EFFECTIVENESS OF PRICING POLICY MANUFACTURING INDUSTRIES (A CASE TUDY OF P.Z IMNUSTRY LTD)
TABLE OF CONTENT
TITLE PAGE i
TABLE OF CONTENTS vi
1.1 BACKGROUND TO THE STUDY 1
1.2 STATEMENT OF THE RESEARCH PROBLEMS 3
1.3 OBJECTIVES OF THE STUDY 4
1.4 SIGNIFICANCE OF THE STUDY 5
1.5 RESEARCH QUESTIONS 6
1.6 SCOPE OF THE STUDY 7
1.7 LIMITATION OF THE STUDY 8
1.8 PLAN AND ORGANIZATION OF THE STUDY 9
1.9 DEFINITION OF KEY TERMS 10
2.1 INTRODUTION 12
2.2 PRODUCT COSTING 13
2.3 FLOW OF COST 17
2.4 PRICING DECISION 18
2.5COST PLUS PRICING SYSTEM 20
2.6 OBJECTIVE OF PICING POLICY 28
2.7 PRICE CONROL AND RATIONING 34
2.8 GENERAL PRICING PROBLEM 35
3.1 HISTORICAL BACKGROUND OF P.Z LTD 37
3.2 METHOD OF DATA COLLECTION 38
3.3 POPULATION AND SAMPLE SIZE 39
3.4 SAMPLING TECHNIQUES 39
3.5 METHOD OF DATA ANALYIS 39
3.6 METHOD OF DATA COLLECTION 40
3.7 INDUSTRY MANUFACTURING 40
DATA PRESENTATION AND ANALYSIS
4.1 DISCUSSION OF ANALYSIS 42
4.2 DISCUSSION OF FINDINGS 49
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 SUMMARY 62
5.2 CONCLUSION 65
5.3 RECOMMENDATION 66
1.1 BACKGROUND TO THE STUDY
The economy which was one agriculture oriented is now largely into manufacturing our metaphosing into a more dynamic and diversified one. In essence, since the manufacturing industry is concerned with the production of finish goods, their absence is no exception as catalyst for the fast transformation of the country’s economy to manufacturing economy should be encourage for the tremendous contribution to the growth I can be give to the country. The growth of the costing started during the industries revolution in 1780AD and this was applied on the manufacturing activities of the small scale and medium scale business managed by individual shortly after, there was the need for the manufacturing industry to know their cost analysis involved in producing a particular goods or services to achieve the price at which the industry (manufacturing will sell it out to the consumer, thereby applying the costing principle necessary).
“Probably no single marketing tool is so critical from both economy and social stand point as price. Yet, as important as it is less is probably know about any other single market tool”.
(Buskirle 2001). Therefore should be a proper and effective method at arriving at actual expense should be a proper and effective method at arriving at actual expense (Direct Material Cost, Direct labour cost, overhead expenses and others indirect cost) on a production produced in an industry. The industry is bound to collapse, or continue to be run ineffectively if proper costing method is not that in place.
Any decision process requires the implementation of some sort of guide to action. Actual total cost per units produced should be the guide to the price to be fixed on a product in order to maximize profit or gain. Manufacturing industries ill thereby obtain the most effective use of the economic resources held by the industry. Consumers usually do not decide to buy a commodity without some idea of its make up or characteristic. Similarly, if an industry acquires knowledge of the composition of cost data similarly, if an industry acquires knowledge of the composition of cost data system, they will be in a better position to decide what types to “buy in what situation”.
“Since pricing is not an end in itself, but a means to an end, an explicit formulation of the company pricing objective is essential. The fundamental guides to pricing objective and company’s overall goals (Dean 2003). Therefore the researchers was set to carryout as research on effectiveness of pricing policy in the manufacturing industry with a view to funding out the problem faced in determining the prices of products. Some total cost is equal to the fixed cost and variable cost and suggestion on solution to the problems.
1.2 STATEMENT OF THE RESEARCH PROBLEMS
The researcher was set to address the following problems.
1. Persistence/escalating price of inputs constitute, a major problems in determining the poor units price of a commodity, making it difficult to cover the total cost incurred.
2. Like many other types of problems the pricing decision in manufacturing industry suffers from the lack of accurate and relevant information.
3. The forces of demand and supply often posses of problem for a firm costing policy in achieving a realistic price, particularly if a firm is a price taker.
4. In the process of maximizing profit, the manufacturing industries often face the problem of competition.
5. The position of the manufacturing industry as regards the quality of product cannot complete well with imported goods.
1.3 OBJECTIVES OF THE STUDY
1. The primary objective of the study/research was to determine the effectiveness of pricing policy in the Nigeria manufacturing industry.
2. The secondary objectives are: -
(a) To investigate, the major problems associated with price determination in manufacturing industry.
(b) To ascertain the problems facing the manufacturing industry in the determination of prices of product in respect to foreign exchange needed for raw materials and other imported input.
(c) To recommend ways of effectively determining actual cost of production so that prices can be as reasonably price as possible.
(d) Involvement of methods (costing) effectiveness and how the price (realistically) is arrived at in the sector (manufacturing).
(e) To ascertain when item of cost dominate the other cost in price determination in manufacturing industry.
1.4 SINIFICANCE OF THE STUDY
In this study, the researcher has highlighted some of the numerous glaring importance of having a knowledge and understanding of effective costing for pricing policy in manufacturing industry.
1. It could help to reduce the complication involved in arriving at pricing policy in manufacturing industry to the understanding of layman.
2. The study should be understood by all because it is an effort to analyse costing influence in any pricing decision. Since price are of great importance to the general public in their day today activities.
3. The research was intended to be an effort at determining the role that cost of production plays realistic pricing policy of product in manufacturing industry.
4. The effect of change in economic polices on the price should be product produced by the public through he result of this research work.
1.5 RESEARCH QUESTIONS
The focus of this study is to identify the effectiveness of pricing policy in manufacturing industries. Hence, in the course of the study effort has been made to find solution to the followings research question;
(i) What are the effectiveness of pricing policy in the Nigerian manufacturing industries?
(ii) What are the problems of manufacturing industries in determining the price of product in respect of foreign exchange needed for raw materials and other imported inputs?
(iii) What are the problems associated with price determination in manufacturing industries?
(iv) What are the items of cost that dominate other cost in price determination in manufacturing industries?
(v) What are the pricing method for realization of effectiveness pricing policy in manufacturing industries?
1.6 SCOPE OF THE STUDY
The study covered the manufacturing PZ industries Plc as the case study.
PZ industries Plc is a manufacturing of consumable goods. The study also covers the aspect of determining of cost and fixing of price in the area of management accounting and in particularly cost accounting.
1.7 LIMITATION OF THE STUDY
There will be definitely be problems encountered in the course of any study embark upon. Some of the problems encountered are: -
1. LACK OF CO-OPERATION FROM RESPONDENTS
Some respondents find it difficult to make information readily available to the researcher due to the natures of competition in the manufacturing industry today which calls for absolute secrecy in terms of method of pricing within the sector.
2. TIME CONSTRAINT
The researcher was faced with the problem of not having sufficient time to cover the research (as intended) due to the present day crash programming nature of the educational system.
3. The researchers problem of finding relevant literature, journal, and newspaper e.t.c. related to the research topic must be mentioned.
Despite all the problems encountered the data collected is very authentic to the research.
1.8 PLAN AND ORGANISATION OF THE STUDY
This research work has been divided into five chapters for easy presentation of the fact and figure gathered.
Chapter one contains the introduction statement of research problem, aims and objectives, significance of the study, research questions, scope and limitation, plan and organisation of the study and definition of key time.
Chapter two will treated past and current literature review which include product costing, flow of cost, pricing decision cost plus pricing system, objectives of pricing policy, pricing control and rationing and general pricing problems.
Chapter three will highlight research methodology and historical background of case study. Research methodology include method of data collection, population and sample size, sampling technique and method of data analysis.
Chapter four will discuss the presentation and interpretation of data while involve discussion of analysis and discuss of findings.
Chapter five throw light in the summary, conclusion and recommendation.
1.9 DEFINITION OF KEY TERMS
The following terms relate to the research topic.
1. EFFECTIVENESS: Is producing the intended result aims thereby making a striking impression.
2. COSTING: Is a systematic method or way of arriving at actual expense (direct material cost, direct labour cost, overhead expenses are other indirect cost) on a product by a manufacturer or company.
3. PRICING: Amount of money ot be paid based on facts after everything required has been taking into consideration.
4. PRICIN POLICY: Is the procedure on method of fixing to ascertaining and determine the price of a product in commodity in organisation.
5. MANUFACTURING INDUSTRIES: Institution involved in converting raw material into finished goods in which is finally use by the final consumers.
6. DIRECT MARGINAL COST: The raw material that becomes an integral part of the finished product are significant enough to war out tracing them from material to finished goods.
7. PRODUCT COST: What are closely associated with units produced by a manufacture or produced for resale by a retailer. Products costs are assigned to inventory when incurred and expressed are expensed when it time to which they are assigned are sold.
Adenikinju Adeola (2006) said that manufacturing is one of the fastest growing industries of the Nigeria economy. In spite of the recovery in growth rate recorded in the manufacturing sector in recent times, the sector continues to account for a small share of Nigeria economy. These are basically three categories of operators in the Nigeria manufacturing industry. The small to medium sized firm constitute the most active segment of the manufacturing industry.
These firms are mostly private and Nigeria owned. They are predominantly in such activities as food processing, textile, wood product, paper and printing e.t.c. The manufacturing industry in that of impact substitution and the processing of raw- materials.
There is high degree of manufacturing industry concentration in urban areas with Lagos accounting for about 50 percent. The location of Lagos its population concentration its relatively high per capital income are better infrastructural facilities have all combined-to attract manufacturing industries into Lagos.
Manufacturing industries should be locates near their respective sources of raw materials.
Government is gradually shifting emphasis in recent years from encouraging only the growth of manufacturing establishment to increasing Nigeria owners and control such shifting in emphasis has found in the indigenization which resources some activities for Nigeria or allows foreigners to operate in some manufacturing industries..