THE IMPACT OF ACCOUNTING INFORMATION IN PRODUCTION DECISION MAKING

(CASE STUDY TREAT TIME BREAD INDUSTRIES)

By

OGBODOGBO OKIEMUTE MARTIN

Presented To

Department of Accountancy

ABSTRACT

Managers make decision in order to choose from alternative courses of action of a dynamic rate. This is done to achieve the set objectives of the firm's in which they manage. To make these decision, accounting information are used as a necessary guide.

Manufacturing firms make use of accounting information, which have been complied form sources documents, records and statements in accounting systems. This information gathered are used to make effective production decisions, which would achieve the objectives of profit maximizations, cost minimization, production efficient proper resources allocation etc.

The study is aimed at discoveries the quantative attributes to accounting information which make it an effective tool In the production decision making and if the information decisions making and if the information decisions making and if the information generated is utilized in an effective manner. Although, it is evident that decisions made in manufacturing firms are determined by accounting information to a varying extent, it is hoped that the recommendation will show the importance of accounting information and that managers who make decisions will comprehend it as a vital necessity in decision making.

TABLE OF CONTENT

TITLE PAGE II

APPROVAL PAGE III

DEDICATION IV

ABSTRACT V

TABLE OF CONTENT IX

CHAPTER ONE

1.0 INTRODUCTION 1

1.1 STATEMENT OF THE PROBLEM 10

1.2 OBJECTIVES OF THE STUDY 11

1.3 SIGNIFICANCE OF THE STUDY 12

1.4 STATEMENT OF HYPOTHESIS 14

1.5 SCOPE OF THE STUDY 15

1.6 DEFINITION OF TERMS 16

CHAPTER TWO

2.0 REVIEW OF RELATED LITERATURE

2.1 Overview of Accounting and information 16

2.2 Types of Accounting information 17

2.3 Decision making and Accounting information 43

2.4 Decision Models and Techniques 47

2.5 Types of decision model used in production 49

2.6 Cost -Benefit Approach 60

2.7 Accounting information and Resources 63

2.8 Allocation decision 65

CHAPTER THREE

2.0 RESEARCH DESIGN AND METHODOLOGY

3.1 The population of the study 67

3.2 Determination of sample size 68

3.3 The research design 69

3.4 Sources of data 69

- Primary data 69

- Secondary data 70

3.5 Method of data Analysis 70

CHAPTER FOUR

4.0 DATA PRESENTATION AND ANALYSIS

4.1 Data presentation and Analysis 71

CHAPTER FIVE

5.0 SUMMARY OF FINDINGS CONCLUSIONS AND

RECOMMENDATIONS

5.1 Findings 91

5.2 Conclusions 96

5.3 Recommendations 96

Bibliography 100

Appendix: questionnaire 103

CHAPTER ONE

INTRODUCTION

Manufacturing firms in the present economy have to content with a lot of economic variables which have been aimed at consolidating the gains of SAP- structural Adjustment Programme since the first SAP introduced by SAP was self reliance, most manufacturing firms have had to consider the local sourcing of raw materials instead of the dependency on imported materials for their production processes. Other factors such as inflation, taxation instability both economic and political competition and market forces have caused a change in the outlook of production.

In order to achieve other objectives the manufacturing firms have to make brief decisions, which would be relevant to the restructing of production processes and in profit maximization so as to survive in our ever-changing economy and competitive environment. It is necessary to note that in making the decisions information is very essential especially that of accounting.

Information is the lifeline of any organization it is "the general meaning that is assigned to data by means of the contentions used in their representation" defined by DON T. Coster etal (1978).

Accounting information measures the progress of a commercial enterprises and is used in decision-making for the selection of a single course of action for several dissimilar and unrelated alternatives.

Many production, marketing and government executives and stronger managers when they have solid accounting information backing their decision making they are able to plan and control the operations of their organizations with which they set their objectives.

This study is about the role of accounting information in production decision making it seeks to enquire into hoe financial information can help the production processes of firms through short and long term decision by management.

THE USERS OF ACCOUNTING INFORMATION

Accounting is a language communicate financial information to people who have an interest in an organization. The users are of two categories

ÄThe internal parties within the organization

ÄThe external parties outside the organization

The internal users are made up of the management and employees. The management requires information to assist them in decision-making and control activities. The decision made is as regards operations such as planning, productions, marketing and pricing including other activities.

The role of accounting information is set towards the efficient production of goods and services, which are, used to maximize the benefits of both manufacturers and consumers

The employees require the information on the ability of the firms to meet wage demands, for the assurance of steady employment and the frequency of participations in company bonus, profit sharing taxation and pension plans.

The external users comprises of the shareholders who use the information to access the value of their investment provided the firms is a limited liability company also, the creditors suppliers and providers of loan capital require the information on the firm's ability to meet financial and debt obligations. The parties mentioned above are those who provide the capital as owners or lenders to the firms.

The government is an external user which collects the accounting information in order to know the assessable profits that are to tax and other government agencies as the federal office of statistics for details of sales activity, investment, stocks, dividends paid and figured required for the computation of the Gross Domestic Product (GDP).

Finally, financial analysts use the information (accounting), to know the level of investment they would advise their client investor to put into any company and whether they will yield high profits with less risk. The information will also be used by the Securities and Exchange Commission (SEC) to know if the company will perform or not in the stock Exchange.

In this study, emphasis will be laid on the management's need for accounting information as it concerns production so as to make effective decisions that will help in achieving the objectives of the firm. The process of using accounting to provide information to users is illustrated below.

First, user groups are identified and their information needs determined. These needs determine which economic data are gathered and processed by the accounting system. The accounting system generates reports that communicate essential information to users. For example, investor need information on the financial condition and result for operations of an enterprise to assess the profitability and risk-ness of their investment in the enterprises. The accounting system satisfies these needs by recording essential information and periodically summarizing this information in financial report. Although, information for one category of users may differ markedly for from that need by other users, accounting can provide each user group with economic information to assist them in making decision regarding future actions source ( carrithers, W.M and Weinwarum E.H. Business information and accounting system, USA. 1967)

DECISIONS AND MANAGEMENT

It is necessary to know that many manufacturing firms are striving hard to achieve optimum production and maximize their contribution margin in order t break even and attain some level of profit at low cost.

Business decisions are made in order to carry out the above objectives and are done only after all alternative courses of action have been considered but possible courses of action cannot be evaluated properly unless information is available as to the consequences of those choices.

Production management decisions are based on two categories planning and control.

T Planning and control

Planning defines the goals and objectives of the operation whereby a major portion is financial. It involves forecasting and estimation by means of budgeting and should provide answers to such questions as "what does the firm desire to produce? And when and how are objectives to be accomplished"?

However, controlling is a management functions or device of checking the day to day operations towards the accomplishment of goals and taking action where necessary to redirect operations in order that actual

T performance willconform to original plans.

Here, the study is on the role of accounting in production decision-making. Manufacturing firms produce goods and expand production in order to increase output and quality in order to meet the customer's demand and specification.

Although, managers use accounting information extensively, it is important to note that it does not give automatic answers to the problems faced by variables such as experience, values and knowledge which are brought into decision making cannot be subjected to and unit quantitative analysis.

Finally, it is management accounting information that is provided to managers to help them make good decisions within the firms set goals. However information which is available will effect the perception of the decision-maker and so information only has value when the actions of the managers who make the decisions differ when there is a presence of it.

The effectiveness of accounting information is determined by the manner in which it affects behavior. Thus unless accounting information serves to produce the desires action it has served no purpose at all (Davies G. B, management information systems, Ohia, mcgraw Hill, 1974).

1.2 STATEMENT OF THE PROBLEM

Due to the state of our economy and the various government polices, manager also have to choose Arom. The alternative, the course of action which would be conductive for production in order to face the challenges of the changing economy so as to achieve their set goals and objectives which boils down to profit planning and maximization.

The major problems emanating from the above are:-

1. To what extent do managers in manufacturing firms or companies make use of accounting information consciously and effectively in decision-making especially that of production.

Does the use of such information lead to cost minimization and the proper allocation of resources? Do the decision made with particular references to accounting information improve production efficiency. Have the firms any problem in providing and utilizing accounting information and how can such problems be solved?.

OBJECTIVES OF THE STUDY

The study has the following objectives:

a. To ascertain if they identifiable means of providing accounting information and the quality of such information.

b. To determine whether information generated are effectively utilized in the production decisions in manufacturing firms.

c. To determine the extent to which the information fulfill the basic roles of cost minimization, proper allocation of resources and improvement in the production efficiency.

d. To ascertain whether there are problems in generating and utilizing the information necessary for production decisions and to suggest possible solutions to the problems.

THE SIGNIFICANCE OF STUDY

The study is to show the role of accounting information in production decision-making in manufacturing firms.

The rise of accounting information is essential to manufacturing firms in that the resultant effects of the use will enhance profit maximization, reduce costs of production, increase productivity and the general progress of the firm's.

The decision-making process will be achieved better when accounting information is used in choosing the alternative courses of action and this is done by the use of decision models. Beneficiaries of the resultants effects of the decision are the employee, the firms as a whole, the government and other groups affected by production decisions.

The employees will benefit because high productivity and profit maximization derived from the effective decisions may bring about increases in salaries, creation of incentives and motivation of the employees.

The firms will benefit because where the decisions are enhanced by the accounting information generated, the objectives of the firms, which have been set out, will be achieved. As such profit and high returns will be reaped by the firms.

Also, the government will benefit from the result in that it can affect government polices concerning the manufacturing sector of the economy.

Finally, the study will be beneficial to those who need the information for literature enrichment of the subject such as managers, investors and those interested in accounting information and the role in plays in production decision-making.

HYPOTHESES

H1: The accounting information generated in manufacturing firms is utilized effectively in production decisions.

Ho: The accounting information generated in manufacturing firms is not utilized effectively in production decisions.

H1: Accounting information in manufacturing firms has fulfilled the basic roles of proper resources allocation, cost minimization and production efficiency in production decision -making.

Ho: Accounting informs or in manufacturing firms has not fulfilled basic roles of proper resources allocation etc in production decision-making.

SCOPE AND LIMITATION

Accounting information is use in various areas of decision making such as pricing, production, sales, capital investment, expansion and planning. However, this study has its scope limited to production decision making due to various constraints.

Time was a major constraint, which was not sufficient to cover the various areas of decision- making. It was no possible to cover all the firms in Enugu. Therefore, six were chooses in order to carry out the research.

Another constraint was the non-availability of modern accounting information needed for detailed research but the available materials were put to available use in order to carry out the research.

Also, it was found that obtaining accounting information in the firms was difficult but by using questionnaires the researcher was able to get certain information, which would not have been disclosed.