CHAPTER ONE

INTRODUCTION

1.1. Background of the Study

In this study the Independent variable was conceptualized as cost control and the dependent variable was financial performance in manufacturing firms. Jason (1974) defined cost control as “a means to discover and correct defects and witnesses of operations in other to reduce wastage and decrease costs”. Cost control can still be defined by (Stanford, 1948) as “the way through which the measurement of sales and manufacturing performances are carried through the establishment of guidance and set of rules of internal operations of an organisation by means of modern costing methods”.

Cost according to chartered institute of management accountants as “the amount of expenditure incurred or attributed on a given thing”. According to Kakuru (2OO5) he classified that various costs incurred by firms some of which are fixed costs like rent while other are variable costs which can easily change for example electricity expenses .

Financial performance is the achievement of the company for a certain period covering the collection and allocation of finance measured by capital adequacy, solvency, efficiency, leverage and profitability. Financial performance can also be defined as the ability of a company to manage and control its resources (Mochamad Mochklas).

The history of cost control dates back to the 20th century where cost reporting was designed to meet the information needs of the property managed institutions like banks. With the introduction of revolutionary industrialization, complex companies became sophisticated and cost management practices were eminent. Model emphasized stewardship, decision making, and performance evaluation was emerged. This information was designed to support managerial decision making and cost management in companies (Deconan, 2013). In the latter half of the 21st century, large sophisticated and large companies would hold large proportions and shares of company profits and costs on behalf of other individuals. Cost management industry in general has undergone some major changes over the last two decades. These changes took place in several phases. During the phase from the early 2014s until about 2015, assets under cost controls sky-rocketed due to the high liquidity in the global financial markets caused by abundant credit and ever-increasing personal asset valuations (for example house prices). This phase also witnessed the formation of hedge funds (asset managers who typically have a smaller number of clients and who can take very risky positions and bets that may yield substantial returns). These funds continue to play a major role in the financial markets, mainly because of their ability to take advantage of arbitrage opportunities.

Cost control across the globe is fundamental as organizations strive to attain a competitive edge. To determine the strategic impact of cost cutting, management across the globe is fundamental if the organization has to weigh the net effects of the proposed change on all areas of the business. For example, reducing variable costs related directly to manufacturing a product such as materials and transportation costs could be the key to greater incremental profits.

The success of a company largely depends on the profit that it can realize, the profit is determined by the costs that are made. Therefore, it is essential for a company to know the costs and being able to control them. Therefore, most small and medium seize enterprises in Bamenda are suffering from less profitability due to improper cost control. Unrealization of profit targets, in ability of cost recovery, poor sales volume and less competitiveness are the major signs of poor profitability. Incase this problem (poor profitability) remain unchanged it may cause liquidation of many companies, bankruptcy and insolvency which negatively reflect to the entire well-being of the economy. Based on the problem mentioned, the researcher examined whether cost control can influence the performance of small and medium seizes enterprises. (Bamwesigye. R August, 2019)

1.2. Statement of the Problem

A major challenge encountered by companies today is the issue of low levels of profits. A good number of factors such as cost of production, high taxes, poor planning and high business expenses are responsible for this challenge. Most companies seek to maximize profits so as to pay workers, taxes, rents, help founders financially, and also to attract investors because investors will only invest in profitable companies and to help the company stay in business. These daily challenges are enough to promote the study on the effect of cost control on the performance of SMSEs.

1.3. Research Questions

1.3.1. Main Research Question

What is the effect of Cost Control on the Financial Performance of small and medium seize enterprises in Bamenda?

1.3.2. Specific Research Questions

1. To what extend does Material Cost affects the Financial Performance of Small and Medium sized Enterprise in Bamenda?
2. How does Labour Cost affect the Financial Performance of Small and Medium sized Enterprise in Bamenda?

• To what extend does Overheads Cost affects the Financial Performance of Small and Medium sized Enterprise in Bamenda?

1.4. Research Objectives

1.4.1. Main Objective

To investigate the effect of Cost Control on the Financial Performance of Small and Medium seize Enterprise in Bamenda.

1.4.2. Specific Objectives

1. To examine the effect of Material Cost on the financial performance of small and medium Sized Enterprise in Bamenda.
2. To evaluate the effect Labour Cost on the Financial Performance Small and Medium Sized Enterprise in Bamenda.

• To determine the effect of Overheads Cost on the Financial Performance of Small and Medium Sized Enterprise in Bamenda.

1.5. Research Hypothesis

1. There is no significant effect of Material Cost on the Financial Performance of Small and Medium Sized Enterprise in Bamenda.
2. There is no significant effect of Labour Cost on the Financial Performance of Small and Medium Sized Enterprise in Bamenda.

• There is no significant effect of Overheads Cost on the Financial Performance of Small and Medium Sized Enterprise in Bamenda.