THE ROLE OF ACCOUNTING INFORMATION IN PRODUCTION DECISION MAKING

(A CASE STUDY OF PHINOMAR NIGERIA LIMITED)

By

ORJI PRISCILLA AKUBUCHI

Presented To

Department of Accountancy

ABSTRACT

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

Manufacturing firms make use of accounting information which have been complied from source documents, records and statement in accordance with systems. These information gathered are used to make effective production decisions which would achieve the objectives of profit maximization cost minimization, Production efficiency, proper resources allocation etc.

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

TABLE OF CONTENTS

Title page

Approval page

Dedication

Acknowledgement

Abstract

List of table

Table of content

CHAPTER ONE: INTRODUCTION

1.1 Introduction

1.2 Statement of the study

1.3 Objectives of the study

1.4 The significance of the study

1.5 Research hypothesis

1.6 Scope and delimitation of the study

1.7 Definition of terms

CHAPTER TWO: REVIEW OF RELATED LITERATURE

2.1 Overview of accounting and information accounting.

2.2 Types of accounting information

2.3 Qualities of accounting information

2.4 The result of proper utilization of Accounting information

2.5 Production decision- making and accounting information

2.6 Characteristics of information

2.7 Types of decision model used in production

2.8 Decision and information characteristics

2.9 Decision- making and accounting information

2.10 Decision models and techniques

CHAPTER THREE: RESEARCH DESIGN AND METHODOLOGY

3.1 Population study

3.2 Sample size

3.3 The research design

3.4 Source of data

CHAPTER FOUR: PRESENTATION AND ANALYSIS OF DATA

4.1 Presentation and analysis of questionnaires

4.2 Test of hypothesis

CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION

5.1 Discussion of findings

5.2 Conclusion

5.3 Recommendation

5.4 Limitations of the study

Reference

Appendix

CHAPTER ONE

1.1 INTRODUCTION

Manufacturing firms in the present economy have to contend with a lot of economic variables which have been aimed at consolidating the gains of structure (adjustment programmes (S A P) since the first step introduced by SAP was self reliance, most manufacturing forms 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 out look of production.

In order to achieve their objectives the manufacturing firms have to make concise decision which would be relevant to the restricting 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 a decisions, information is very essential especially that of accounting.

Information is the life line of any organization it is the general meaning that is assigned to data by means of the conditions used in their representation defined by Don. T Coster et al (1978).

Accounting information measures the progress of a commercial enterprise and is used in decision making for the selection of a singly course of action from several dissimilar and unrelated alternative.

Many production, marketing and government executives are stronger managers when they have solid accounting information backing 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 to how financial information can help the production processes of firms through show and long term decision by management.

THE USERS OF ACCOUNTING INFORMATION:

Accounting is an information system designed to communicate meaningful economic information about a business firm on an entity to interested parties (Davidson, 1970).

The users are of two categories:

- The internal parties within he organization.

- The external parties within the organization.

The management require information on to assist them in decision-making and control activities. The decisions made are as regards operations such as planning, production, 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 benefit of both manufacturer and consumers.

The employers requires the information on the ability of the firm to meet wage demands, for the assurance of steady employment and the frequency of participation in company bonus profit sharing taxation and pension plans.

The external users comprise of the share -holders who use the information to assess the value of their investments provided the firm is a limited liability company. Also, the creditors, suppliers and providers of loan capital require the information on the firms' ability to meet financial and debt obligations. The parties mentioned above, are those who provide the capital as owners or lenders to the firm.

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

Finally, Financial analysts use the accounting information 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 risks. Information will also be used by the security exchange commission (SEC) to knew if the company will perform or not in the stock exchange.

In this study, the emphasis will be laid on the management's need for accounting information as it concerns production so as to make effective decisions that will in achieving the objectives of the firm.

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 to break even and attain some level of profit at low costs.

Business decision are made in order to carry out the above objectives and are done only after all alternative source of action have been considered but possible 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 decision are based on two categories:- planning and control Henni Fayol (1990) defined planning as the determination in advance, of a business programme or management to undertake or pursue some programme which is considered in advance.

It involves forecasting and estimation by means of budgeting and should provide answers to such questions as "what does the firm desire to product?" and "when and how are the objectives to be accomplished"?

However, Anderson, (1990) defined controlling as the way of checking current performance against predetermined standards and targets contained in the plans with a view to ensuring adequate process and satisfactory performance whether physical or financial, also contributing to decision in continuing or changing the plans, as well recording the experience gained from the working of these plans as a guide to possible future operations.

Here, the study is on the role of accounting in production decision making. Manufacturing firms are the main target because they produce goods and expand production in order to increase output and quality in order to meet the customers demand and specifications.

Although, accounting information is used extensively by managers. It is important to note that it does not give automatic answers to the problems faced by the managers values and knowledge which are brought into decision-making cannot be subjected to any units quantitative analysis

Finally, it is management accounting information that is provided to manager to help them make good decision within the firm's set goals. However, information which is available will effect the perceptions of the decision deffer when there is a presence of it.

The effectiveness of accounting information is determined b y the manner in which it affects behaviours. Thus, unless accounting information serves to produce the desired action, it has served no purpose at all.

Phinomar Nigeria limited was fully incorporated in 1979, it was wholly owned by the Ayalogu family with his Royal Highness, Igwe I. O. U Ayalogu as the chairman and managing Director. The company had it headquarters at algwo in Udi Local Government area of Enugu state. The company was started by Igwe with a small mud oven and twelve birds as a hobby. In 1963 through the advice of a British salesman and a friend, the lgwe increased in the poultry area. The company has since developed tremendously and has grown with groups, namely:-

a. Goodwill poultry Farm

b. New Nigeria Bakery but now Nora Bakery

c. Multipurpose crop farm

d. Precision machine tools and fabrication plant

The company has since the organization and frictional structure the organizational and functional structure of the company has the Board of Directors at the apex, then the managing Director, General manager and the Deputy General manager, below the Deputy General manager are the officers of the company on the same horizontal line in charge of the Account department, who is in charge of the accounts department, the internal Auditor takes care of the Audit departments, the Human Resources department and the general secretary of the company is the head of the public relations department.

Further down the line but on the game horizontal line are the production manger, sales manger and marketing manager in charge of the production department sales, department and marketing department respectively. The last on the chart are the manual labourers who make up the majority of the staff strength and their services are of paramount importance of the company.