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ASSESSMENT OF THE EFFECTIVENESS OF ACCOUNTING INFORMATION AS A TOOL FOR MANAGEMENT DECISION (A CASE STUDY OF PZ CALABAR)

CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND OF THE STUDY

An organization needs qualitative information to function or make decision; the available of such information make the organization to function in the most effective and efficient manner. This information is provided by the accounting system to the management, which uses it primarily to accomplish three (3) broad purposes, viz:

i.   To provide financial statement to interested external users

ii.   To plan the operations of the organization in both the short and long run.

iii.   To control the result of its operations

In financial accounting, the responsibilities of the accountant ranges from recording and analysis, summarizing and reporting the result of the activities of the organization to creditors, stock holders and prospective investors, government, labour, environmental organization and others. In the case of reports to external users, they are classified for general purpose; they are financial statement, the income statement, the retained earnings, the balance sheet and the statement of financial position. People who protest or enhance their investment in the organization as by other who have a special interest in it use this statement. In management accounting, accountants provide information for use by office within the organization (the managers) rather than for use by other outside the organistion, such information are mainly decision making concerning the internal function organization. Management accounting also provides information to the decision makes for the following purpose:

i.             Formulation of policies

ii.            Planning and controlling the activities of the enterprises

iii.          Safeguard the assets of the organization

iv.          Disclosure of employee’s area of specialization

v.           Decision taken alternative cause by action.

Management and financial accounting may be understood by considering the basic goals of financial accounting is to direct forms of operations to maximize income the period measure net income used by the management in making decision to avoid what may be considered as an unwise decision to external user or vice versa. However, the relevance accounting information effective decision making in this research work, the degree of the relationship shall be clearly spelt out and identified.

The choice of the topic “Accounting information as a tool for management decision making” has been motivated by the fact that whatever accounting on information is presented to the has been collected, classified and analysis will determine the extent to which it is to be relied upon by the management in order to formulate a favourable decision in the organization.

The project therefore examines the relevance of accounting information to managerial decision making manufacturing companies with a view to highlighting the area of weakness and making necessary recommendations.

It is infact in the light of the above that attempt be made to appraise the essence of accounting information in making decision concerning he use of limited resources, including the identification of the overall organization objectives.  

1.2        STATEMENT OF THE PROBLEM

Management who thinks that they operate successfully without the use of the information provided by the accountings and up being economic failure to their respective industries, and sometimes course embarrassment to the organization. Take for instance, the accountant of an organization provide his manager with the information that there is no fund for any programme execution in the company. Despite this information, the manager went ahead and instructed the accountant to draw a cheque payable to a contractor who supplied some materials to the organization for settlement. Due to this action of the manager, the following condition is bound to happen.

·     This cheque is going to bounce because there is no money in the company’s account

·    If care is not taken, the contractor may sue the organization (company)

There are many different types of decision for which managers need accounting information, listed below are four (4) examples of typical question that regularly confront managers, they include:-

i.   What product line is to be produced?

ii.   What price should be set for a product line?

iii.   Should old equipments be replaced with new ones?

iv.   Should a product line be dropped?

v.   Has an employee performed well enough to warrant a bonus?

vi.   Should short-term borrowing be arranged to finance current operation?

For managers to make the best decision to resolve each of these questions the management accountant must provide quantitative information that is timely and relevant, it is with this information that managers can properly plan and control the organization operations. And these are some of the question and problems this research work intend to prepare solution to:

In conclusion, managers cannot take effective decision if the information provided to them but their accountants are not properly adhered to. It is this kind of problem that form the basis of this research work in which the relevant of accounting information in management decision making will be examined.

1.3        OBJECTIVE OF THE STUDY

The objective of the study is concerned with established of the relevance of accounting information to managerial decision-making in manufacturing concerns. It is to further review and analyzes accounting information in line with modern day techniques of presenting accounting information and its unique role as aid in decision making by the management. The purpose of this study therefore include the following.

i.   To known the problem remedied of getting information for decision making with special reference to PZ calabar

ii.   To carefully look at the need for accounting information as a vital tools for managerial decision making

iii.   To know how the management of the company under view have been using the accounting information given to them

iv.   To make suggestion as to the usefulness of accounting information its users in general

1.4        RESEARCH OF HYPOTHESIS

Ho: Accounting information is not a tool for effective decision making in an organisation.

1.5        SIGNIFICANCE OF THE STUDY

The study is of significance in that; the findings will be of almost important to many establishments and to the business society at large. This is because it will determine whether accounting information in the manufacturing concern can serve as a vital tool in managerial decision-making. 

Also, the study will serve will as a supply of knowledge of manager and accountants on how they can improve decision making procedure of their companies for an effective performance and also to those who wanted to carry out further research on the same topic in the future.

1.6        SCOPE OF THE STUDY

This work will cover some aspects of accounting techniques in operation in the manufacturing organization with reference to PZ calabar and the type of report prepared for decision-making. The researcher intends to examine the relationship that exist between accounting information and management decision-making. Some related literature in the field of study would also be alid on the usefulness fo each of the information prepared by individual segment of the accounting branches.

1.7        HISTORICAL BACKGROUND OF THE CASE STUDY

Grains Processing Company (Nigeria) Limited otherwise known by its brand name PZ calabar was first commissioned by the former Head of State General Muhammadu Buhari on the 1st September 1984. the company is located at Calabar in calabar municipality Local Government of Cross river State.

The company was the baby of the state government; the promotion of the company was alter taken over by the Nigerian bank for commerce and industry (NBCI) in accordance with the bank policy of the Military Government. The establishment of this company was formed by the need to increase production by utilizing local materials. The company is a private Limited Liability Company essentially incorporated to process various grains into flour human consumption, presently its ownership structure comprises of:-

-        Complex trading company of Hungary             23%

-        Nigerian Bank for commerce and industry       40%

-        Cross riverState Government                           36.4%

-        Other individuals                                               0.6%

         Total                                                                  100%

The major machineries (plant and machinery) which the company started with include; Rollers, purifiers, plain shifter, servers, pneumatic system etc. The company is capable of processing 47% of 200 tonners daily and its products comprises Maize grits, maize flour, millet flour, millets grits, wheat flour, Grains corn flour, grains corn grits etc.

The company markets its product through appointed dealer and sale officers in some parts of Cross river, Rivers, Edo, Akwa Ibom and Bayelsa states. The company provides direct employment to people resulting from its production, about 170 staff approximately, which comprises have 159 Nigerians and 11 expatriates who are mechanical staff.

1.8        DEFINITION OF TERMS

Accounting: Is the art of anlaysis, evaluating and interpreting of Organization financial activities and position, communicating the results to those who are interested. It can also be defined as the process of identifying, measuring and communicating economic information of facilitate informed judgment and decision by users of the information. It is a system designed to serve organizational goals.

Management accounting: Is the application of professional knowledge and skill in the preparation and presentation of accounting information in such a way as to assist the management in the formulation of policies and in the planning and the operation of the understanding.

Financial accounting: Is concerned with the preparation of general-purpose report for use by person outside the firm. It involves preparation of profit and loss account and the balance sheet, they are prepared in general terms suitable for presentation to shareholder and the general public, and they are also of interest to the management

Planning: Is the process of deciding what action should be taken concerning the organisation in the future.

Information: Means a complete set of processed data that has a meaning to the decision maker

Control: This involve overseeing the activities of the employee of the organization of the manager, they make sure that management policies are strictly adhered to.

Co-ordination: Is the bringing together of the various units of an organization to work toward the achievement of this overall objective

Creditor: An individual or institution that provides part of a company’s resources lending it money out.

Inventory: It is referred to as store keeping items and are heated at storage level. Store keeping items usually consist of raw materials, work-in-progress and finished and supplies

Company: Includes any enterprise which comes within the scope of the statement of standard accounting practices (S.S.A.P).

Assets: These are the resources owned by the company. It may be tangible such as land, Building and machineries etc. it may also intangible such as Debtor, cash at bank etc.

Liabilities: These are debts or obligations of the company. They arise primarily because of the purchase of goods or services from other credit or through cash borrowing to finance the business.

Balance sheet: Is a statement of assets and liabilities of an organization, which shows the financial position of the organization for a particular accounting period.

Management: This means groups of decision make in an organization who see the smooth running of the affairs of the organization. It could also mean the act of getting things done with effective spirit of information and effective of co-ordination.

Dividends: Is a profit to be shared to the shareholders of a company after deducting all expenses including tax.

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