A business whether small or big can be seen as an organization that is set up
for the purpose of producing goods and services. In addition to this,
managers of either small or large scale industries are set up for the common
goal of minimizing costs and maximizing profits.
Brown S. P. (1967) defined cost as in the economic sense, to mean the summation
of all outlays of an operational nature. He further stated it to mean an amount
which represents interest on investment and/or profits. All firms
continually need to reduce costs, not only in times of recession, but in
periods of expansion and consolidation. Therefore cost minimization or
reduction is a situation whereby a company cuts down on all unnecessary costs
in order to achieve a higher level of profit. This definition can be
further illustrated with an example.
Let us assume the cost of producing
product A is N10, and it is being
sold at a price of N15 – “ CASE A”.
In “CASE B” the cost of producing has
fallen down to N5 with the same N15 being realized. Reason for this
reduction in cost, could be that some workers that weren’t useful, were land
off; also the raw materials were used upto the maximum. It will also be
advisable for the manufacturer to produce at the lowest cost possible so that
it will earn a higher margin of profit.
Lipsey in his book, “Introduction to Positive Economics” defined small
scale industry as the unit that employs factors of production to produce
commodities, that it sells to other firms, households and central
authorities. Aside from this definition, small firms can also be
classified or defined in terms of respective total assets, fixed capital
investments, manpower, relative position of the firm within its industry,
number of employees, ownership, structure and management styles. The 1989
industrial policy of Nigeria defined small scale as those with total investment
of between N100,000 and N2,000,000 exclusive of land and working
capital. The Administrative staff College of Nigeria (ASCON) defined
small scale industries as organization whose cost do not exceed N15,000, including the cost of land on which
the enterprise is built.
Cost minimization/reduction, if properly practiced, will greatly improve
efficiency in small scale industries. The process or rather decision to
reduce costs have to be taken by the manager and it will lay down clearly
defined goals for the rest of the company pursue. Some of the costs to be
minimized include purchase prices, use of materials, manufacturing costs, fixed
assets cost and administrative costs. Cost minimization is especially
useful because it allows for efficient utilization of capital available to the
small scale industries.
Small scale industries are usually one-man industries or rather, a sole
proprietorship company; raising of funds is usually from the owners personal
income or donation from friends and relations. Small scale industries are
mainly found in business like shop, hotels, restaurants and some small
Small manufacturing industries have played dynamic roles in the Nigerian
economy and these roles include high contribution to the gross domestic
products, employed generation and technological development.
1.1 STATEMENT OF THE PROBLEM
Development of the Nigerian economy
indicates that the survival and growth of small scale is very crucial to the
success of the current culture of self reliance. The survival of any
company is determined by the amount of profit realized as compared to its cost
of production. Small companies have been faced with different problems.
The problems that will be noted, will be in line with the topic under study.
The following, are some of the problems of small scale industries.
WASTAGE OF RAW MATEIALS: This arises when the raw materials are not efficiently
and effectively allocated.
EMBEZZLEMENT O FUNDS: This is applicable to all organizations, whether small or
big. When this happens, funds that are supposed to be used for enhancement of
the work in the organization, would be embezzled, leading to insufficient
LAYING OF EMPHASIS ON QUANTITY RATHER THAN QUALITY: Some small companies prefer
to produce large amounts of goods that are of low quality instead of producing
less goods that are of higher and better quality.
In the light of the above, the researcher wants to find out the cause and
proffer a suggestion to correct the variation.
1.2 PURPOSE OF THE STUDY
The purpose of this study, first sets out to examine the following aims:
To identify ways of eradicating the problem of excess expenditure over revenue
in small scale industries.
To determine the cost to be minimized in small scale industries.
To determine the process involved in minimizing costs.
To identify a proper understanding and importance of cost minimization to small
To give suggestion on the future of small scale industry business in Nigeria.
1.3 SCOPE OF THE STUDY
Ideally, the whole of Nigeria is expected
to be covered by this study, but due to the problem of finance, time, distance
and cost, the research would be limited to Enugu state and small scale industries
1.5 SIGNIFICANCE OF THE STUDY
The study is carried out in order to appraise the performance of small scale
enterprises and most importantly low minimization of cost can better the
performances of the small scale enterprises. Generally speaking, the
study of this topic will be of benefit to the economy as a whole as it would
lead to improvement in the gross domestic product.
TERMS AND CONDITIONS APPLY
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