The Concept of Profitability Factors as a Guide to Policy Decision

The Concept of Profitability Factors as a Guide to Policy Decision

CHAPTER ONE

1.1 INTRODUCTION

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 sating 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.

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.

1.2 BACKGROUND OF STUDY

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:-

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.
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.
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.
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.

1.3 PROBLEM ASSOCIATION WITH SUBJECT MATTER

The researcher embanked on this study in order to ascertain:

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

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

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

PROBLEM OF THE STUDY WILL BE CONCERNED WITH

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

LIMITATIONS

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:-

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

1.4 IMPORTANCE OF STUDYING THE AREA

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.

1.5 DEFINITION OF TERMS

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.

1.6 REFERENCES

Bathy J. (1978) “Advanced cost Accounting” London; macdonald and Evan L.t.d.p.78.

Cushing, Barry .E. (1978). Accounting Information systems and Business organsational wesly publishing company Inc. page 182.

Horngon charles T. (1978) cost Accounting a management Emphases U.S.A. prentice Hall Inc. pages 43-58.
Local Government Instrument, NO 15, Vol. 2.