CHAPTER ONE

INTRODUCTION

1.1              BACKGROUND OF THE STUDY

The concept of profitability can be defined as that concept which provides the management with alternative courses of action according to the various degree of profitability stating clearly in relevant cost accounting from the cost and benefits associated with individuals projects which enables management to select the most profitable.

            Most of the policy decisions of manufacturing industries are generally directed towards profitability. Policy decision 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. Pride to this era, industries was run as a family concerned just to maintain a states quo.

            Due to the increase in trade, brought about by the industrial revolution, most businesses grow from the usual family arrangement to large groups and consortia.

            Resources were pulled together and handed over to other people to manage for the owners. Naturally, resources owners must expect of a profitable return from their investment.

            This urgent obligation forced management to seek ways of carrying out the activities so as to make profitable return to the resource owners. Investment grow in all dimension until the first and second world war in which after it, manufacturing industries increased in large number, grew in importance and also in meeting the improved living demands of the over-developing world.

            Material must have to be bought in enough quantity to avoid stack-out and at the same time check over-stocking.

            Labour that is a very volatile community must be allowed to operate in a conducive environment so as to reap the benefit as hiring labour.

            Generally ecological consideration must be reviewed thereafter, site is acquired, structures erected,, machines and equipment installed. Manufacturing industries moves with the changing technology, meet it’s social responsibility operate under government stipulations, pay tax and when due, meet the expectations of shareholders.

            High administrative cost, cost of changing technology, price competition, scare resources, falling economy, cost of government restriction, the need for maximization of shareholders wealth, poor capital bases etc must be accommodated and adjusted in such a way that total cost of manufacturing of product will not only be less than sales revenue but give a good profit margin.