CHAPTER
ONE
INTRODUCTION
1.1 Background of the Study
The
world is getting more exposed. Recently, people have started seeing the need to
start planning. Some draw plans on how to meet some of their goals in the
future. Corporate bodies are not left out. The first process in management and
handling problem is to draw a proper plan on how to tackle such a problem. Thus
a budget is actually a management plan of action expressed quantitatively,
mostly but not exclusively in financial terms (Kodjo, 2009). Globalization has
influenced the plans that organizations make in that information required to
drawing up such plans are at managers’ door steps. Now we talk about management
information system with the use of software packages like the ERP, so that
managerial planning is just very timely and relevant in decision making which
is the primary function/responsibility facing every manager at all managerial
levels. As regards technological advancement and competition, which
characterized the business terrain, planners are winners while non-planners
lose out. Some managerial planning is an essential ingredient for business
survival (Ezeh, Onodugo, 2002). Budgeting forms part of management tool. It is
a traditional way of managing and controlling companies (Bergstrand and Olue,
1996). Organizations use budget to plan and co-ordinate in the following year.
To motivate employees, allocate resources and co-ordinate operations within an
organization has been the primary purpose of budgeting. For operation purposes,
budget is always quantified in financial terms. It is aimed to facilitate
responsibility distribution and used to evaluate performance (Tibby and Lindsay
Part 1, 2003). According to Welsch, Planning is the only comprehensive approach
to managing so far developed and if utilized with sophistication and good
judgment, there would be provision of framework for implementing such
fundamental aspect of scientific management as management by objectives,
effective communication, participate management, dynamic control, continuous
feedback, responsibility accounting, management by exception and the managerial
flexibility. Budgeting helps administrative officials to make careful analysis
of all existing operations, thereby justifying expansion, eliminating or
restricting wrong practice (Musselman and Hughes, 1981). In the process of
planning and control, budgeting entails a distinct pattern of decisions in the
organization which are capable of determining its objectives, purposes or
goals, and how these goals are achieved by establishing principal policies.
However, the inability to recognize the problem concerned and fixing a boundary
of investigation creates an obstacle for the successful implementation of
planning and control. Some organization only look for narrow ranges of
alternatives which they arrive at from their past experience and present
situation. Other management levels even avoid long term planning and budgeting
in favour of today's problem thereby making the problem of tomorrow more severe
(Steward, 1993). The foregoing reflects on the need for organizations to set up
a formal mechanism for scanning its environment for opportunities and gives
early signs of future problem. This course of action will improve the system of
budgeting in managerial planning and control resulting to an optimal
performance.
1.2 Statement of the Problem
Generally,
organization whether manufacturing or service, required good budgeting for
increasing productivity. Budgeting as a tool for planning and controlling does
increase productivity. This is the problem of qualified personnel that are
required for the purpose of preparation implementation and execution of
budgeting, areas of responsibility will be decided by management and also
budgeting pressure is another problem. The study will therefore be focused on
whether budgeting contribute towards increasing productivity in organization or
not.
1.3 Objectives of the Study
The broad objective of this study is to ascertain the impact
of budgeting, planning and control on the profitability of a manufacturing
company. Therefore, the specific objectives of the study are as follows:
1. To examine the system of budgeting,
planning and control in order to assess adequacy in profitability.
2. To find out the extent budgeting
serves in planning and increasing profitability.
3. To examine facts about the
organization and its mode of operation with regards to profitability.
1.4 Research Questions
The following research questions will be addressed
with the view to achieving the objectives of the study.
1.
Is
there any relationship between profitability and planning in a manufacturing
company?
2.
What
is the relationship between budget and profitability?
3.
Does
profitability in the manufacturing company depend on the level of budgeting
1.5
Statement of Hypotheses
Hypothesis
One:
HO:
There is no significant relationship between budgeting
and planning.
HI:
There is significant relationship between budgeting and planning.
Hypothesis
Two
HO:
There is no significant relationship between
profitability and budgeting.
HI:
There is significant relationship between profitability and budgeting.
1.6 Significance of the Study
The
significance of the study derives from its usefulness to the following:
The
Researcher: This work will enable the researcher
understand impact of budgeting, planning and control on the profitability of a
manufacturing company. Besides it will enable the researcher fulfill the
necessary requirement for the award of National Diploma (ND), Federal College
of Agriculture Ishiagu, Ebonyi State.
The
Companies: If the objective of the study is
achieved as stated, it will tend to point out explicitly how budgeting,
planning and control can affect the profitability of a manufacturing.
Academic
The
research will also be useful to the teaching and learning of issue affecting
budgeting as a complement to other textbooks and journals that treated
budgeting in managerial planning and control.
Managers
The
research will provide information as to how resources would be properly
allocated and performance evaluated through budgets, planning and control in
order to achieve maximum profitability.
1.7 Scope of the Study
For
the purpose of this research study, the researcher's effort will be
concentrated on the role of budgeting, planning and control on the profitability
of a manufacturing company with Masters Energy Group Uturu, Abia State as
study.
1.8 Limitations of the Study
The
limitations of the study include:
1.
Time: The researcher had time constraints in course of the
work, because the research was undertaken at the same time as when the course
work was going on.
2.
Finance: The high cost of transportation encountered in
visiting Masters Energy Group Uturu, Abia State.
3.
Research Materials: A lot of
difficulties were encountered when trying to obtain some necessary facts and
information from the staff of the company.
1.9 Definition of Terms
1.
Annual Budgeting: According to Drury (2004) it is concerned with the
detailed implementation of the long term plan for the year a-head. It is
therefore a continuous and dynamics process and should not end once the annual
has been prepared. It is also known as short term planning or budgeting.
2.
Benchmarking: It is the continuous process of measuring products,
services and activities against the level of performance (Faroubi, 2006).
3.
Budget: According to Terry (2009), it refers to a
quantitative expression of a plan of action prepared in advance of the period
to which it relates.
4. Budgetary
Control: A
means of control whereby actual state of affairs can be compared with that
planned for by the management in the formulation and execution of economic
policy.
5. Budgeting:
A plan quantified in monetary terms,
prepared and approved prior to a defined period usually showing planed income
that will be generated and expenditure to be incurred during that period and
capital to be employed to attain that objective.
6.
Control: Comparing actual results achieved
over a period with budget/standard and highlighting deviation from budget or
standard into favorable and advise variances.
7.
Manufacturing Company: Adeniyi (2008) defined this as a company that
purchases materials and components and convert them into different finished
products.
8.
Planning: Objective which the company intends to
achieve are set for the future and ways of achieving those objectives and
considered.
9.
Profitability: John (2008) is of a view that profitability refers
to a company’s ability to generate adequate returns on invested capital.