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THE IMPACT OF STANDARD COSTING ON PROFITABILITY AND MANAGERIAL EFFECTIVENESS ON A MANUFACTURING INDUSTRY

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

The impact of standard costing on profitability and managerial effectiveness of a manufacturing industry.  The standard costing as a tool for either improves or not improving profitability and managerial effectiveness.  Unlike its contemporaries in the field of science, it deals with human beings and calculating significant information.  Standard costing as a long established concept is the management function of planning and control. In effect, yardstick has been of vital importance for planning and control exercise. As a matter of facts, problems associated with production and earning a profit was recognized for many years before the concept of standard costing was invented. One of the earlier attempt at costing was by James Dodson.  He showed how the books were kept by a shoemaker ranging from this period onwards, there was a steady development of costing developed in the time of our early scientific management proponents such as Fredrick W. Taylor, Henry Fayol and others.

These standards cost reveal goals, spur actions and efforts for effective management and equally provide checks such that exceptional profit oriented goal performance can be achieved and the reverse adequate punishment to be exercised for bad performance. Standard costs cause appraisal to be made over production facilities and form management intentions and capabilities and is a first step strength and weakness appraisal. These led to the preference of standard costing to other method.  With the development of standard costing system in 1920s, it was brought into the accounting system such that total variances might be accumulated as well as detailed variances.  These steps gave rise to formal expression that significant costs were not actual and historical cost but standard or planning costs and their variances.

1.1    BRIEF HISTORICAL BACKGROUNDS

Ferdinand Industries Nigeria Ltd is a company used in this study. This company is located at Urualla in Ideato North Local Government Area of Imo State of Nigeria.

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