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EVALUATION OF FACTORS AFFECTING THE CONCEPT OF PROFITABILITY AS A GUIDE TO POLICY DECISION

CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND OF STUDY

According to Harper (1977) the concept of profitability can be defined as the concept which provides management with alternative course of action in accordance with the various degrees of profitability stating clearly in relevant cost account form individual projects which enables management to select the most profitable. Most of the policy decision of manufacturing industries are generally directed towards profitability. Policy decisions made under this concept has a direct effect of increasing and enhancing the general profitability of the manufacturing industries concerned. The origin of this concept can be traced back to the era of industrial revolution.

Prior to this era, industrial were run as family concerns but with the industrial revolution, most business grew from the usual family arrangement to large groups. Resources were pulled together and handed over to other people to manage for the owner’s. Naturally, resource owners must expect a profitable returns from the investments, this urgent obligations forced management to seek ways of carrying out their activities so as to make profitable returns to the resource owners. Investment grew in all dimension until the first and second world wars, one would have expected that after the world war industrialization would have been abandoned but as we have seen today, this was fortunately far from being so. Rather a large number of manufacturing industries grew in importance and also in complexity all in a bid to meet the demands and standard set by the developed countries. Enough quantity of materials had to be bought and at the same time later which is a very vital commodity had to be allowed to operate in a conducive environment so as to enjoy the benefits of hiring labour prior to commencement or an expansion the manufacturing industry must move with the changing technology, meet it social responsibilities, operate under government stipulations, pay tax as and when due and meet the expectations of the shareholders.

High administrative cost, cost of changing technology, fierce competition, scarce resource, falling economy, cost of government restrictions, the need for maximization of shareholders wealth, poor capitalize etc must be accommodated and adjusted in such a way that total cost of manufacturing a product will not only be less than sales renew but give a good profit margin. This stipulation of operating under many uncompromising variables gave rise to the need for policy  decision on such things as siting an industry.

-         Expansion of an existing industry

-         Introduction of a new product

-         A change in production design 

-         Sell or process further 

-         Close down. 

The nature of this research project requires theoretical approach and analysis which will cover the three dimensional focus of the research, the research focus on the three major areas are; 

-         The economical factor affecting the concept of profitability as a guide to a policy decision.

-         The Endogenous factor affecting the concept

-         The political factors.

These three combine to give a broader view of the factor affecting the concept of profitability as a guide to policy decision. The theoretical orient action of what best provides the researcher the framework for analyzing the factors affecting the concept of profitability were.

1.     Theory of location of industry which state that nearness to raw Materials and available of labour affects the profitability of manufacturing industries. The location of extractive industries for instance depend on where raw materials are to be found. Also mining industries depend on geological, surveys. Agricultural industries depend on side condition and climate. Where the required raw materials are heavy and bulk the industry will be set up near source of raw materials in order to reduce cost.

2.     Theory of nearness to market: Bulking or heavy goods are expensive to transport. Base on this, the theory therefore states that such goods be produced near the market.

3.     Other general economic factors which includes industries requiring thermal heat need to be near local mines e.g. steel industries. Tensa (1979) said that the endogenous theory which best suite the purpose of the research is the theory of operation management which is of the view that workers have the same objective with that of management which will ensure a responsible attitude towards organization decision making procedure. 

4.     On the political factors, the instability of government, restrictions on certain industrial activities were also theories which helped to find out factors effecting the concept of profitability. 

5.     The theory of marginal costing were in dispensation tools for research.   
1.2   STATEMENT OF THE PROBLEMS 
This research work titled an evaluation of factors affecting the concept of policy decision is meant to solve among other things following problems.
a) Effect of policy decision on the profitability concept in some selected industries. 
b) Factors of production as a necessary condition for setting up an industry needs to be available. 
c) How Government policies affect the concept of profitability. 
1.3  PURPOSE OF THE STUDY 
The purpose of this study includes the following 
1.     To ascertain the effect of policy decision on concept of profitability. 
2.     To find out the availability of factors of production.
3.     To determine the effect of ecology on concept of profitability. 
4.     To determine how government policies affect the concept of profitability.   
1.4  RESEARCH QUESTION 
To guide this study the following question were formulated; 
1.     To what extent does policy decision have effect on concept of profitability? 
2.     To what extent the factors of production available in setting up industries? 
3.     How does ecological consider action affect. 
4.     To what extent does government policies affect the concept of profitability.   
1.5   STATEMENT OF HYPOTHESES 
The following hypothesis have been formulated to guide the study; 
HYPOTHESIS ONE 
H0:   There is no significant difference at profitability level 0.05 between the senior staff and junior staff men perception on effect of policy decision on concept of profitability. 
H1:  There is a significant difference at profitability level 0.05 between the senior staff and junior staff means perception on effect of policy decision on concept of profitability. 
HYPOTHESIS TWO
H0:  There is no significant difference at profitability level 0.05 between the senior staff and juniors staff mean perception on available of factors of production. 
H1:  There is significant difference at profitability level 0.05 between the senior staff and junior staff means perception on availability of factors of production.   
HYPOTHESIS THREE 
H0:   There is no significant difference at profitability level 0.05 between the senior staff and junior staff means perception on the effect of government policies on profitable industries. 
H1:   There is a significant difference at profitability level 0.05 between the effects of government policies on profitable industries.   
1.6 SIGNIFICANCE OF THE STUDY 
The study of the factors effecting the concept of profitability as a guide to policy decision is unique to the extent that is focused at helping student of accounting and financial studies in terms of cost they affect co-operate profit. Also to benefit from this are those preparing feasibility study for terms of industries to be used. This study will also help potential foreign investors to obtained both theoretical and practical information on the profit in establishing of production. Finally, it will enable the research have a depth knowledge of this study and open new areas of further research for the students and industries researchers.   
1.7 SCOPES AND LIMITATION OF THE STUDY 
This study centers on factors that affect the concept affect the concept of profitability and how it guides policy decision. For easy analysis this study is limited to one industry in municipality. This industry is The limitations encountered in the course of this study includes: firstly, refusal of offers of the company to co-operate as expected, secondly, Reluctance of the staff of the company to supply the needed information. There were also time factor and financial constraints such as high cost transport and textbooks.   
1.8  DEFINITION OF TERMS 
1. The manufacturers Association of Nigeria (M.A.N). This a body establishes to establish training centres where intending entrepreneurs will be trained in the act of entrepreneurship. 
2. Economic order quantity (E.O.Q); it is an important aspect costing relevant to material control. 
3. Profitability; this has to do with running a business profitably ie making a profitable investment. 
4. Policy: This is a plan of action adopted by a government, business etc. Decision; This is a conclusion reached or a judgment arrived at

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