DOWNLOAD THE COMPLETE PROJECT

1200 Users found this project useful

CHAPTER ONE

INTRODUCTION

1.1    Background to the Study

One of the functionalities of organizations is their strategic drive that enables them compete well in the market through sound decision making process. Ahmad (2014) points that the principal challenge of management accounting lies on the fact that its conventional tools such as variance analysis, budgeting, costing, profit analysis and standard costing lack relevance to address managerial problems in contemporary period. Apart from the irrelevance of these tools, they are only good on paper as they lack applicability in the real world (Ojira, 2014; Ojua, 2016). The mandate of management accounting is to supply information to management of organizations for decision-making. These information most times, neglects information from rival firms. Management accounting only supplies internal information to organizations excluding information from external stakeholders whose actions subtly affect the performance of organization.

 

The Chartered Institute of Management Accountants (2005) defines strategic management accounting (SMA) as a form of management accounting (MA) that prioritizes on information relating to factors external to an organization, as well as non-financial information and internally generated information. Ojua (2016) maintain that SMA can be captioned from two aspects – SMA as a component of strategically-oriented accounting and the engagement of accounting practitioners in corporate strategic decision-making processes. The application of the tools of SMA is referred to as Strategic Management Accounting Practices (SMAP). SMAP are various tools of accounting that supplies authentic information to various parts of decision-making needs of an organization. The needs of decision-making of an organization are but not limited to strategic costing, target costing, consumer accounting, competitors accounting, strategic decision, planning, control, performance management and evaluation (Khatabb, etal, 2015).  SMA as described by Tillman and Goddard (2008) refers to the application of the systems of management accounting for making strategic decisions. Techniques of SMA as enumerated by them include activity based costing, attribute costing, brand value budgeting,  benchmarking, competitive monitoring position, competitor cost assessment, environmental accounting management, strategic costing, customer accounting, value chain costing and strategic pricing.

The techniques of SMA are effectively utilized by organizations in the developed economies for the sole purpose of making strategic decisions (Ojira, 2014; Ojua, 2016). The impacts of these SMA techniques have been found to positively impact on the growth of organizations (Aremu&Oyinloye, 2014; Khatabb, etal, 2015; Mwangi, 2014). Only few organizations in Nigeria recognized the importance of SMA and have been consistently applying its techniques to enhance their organizational profitability (Ojua, 2016). However, the extent to which SMA contributes to the profitability of Nigerian firms is limited or perhaps, imaginary (Fagbemi, etal., 2013). Majority of organizations in Nigeria still apply management accounting in their day-to-day operations. The limitation of management accounting has been its inability to cope with the advancement in business environment (Akenabor& Okoye, 2011). SMA sets the pace for strategic decision making by providing vital information to management of organization which will consequently enhance productivity and organizational profitability (Ahmad, 2014; Mwangi, 2014).

1.2           Statement of the Problem

SMA emphasizes current information and analysis needed for managerial decision-making. SMA provides managers and business owners with relevant information for developing informed business decisions. Despite the benefits attached to SMA, the rate of adoption and implementation by Nigeria organizations is very low. According to Mwangi (2014), majority of organizations shy away from SMA practices because they perceive that the cost of implementation exceeds potential benefits. Similarly, Ojua (2014) observed that SMA practices are prominent in large corporations because they have the required financial capacity needed for implementation.

One of the biggest complaints about SMA is that many of its techniques are not consistent with Generally Accepted Accounting Principles (Uyar, 2010). For instance, the activity-based costing provides accurate costing information to decision-makers on alternative ways of assigning cost to products. However, because the method does not assign all manufacturing costs to products, it is not in line with GAAP. Furthermore, SMA practices have not gained ground in Nigeria business environment due to the huge cost-attached. SMA requires  time and money to design, implement, monitor and evaluate. This can involve moving current employees away from their normal job responsibilities, recruiting additional employees and hiring external consultants. As such, organizations are expected to take cognizance of the costs in totality from the design stage to execution stage. Few firms in Nigeria possess the capacity to finance SMA from design to execution stage. In addition, SMA techniques emphasize the timeliness of information and allow business managers to make decisions. This implies a trade-off with reliability. For instance, an organization intending to ascertain next year’s sales would have to wait till the next year in order to obtain accurate and reliable information. At times, information provided by SMA might not be absolutely reliable because they are based on forecasts, deductions and projections. SMA might not provide reliable information about future events. However, empirical evidence from developed countries revealed that SMA contributes to firm profitability, facilitates sound business decisions and strengthens firm’s competitive advantage. There is paucity of studies on SMA and firm profitability in Nigeria. This can be attributed to the partial recognition of SMA by Nigerian organizations. Nevertheless, it is imperative to extend the subject area to a emerging economy such as Nigeria. Thus, the study investigates the effect of SMA on firm profitability in Nigeria with respect to brewery subsector of manufacturing industry in Nigeria.

1.3        Objectives of the Study

The main objective of the study is to evaluate the impact of strategic management accounting on profitability of firms in brewery industry in Nigeria. The specific objectives are:

To evaluate the impact of corporate planning on the profitability of firms in brewery industry in Nigeria. To investigate the impact of capital investment analysis on the profitability of firms in brewery industry in Nigeria. To assess the impact of cost volume profit analysis on the profitability of firms in brewery industry in Nigeria.

1.4    Research Questions 

The study attempts to provide satisfactory answers to the following research questions:

Does corporate planning influence the profitability of firms in brewery industry in Nigeria? Does capital investment analysis influence the profitability of firms in brewery industry in Nigeria? Does cost volume profit analysis influence the profitability of firms in brewery industry in Nigeria?

1.5    Research Hypotheses

H01: Corporate planning has no significant impact on profitability of firms in brewery industry in Nigeria. H02: Capital investment analysis has no significant impact on profitability of firms in brewery industry in Nigeria. H03: Cost volume profit analysis has no significant impact on the profitability of firms in brewery industry in Nigeria.

1.6     Significance of the Study

The use of strategic management accounting practices amongst organizations in Nigeria is inevitable due to their unremarkable profitability over years and as a result of weak decisions made on the dependence of obsolete traditional management accounting information. This study through its findings exposes the need for involvement of strategic management accounting in the operations of organization to enhance the profitability of organizations. Management of organizations will be informed through the study on how to utilize the techniques of strategic management accounting to boost profitability and gain competitive advantage over their rival firms.

This study is equally important to business managers as it espouse the superiority of strategic management accounting over ordinary management accounting. Management of organizations, relevant stakeholders and government regulatory agencies on business affairs will benefit as the study unveils how the provision of business information by strategic management accounting affects the profitability, viability and competitiveness of organizations in Nigeria.

In addition to these, this study contributes to empirical literature on the subject matter, which can consequently be consulted by future researchers.

1.7      Scope of the Study

The study is confined to selected quoted firms in the brewery industry in Nigeria. The population of study comprises of accountants, auditors, marketing managers, sales managers, production manager, procurement managers and other kind of managerial staff in selected firms. Available statistics revealed that there is 1,441 managerial staff in selected firms in brewery industry. Selected firms include Guinness Nigeria Plc, International Breweries Plc, Mopa Breweries, Nigerian Breweries Plc, Champion Breweries Plc and Sona Breweries Plc.

1.8          Operational Definitions of Terms

Management Accounting

Management accounting provides only financial as well as internal information to the management of organization.

Strategic Management Accounting

SMA is a type of accounting that focuses not only on internal factors of a company, but factors that are external. This includes industry-wide financials, averages and upcoming trends.

Corporate Planning

This refers a systematic approach to clarifying corporate objectives, strategic decision making and checking progress toward objectives.

Capital Investment Analysis

A budgeting procedure that companies and government agencies use to assess the potential profitability of a long-term investment.

Cost Volume Profit Analysis

This refers to the analysis used to determine how changes in costs and volume affect a company's operating income and net income.

Firm Profitability

This refers to extent an organization has succeeded in accomplishing its objectives.

  DOWNLOAD THE COMPLETE PROJECT