will help the manage in problem relating to the following:

1. The placement of labour by machinery

2. In crease or decrease of over time pay for the year

3. To accept or reject unions wages demands.

4. When to close down the factory.

A good decision made in this direction enhances the general profitability of any manufacturing Industry.


In this chapter, the research will present the fining based on the data collected as the research work progression view of analyzing the factors that affect the profitability as a guide to policy decision.

However, one of the findings is base on management objective with that of the works objective. This point is emphasis in that, the success of any organization depends on how it is managed. The area of management problem include the following:

1. Lack of adequate personnel: the research show that majority of industries of the care of study have no qualified personnel and the once the do have were not adequately educated and for that fail to comply to the organization objective.

2. Poor financial management results is not judiciously spending of the organization fund in order to meet the liquidity obligation.

3. Lack of adequate capital to take opportunity that may come across the Industries may reduce them from applying the concept of profitability.

4. Poor accounting records as a result of using less quality personnel, the principle of account were not followed, this results in depriving the Industries from securing loan for there is not basis of judging the profitability or variability of such Industries. Hence results in less capital acquisition. The second finding based on the research carried is a social problem. This social problem include;

1. Lack of social amenities such as electricity, pump water supply, good road or communication network are the social problem the industries encountered. This social problem frustrated the effort of the industries and lead to inefficiency of production, which affect the profitability concept.

2. Welfare services and recreational facilities such as motivation, bonus to workers, medical facilities, canteen management which usually increase the moral of workers and result in a co-operative team work to increase productivity were not adequately supplied to workers by the industries management. The their finding is government in –fluency on Industrial matters.

Government can influence industries in the following ways:

1. Legislation which is law meant to check the excess of Industries in terms of policy application. The legislative power of government will check some policy the industries will use.

2. Government policy which sometimes distort the profitability desire of the industries. The effect of 1991 edict of Enugu North local government restrict the excavation of said Ekulu River affected the rivers to make abundant use of water.


In this chapter, the research work x-rays the factors affecting the concept of profitability as a guide to policy decision manufacturing industries in Enugu North local Government Area. In doing so focus was placed on the exogenous, endogenous and political factors and their significant effects on the financial profit of the manufacturing Industries. One of the major finding of this work is the uniqueness of these factors and the general effects thy have on all these Industries. In other words. The non-realization of profit target is carries by these factors.

It comes out that if all the recommendation made are executed, Enugu North local Government Area will be a kin as name in Nigeria Industrialization.


In a view to improve and high productivity and better lab our management relations. The following recommendations are made.

The organization should provide a psychotically climate conducive for effective employee participation in decision making to take place. It should encourage and initiate a two way flow of information, so as to ensure a meaningful exchange between management and employees.

As a way of encourages the employees to participate effectively, he must be made to feel that his opinions and ideas means “some thing” and he values both as employee and person. Also the organization effort to encourage participation must be since. If employee participation programmers are used as a gimmick to improve “moral” with little or no intend of using employees becomes meaningless and often does more harm than good. The concept profitability should establish guidelines as to the freedom managers could allow employees in making decision concerning work in their departments. And also since the company utilities rank, education and experience in determining who should be involved in decision making there is need to institute and courage study leave with or without pay and part time programmer to enable the employee acquire additional qualification which with improve the employees knowledge.


It is my greatest wish that the recommendation of this work be strictly implemented, as it will help to increase in productions and bring more profit to the organizations, But where management view my recommendation below with scorn, there is no doubt that its consequence might be determine the detrimental to the organization.

The consequence might breed demodulation, In inefficiency low productivity among management staff and employees.

I here by agree or conclude that the concept of profitability factors as a guide to policy decision policy more benefit than when decision has been left in hand of management alone.

The Concept Of Profitability Factors As A Guide To Policy Decision

To place an order for the Complete Project Material, pay N5,000 to

GTBank (Guaranty Trust Bank)
Account Name – Chudi-Oji Chukwuka
Account No – 0044157183

Then text the name of the Project topic, email address and your names to 08060565721.  

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