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AN ANALYSIS OF COST-VOLUME-PROFIT AND PROFITABILITY TARGET

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ABSTRACT

This is a study on Cost- Volume-Profit Analysis and Profitability Target (A Survey of some Selected Firms Listed in the Nigerian Stock Exchange). In order to verify the need for the establishment of CVP (Cost-Volume-Profit) analysis in firms, the study used the financial data of 8 listed firms for eight (8) years and analyzed the relationship between sales value and profitability, total cost and investment decision. The source of data collection was the annual reports of the various firms. The statistical tool employed in testing the hypothesis was the ordinary regression (i.e. SPSS 17.0). The following were the findings: there exist significant linear relationship between sales value, profitability, total cost and investment decision. Sales value is positively correlated with profitability, total cost and investment decision which is consistent with the theoretical equation in CVP analysis. The study therefore recommended that managers should employ cost-volume-profit analysis in setting and attaining profit targets to eliminate or reduce the guess work inherent in reaching decision from judgments and instinct alone.

CHAPTER ONE
INTRODUCTION

1.0 BACKGROUND TO THE STUDY

1.1STATEMENT OF THE PROBLEM

Cost-volume-profit (CVP) analysis is a managerial tool and can be used to achieve corporate profitability in any organization. Cost-volume-profit (CVP) analysis is a tool that can be used in firms that are faced with problems having cost, volume and profit implications.
It is a true fact that certain cost elements of a firm not only vary but are usually large in proportion e.g. material and labour. Therefore, the main concern of this research study is to profer solution to the following problems:

  1. Non-employment of sales value in the determination of profitability in     firms.
  2. Lack of relationship between sales value and total cost of firms.
  3. Non-incorporation of sales value in investment decision in firms.
  4. Inadequate financial data for cost and profit analysis in firms.

1.2 OBJECTIVE OF THE STUDY

This research study will be focused on cost-volume-profit analysis and profitability target (A survey of some selected firms listed in Nigerian Stock Exchange). The main objective of this study are as follows:
  1. To determine the effect of sales value on the profitability in firms.
  2. To know the relationship between sales value and total cost of firms.
  3. To make provision for the incorporation of sales value in investment decision of firms.
  4. To justify the need for adequate financial data for cost and profit analysis in firms.

1.3 RESEARCH QUESTIONS

  1. What is the effect of sales value on profitability in firms?
  2. What is the true relationship between the sales value and total cost of firms?
  3. How will firms incorporate sales value in making investment decision?
  4. Why is there financial data inadequacy for cost and profit analysis in firms?

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