Costing as an Essential Instrument in Materials Management and Control


This study which covered one of the cement fibre manufacturing industries in the country was a mixture of library research and empirical or survey method of research. Both primary and secondary sources of data were utilized in gathering relevant information. The primary sources consist of questionnaire and oral interview while the secondary sources were gathered from existing literature on the subject matter of the study. Tabular presentation of data analysis was used whereby the effect and relationship one data had with another was quantified by simple representation and the hypotheses were statistically tested. This study has proved that costing is a veritable instrument for materials control in any industrial organization. Given the importance of effective material management in any industry, this study recommends the recognition and of course the creation of good working environment to enable the department function effectively. Finally, the study made a case for the development of the study of costing beyond the exiting level in our tertiary institutions. To actualize this, industrial operations should liaise with government to ensure that the curriculum of various institutions are developed to incorporate the increased importance of costing and at the same time see to the  adequate funding of the programme.



1.1 Background of the Study

The turbulent change in the Nigeria industrial sector since 1986 following the introduction of the Structural Adjustment Programme is no longer news. The resultant shock which pose threats and challenges to manufacturing industries are external factors which require as the only option the internal strategies response if the industries must survive.

Since the challenges posed by this turbulent change to the existence of the industries are external of the work environment, it is therefore clear that the only survival strategy is proper administration of the internal variables as nothing can be done to control the external factors precipitated by hard times. That is why this research work is aimed at identifying the role which costing plays in ensuring effective materials management and contro1 in an industry.

Costing is an analysis of allocating cost to production or services or time period so that the costs of various activities undertaken by a business are disclosed and can be set against revenue to reveal profitability of these activities. Any business or industry has its objectives and costs are the resources used up to achieve those objectives. A cost accountant organizes the system that records and measures such resources, and provides firm information to management on which further decisions can be based with confidence. Almost every decision made by management has repercussion upon cost. Costing not only provides facts from which policy decisions can be made but basic principles of costing can be applied alike to transactions of large and small undertaking.

If a cost accounting system is to be fully effective there must be a proper system for the control of materials from the time a requisition to purchase is made until the material is issued to production. Material represents an important asset and is often the largest single item of cost per unit of production, the success or failure of a concern may be influenced by efficient or inefficient material, purchasing, storage, utilization, control and management.

Material management is an essential factor in the attainment of organizational objectives especially in a manufacturing industry, given the fact that materials are the principal substance for any manufacturing or production process. Material management and control involves the tedious process of organizing, planning and controlling of all activities involved in the procurement, reception, assurance and storage of all materials.

Where materials are not systematically controlled, excess stocks of some items are likely to occur with a consequent unnecessary typing up to capital and loss through obsolescence and deterioration. At the same time, shortage of other materials may arise just when they urgently needed and production will then be delayed. Furthermore, haphazard buying and lack of control is bound to result in the purchase of material of too good or too poor a quality for the purchase for which it is intended and also in the carrying of a greater variety of stocks than is required. The purchase of material is a highly specially function. By ordering the right quantity and quality of material at the most favourable price, and by ensuring that it arrives at the right time, the efficient buyer is able to make a valuable contribution to the success of a business but it is impossible to produce reliable costing information if the records of material issues are unsatisfactory.

The materials purchased by a concern may be classified either as stock items that are taken into store and held until required or as direct deliveries to the point of consumption. The control of those items delivered directly is also part of the stocks of the organization and should be rigorously controlled as they are outside the direct influence of the control stores. The function of stock control is to protect the materials in stock and to obtain the maximum stock turnover- consistent with the maintenance of sufficient stocks to meet ail requirements.

It was the manufacturing facilities into factories that gave impetus to the development of recognizable costing system. Today costing has grown in importance that it is widely used beyond manufacturing industries. Costing aims at providing management with information relating to cost with a view to assisting them in prudent management hence the task of management is to plan, communicate, motivate, organize and control as management efficiency is measured form the overall objective of the organization. This underscores the importance of efficient material costing and management control in any organization.

The application of costing in material handling in any organization will ensure that materials meant for production are optimally utilized for the purpose. When this is done the production cost per unit of output will be affordable, thus enhancing profitability. This is in contrast to a situation where materials are not handled with any control procedure. The resultant effect will be lack of adequate control, lack of wastage, material stock out, idle time and inadequate utilization of stalled capacity.

With the ever increasing growth in business and level of competition, business organizations are developing modern method of operation in order to keep afloat. It will be equivalent to operating in the dark ages if a business organization does not, operate with such reliable data as minimum stock level, maximum stock level, re-order level and economic order quantity. At the same time product cost cannot be controlled if at any point in time management is uninformed about the quantity and cost of material issued to production as well as the quantity and value of material inventory in stock at any given time. It therefore follows that materials management embrace all those techniques aimed at instituting controls in all aspects of material handling. This involves the procedure which aims at ensuring effective and efficient accounting for material inventory with the aid of relevant sources; documents like purchase order, goods received note, materials requisition voucher, stores issue voucher, materials costing and evaluation.

The manufacturing industry used as case study (Emenite Limited) uses the following raw materials; cement, waste papers, PVAs- C06, C44, C333 and N4, High Blaine Calcium carbonate, Low Blaine Calci11m carbonate, Kaolin, solombala also called cellulose virgin, polyelectrolyte, demolding oil, acetic acid and a.ntif0a.m. This gigantic manufacturing outfit was chosen because of its successful performance story over the years.

Emenite Limited is a successful fibre cement building material manufacturing company based in Enugu. It is situated at No 7 Old Abakaliki Road, Emene Enugu, Enugu State Nigeria. The company is an affiliate of ETEX Group in Belgium, it was established in Nigeria on 06th October 1961 as Turners Asbestos Industries Limited. It started operations in 1961 after being commissioned by the Premier of then Eastern Region of Nigeria, Late Dr. Michael Iheonukara Okpara.

The name of the company was changed in 1976 from Turners Asbestos industries Limited to Turners Building Products (Emene) Limited to reflect the diversification of its production line from Asbestos roofing sheets to include a variety of other building materials. Furthermore, the name of the company was changed from Turners Building Products (Emene) Limited to Emenite Limited in 1989 when the company became indigenized but it is being managed by expatriates from the ETEX Group headquarters in Belgium.

1.2 Statement of the Problem

The primary objective of every business set up is to make profit. No company will achieve this feat if it ignores any measure which will promote operational efficiency and this call for costing of materials and control. Today the problem of materials management and control is the concern of every business organization. It has also been observed that though most manufacturing organizations have adopted various measures aimed at accounting for their material stock, adequate costing techniques have not been employed in this direction.

With these challenges in view, there is need to set up an organized structure in order to ensure effective operations hence a cost accounting department charged with the responsibility of materials control and management must have to be put in. place.

Furthermore, since materials are the principal substance to any production process, it implies that material form the basis of organization continuous existence. This goes to suggest that large volume of capital is committed to materials procurement. Regrettably, despite the age long practice by some professional accountants in industries, must industrial organizations ignore the importance of costing material management and control hence the interest of the researcher.

1.3 Objective of the Study

The primary concern of this study is to determine the impact of costing as an essential instrument and as a survival strategy in material management and control and to highlight various method available to organization in costing and valuing materials among which are FIFO, LIFO, APM, BSM, NIFO, HIFO etc. The study will also aim at investigation the inability of some management to recognize and appreciate the benefit of costing department in their system.

To do this, the study has set out a number of objectives which it will strive to accomplish. They are specifically

  1. To find out the impact of costing in material management and control.
  2. To find out if the company (Emenite Limited) effectively uses costing in her materials management and control.
  3. To find out if the company has a Cost department.
  4. To find out the problems associated in the application of costing in the management and control of materials.
  5. To establish if costing is necessary in an industry and in materials management and control

1.4 Significance of the Study

This study will provide a resource material to all students of Accountancy and all Accountants both in industrial, commercial, public and private sector. Practicing Accountants will benefit from the inputs made in this study as it will serve as a guide to clients’ consultancy services in the area of control, costing and management of materials.

A careful application of the contributions made will help organization in determining their true state of affairs at the end of a given period hence adequate awareness would have been created as to the need to employ costing techniques in the material handling procedures in organizations.

1.5 Assumption and Hypotheses

The basic assumption in this research work is that materials management is the pivot of industrial growth.


Ho: Materials management is not an essential ingredient in the continuous existence of an industry.

H1: Material management is essential in the continuous existence of an industry.

Ho: Material management and control have not contributed in the growth of Emenite Limited.

H1: .Effective materials management and control has contributed in the growth of Emenite Limited.

Ho: The application of costing has not made any impact in the control of materials in Emenite Limited.

H1: The application of costing is instrumental to the level of success in materials control achieved in Emenite Limited.

1.6 Scope and Limitation of the Study


The scope of this study was meant to cover a number of industries in the manufacturing sectors so as to accentuate the proposition which the topic postulation but time constraint has been a great hindrance so the researcher concentrated on Emenite Limited only.

Limitations of the Study

It has been a difficult task combining academic activities with office work, and at the same time trying to cope with family responsibilities. Consequently, all the economic factors. within the country, the ever depreciating value of the naira with its attendant inflationary upsurge, the inconsistent fuel price resulting in arbitrary hike in prices of transport fares, etc.

Also as a result of its expatriate affiliation, information flow in Emenite limited is restricted to certain areas of operation and it is almost impossible to secure the release of office documents for more detail information.



In this chapter the views and thoughts of many authors as well as the various inputs of scholars in the areas of costing and materials control will be reviewed in order to facilitate a broader understanding and appreciation of the subject. As pointed out in the previous chapter the terms cost accounting and cost as well as materials management, material control or inventory management and control are used synonymously in the context of this research work.

2.1 The Concept of Costing

The basic costing concept can be appreciated by the definition of costing as postulated by various authors on the subject matter. Generally costing can be defined from the accountants point of view as the ascertainment of cost.

These costs may be the cost of:

(a) Manufacturing, a product;

(b) Rendering services; or

(c) The way in which costs can be controlled.

The above summarizes definition goes to suggest that cost analysis provides such costing information needed to:

  1. Estimate cost for a product both in its finished state and as work in progress. This cost estimate aids price setting because no business normally wishes to fix selling price below its cost.
  2. Aid control: The essence of cost control is establishing plans, monitoring actual results, examining the variances and taking action to remedy a situation where necessary.
  3. Aid Decision Making: The essential task of a company manager is to choose between alternative uses from the scarce resources placed at his disposal now and in the further and assign priorities. There are many areas of decision making where the right type of costing information is of enormous value, for example, investing in capital equipment, changing the volume of output, making or buying product, altering the product mix or introducing a new product. The use of costing is particularly important where there is a significant alteration in the cost structure of a business.

Again costing can be defined by illustrating the purposes which cost accounts aims to serve as follows:

  1. To arrive at the cost of production of every unit, job process operation, or department, by checking analysis of an expenditure.
  2. To indicate to management any inefficiencies and wastes which are thereby revealed.
  3. To serve as a guide to price fixing.
  4. To provide comparative statements of cost in which the costs of the current period are compared with the costs of a previous period, or more helpfully, with the budgeted cost.
  5. To take action in respect of significant variations of the costs from the budgeted figures and thus to control costs.

Lucy (1989) also defines cost accounting as that part of management accounting which establishes budgets and standard costs and actual costs of operations, processes, departments or products and the analysis of variance profitability or social use of funds.

The Rapid Results College Lecture Manual, Course No. 3385 gives the following definition of costing:

(a) Cost Accountancy: The application of costing and cost accounting principles method and techniques to the science, art and practice of cost control and the ascertainment of profitability. It includes the presentation of information derived there-from for the purpose of managerial decision making.

(b) Costing: The technique and process of ascertaining costs.

(c ) Cost:

  1. The amount: of expenditure (actual or national) incurred on, or attributable to a given thing.
  2. To ascertain the cost of a given thing.

2.2 Elements of Cost

Element of cost are of three broad teachings under which total cost can be separated, analyzed or classified. These three groups of expenditure are: materials, labour and overhead. A good costing system should be able to classify expenditures in order of their importance to production. As pointed out in the proceeding chapter, material is the principal substance in any production process and this fact gives impetus as to why efficient materials management is the focus of this research work.

The production cost analysis that serves is an efficient guide to management is that analysis which is capable of giving management the picture of detailed commitment of funds in respect of any cost element. The total cost analysis in a manufacturing concern can be summarized as follows:

Where D/M = Direct materials

D/ L = Direct labour

D/E = Direct expenses

P/C = Prime cost

T/C = Total cost

The first three items constitute prime cost, so that the elements of cost may be said to comprise prime cost and overhead. Each item is explained below.

Direct Material

Direct material is all materials that become part of the product, the costs of which are directly charged as part of the prime cost in other words, it is the material which can be measured and charged directly to the cost of the product. The following groups of materials fall within the

(a) All materials specifically purchased for a particular job order ‘or process.

(b) All materials (including primary materials and raw materials) acquired and subsequently requisitioned from the stores for particular production orders.

(c) Components purchased or produced and similarly requisitioned from the finished parts store.

(d) Materials passing from one operation or process to another, e.g. produced, converted or part manufactured material which is intended for further treatment or operations.

(e) Primary packing materials (e.g. cartons, wrapping, cardboard boxes) etc.

The following descriptions are used same sense as direct materials; process materials, prime cost materials production materials. Stores materials, constructional material; Items such as import duties, dock charges, transport of materials, storing of materials, cost of purchasing and receiving materials and cost of rectifying materials are proper additions to their involved price, and when this course is followed, the materials are charged out at this augmented initial cost.

Raw Materials

In the majority of instance the finished product of one industry is the raw material of another. Circumstances arise when some direct materials are used in comparatively small quantities and it would be a futile elaboration of a direct charge. In the manufacturing of hat or sewn boots it would be absurd to measure the value of the thread, or in making cardboard boxes, to determine the glue cost for fixing strips of line used for binding the corners-such direct materials as this should be treated as a production expenses item (Browns, 1984).

Direct Wages

Direct wages are incurred in uttering the construction of the product. The wages paid to skilled and unskilled worker for this purpose can be allocated specifically to the particular cost centre accounts concerned. Other descriptions sometimes used are; productive labour, process labour, operating labour or direct labour.

Direct Expenses

Direct expenses include any expenditure other than direct material or direct labour directly incurred on a specific cost unit. Such special necessary expense is charges directly to the particular cost accounts concerned, as part of the prime cost direct expenses are sometimes also unknown as chargeable expenses.


Overhead may be defined as the cost of indirect material, indirect labour and such other expenses including services that cannot be conveniently and directly charged to specific cost units. Alternatively, overheads are all expenses other than direct expenses. In general terms overhead comprises of all expenses incurred for, or in connection with the general organization of the whole or part of the undertaking in other words the general cost of operating supplies and services uses by the undertaking and including the maintenance of capital assets.

The main groups into which overhead may be subdivided are as follows:

(i) Production overhead including services

(ii) Administration overhead

(iii) Selling and distribution overhead.

Overheads may also be classified as fixed overhead and variable overhead.

2.3 Materials Control

In recent times there has been a growing emphasis on the importance of material control. This is not surprising when one considers the material cost element of a product, in the majority of industries more than fifty percent (50%) of the total production cost of a product is represented by direct materials. Large amounts of capitals invested are locked up in stocks of materials and the cost of maintaining these stocks can amount to about twenty five percent (25%) of the value of stock.

A planned flow of materials is essential to the efficient operation of a factory. Too large a supply or stock results in high storage costs, excessive capital being locked up, shortage of valuable space, stock losses and obsolescence. At the same time a short supply results in reduced output and possible panic buying and stock-out situation, resulting in idle time and loss of revenue. Owler et al. (1984) identified the problem in material control as that of establishing optimal stock level. According to him, this is a difficult problem because of the uncertainty of the supply of, and demand for material.

Matz and Usry (1926) has this to say on materials management: materials managers are almost constantly confronted with these problems and requirements.

  1. Inventories account for a large portion of the working capital requirements of most business. This fact makes materials and/or inventory management a major problem of significant importance requiring constant attention by all three management levels.
  2. At present, the problem has become even more acute due to market conditions and the inflationary costs of materials.
  3. Material management and materials control need an organization in which individual have been vested with responsibility for, and authority over the various details of procuring, maintaining and disposing of inventory. Such a person or- persons must have the ability to obtain, coordinate, and evaluate the necessary facts and to take and obtain actual where it is needed.

Alan (1987) defines materials control as the system that ensures the provision of the required quantity of material at the required time with the minimum amount of capital tried up, to covers the following functions

(i) Stock control

(ii) Scheduling of requirements.

(iii) Purchasing

(iv) Receiving and inspecting.

(v) Storing and issuing.

In his opinion, if a cost accounting system is to be fully effective three must be a proper system for the control of material from the time a acquisition to purchase is made until the material issued to production. Material represents an important asset and is often the largest single item of cost per unit of production; accordingly, the success or failure of a concern may be influences by efficient material purchasing, storage and utilization. It follows that the costing system must be organized so as to functions of buying, storing and issuing material.

Where materials are not systematically controlled, excess stocks of some items are likely to occur with a consequent-unnecessary tying up of capital and loss through obsolescence and deterioration. At the same time storage of other material may arise just when they are urgently needed and production will them be delayed.

Furthermore, haphazard buying and lack of control is bound to result in the purchase of material of too good or too poor a quality for the purpose for which it is intended and also in the carrying of a greater variety of stocks than required the purchasing of material is a highly specialized function. By ordering the right quantity and quality of material at the most favourable price and by ensuring that it arrives at the right time, the efficiency buyer is able is to make a valuable contribution to the success of a business.

Efficient material control cuts out losses and forms of waste that otherwise tend to pass unnoticed, Thus incoming material should be checked against orders to ensure that the correct quantity and quality have been received. Theft, breakage, deteriorate, and the use of excessive floor space can he reduced to a minimum by proper controls and much avoidable idle time in the factor will he cut out if materials are available to meet the demands of the production staff.

2.4 Stock Control

According to Alan (1987), the function of stock control is to protect the materials in stock and to obtain the maximum stock turnover consistent with the maintenance of sufficient stocks to meet all requirements. The Institute of Cost and Works Accountants defines stock control as the function of ensuring that all requirements without carrying unnecessary large stocks.

What constitutes unnecessary large stocks is a matter of judgment which is influenced by the following factors.

(a) The amount of capital available for investment in stocks.

(b) The risk of losses due to such causes as:

  1. deterioration
  2. evaporation
  3. obsolescence
  4. change in fashion
  5. fall in price
  6. New discoveries

(c ) The availability of storage space and the cost of storing.

(d) Economic ordering quantity

(e) Delivery periods

In large manufacturing companies where stocks of direct materials and component parts consist of many thousands of different items, the task of maintaining a stock control on every individual item is obviously difficult, if not impossible. Attempts have been make in recent times to reduce this cost while still maintaining a high degree of control. Many large companies have introduced a system of analyzing stock by value categories so as to ensure that adequate attention can be paid to important stock items.

2.5 Analysis of Stocks

Stocks are analyzed by categories according to their values. All items in stock are listed in order of descending value, showing quantity held and the corresponding value of the materials. From these figures an analysis can be made in three categories; viz; high medium and low values. According to Brown et al. (1984) this classification is usually referred to as the ABC techniques in the USA where the A category consist of item of considerable value the B category of medium value and the C category of low value.

Results of survey have shown the following situation as represented in the table below:

Table 2.1

Category % of total value % of the total quantity
A 70 10
B 25 35
C 5 55

From the above table it can be observed that ten percent (10%) of the it.ems held in stock account for seventy percent (70%) of the total value. Obviously these items need to be controlled carefully and very strict levels of stock should be maintained. Those items of medium value represent thirty five percent (35%) of the total quantity but account for 25% of the value. This item should be subject to the usual material control routine but levels of stock set need not quite so rigidly adhered to as those in the A category. Finally the low value items in category C represent the largest quantity in use but account for only five percent (5%) of the total value. These items may be considered as free stocks being kept ‘issue” no records being maintained, but under some observation so as to ensure the recording of fresh supplies when necessary.

2.6 Stocks Levels

One of the major objectives of a store control system is to ensure stocks that “stock-outs” do not occur, and that surpluses are not carried. Stock-outs occur when there is insufficient stock to meet production derived and this can lead lo loss of customer good will, reduce profits, etc. on the other hand, surplus stocks result in increased storage costs which of course, lead to reduced profits.

Some companies attempt to achieve the effective control of stores by intuition or guess works but most of the large companies have attempted a much more scientific approach by adopting a system tock levels. Mathematical formula of varying degrees of sophistication have been developed which attempt to eliminate guess work and to produce stock level figures which are reasonably accurate, but which do not incur an unreasonable costs. Some of the acceptable, but not too difficult formula which can be used in establishing stock levels are as follows:

Reorder Level

This is the point at which it is essential to initiate purchase requisition for fresh supplies of material. This point will be higher than the minimum stock level, so as to cover such emergencies as abnormal usage of the material or unexpected delays in delivery of fresh supplies it will also be lower than the maximum stock level otherwise excess stocks would be carried.

Minimum Stock Level

The minimum stock level is the level below which stocks should not be normally allowed to fall. If stocks go below this level, there is the very real dangers of a “stock out” resulting in production stoppage. This stock is a “buffer stock” which would be available in emergencies.

Maximum Stock Level

The maximum stock level is the level which stocks should not normally be allowed to rise. It is desirable that the level should be as low as possible, but of course it must allow for forecast usage of materials and time lags in deliveries. In setting these stock levels, the following factors must be taken into consideration.

  1. The rate of material consumption
  2. The time necessary to obtain delivery of materials
  3. The re-order quantity for the material.

It should be noted that in fixing the re-order level, the worst possible expected condition is used. This should ensure that under normal conditions the buffer stock would not be required for consumption. In fixing the maximum stock level, the best possible expected conditions are used. This should ensure that even if there is a quick delivery from supplies, and if there is also a low demand for materials stocks should not rise higher than the maximum stock level authorized.

Calculation of Stock Levels

The various stock levels described above which had over the year proved to be dependable cost instruments for effective materials control and management can be calculated under different formulas as follows:

Re-order level= max C x Max RP


Max C = maximum consumption

Max RP = maximum reorder period.

Minimum stock level:



RL = Record level

NC = Normal consumption

NRP = Normal reorder period.

Maximum stock level:

RL- (Min. C x min. RP) + RQ


RL = Re-order level

Min. C = Minimum Consumption

Min RP= Min. Re-order. Period

RQ = Reorder Quantity

Re-Order Quantity

Re-order quantity which is also known as Economic Ordering Quantity is the quantity which is most economical to order, in other words it equates the cost of ordering with the cost of storage of materials. In the view of Owler et al. (1984) some of the factors taken into consideration before arriving at economic ordering quantity include.

  1. cost of operating the stores
  2. risk of charging specifications and obsolescence
  3. Restriction imposed by local material in which authorities in regard to material in which there are inherent risk e.g. fire and explosion
  4. Transport costs
  5. Interest on capital locked up in store
  6. Deterioration and wastage of materials
  7. Possible savings due to quantity discounts
  8. The incidence of insurance costs.

The re-order quantity is illustrated by the following equation.

Q =2 /PCS


D=demand for units of materials

CO = cost of ordering materials

P = price of materials per unit

CS= cost of storage of materials

Q= Re-order quantity

Alan (1987) puts forth the following equation

EOQ = 2 /S

Where: A = Annual usage in units

P = purchasing cost per order

S = stock holding cost of one unit for a year

EOQ = Economic ordering quantity

It is interesting to note that all the material control measure enumerated above are geared towards achieving the overall objectives of an organization which is profit making. This is because each technique and approach is aimed at forestalling wastage, unnecessary and controllable losses and to enhance maximum efficiency in material handling, usage and material mix so as to reduce production cost and bring the product price within competitive levels. Material handling in any organization is a function of purchases, receipts, requisitions and issues of materials.

2.7 Materials Purchases

Materials purchases are handled by the purchasing department of an organization who issues local purchase orders (LPOs) to notable suppliers when material stock has reached the re-order 1evel.The supplier on receiving the purchase order will in turn dispatch the materials to the company’s Stores Department. On arrival, the stores department will examine the materials and if approved, a goods received note (GRN) is raised to receive the materials into stock. The materials thus received remain in stock until the need for its use in production arises.

2.8 Materials Requisition

Materials requisition is a document emanating from the user department (Production) to the issuing department (stores) requesting to be issued with certain quantity and description of materials. It is usually signed by the foreman, but in some cases when extra large quantities are needed for production, a higher authority will be required in which case the manager’s signature is necessary. Once materials requisition is signed, it becomes an authorized document to the stores department to issue raw materials. Any materials ordered for a specific job will be marked with the job number and kept ready for issue.

2.9 Issue of Materials

When the stores department is presented with materials requisition, it will arrange for the materials being requested and enter same in a materials issue voucher (MIV) where the foreman or any representative of the production department signs for the collection. Once materials are issued, the stores department records the materials in the bin card so that at any point in time, accurate cost of materials issued, accurate quantity and value of material balance will be ascertained. The following methods of issuing are available to organizations FIFO, LIFO etc.

FIFO: First In First Out

This method ensures that materials are issued to production in the order of procurement. The idea is to issue materials on the bases of old prices while materials on hand are valued at the most current price. The benefit of this method hinges on its ability to check material deterioration, obsolescence and depreciation. In a period of deflation, it also incorporates the prudence concept which is very necessary in reporting the result of business operations. However, in an inflationary economy, the method may tend to understate the cost of finished goods/products as old prices are used to value materials used in production. Notwithstanding any demerits of FIFO method, it is recommended by the International Accounting Standard Committee IASC as well as the Nigerian Accounting Standard Board, NASB.

LIFO: Last In First Out

With this method the last materials procured are first issued to production. This ensures that material issues to production are charged at the most current price while the ending material inventory is valued at the oldest prices. The advantages of this method stems from the fact that is assumes the host current cost or market ruling price to value materials and is matched against the current revenue for the period. However, its disadvantage is that material inventory is exposed to the risk of obsolescence, theft and deterioration.

Average Price Method

This is a method of valuing inventory that does not a use the actual cost rather a uniform price is determined for costing materials. The average price method can be subdivided into three namely:

  1. The weighted average method under perpetual condition. Under this method, the price of material issues is determined by “last value of stock divided by last quantity of stock”.
  2. The weighted average method under periodic condition: This method assumes that material valuation is done periodically; i.e. the costing of material receipts and issue are prepared at the end of a period. The method used in determining the uniform price is “total cost of goods divided by total quality of goods”.
  3. The simple average method: This average method as the name implies use a simple average in charging material issues. The application of stock valuation under this method is continuous but the approach used at any point of’ issue is “sum of unit costs divided by number of unit costs”.

Base Stock Method

The method is jointly used with other methods. It suggests that a minimum stock (base stock) is set aside and carried at the original cost and can only be issued in periods of emergency or in order to take advantage of business opportunities. The procedure here is that using it jointly with another method; once the base stock (buffer stock or minimum stock) has been established, the other methods of either FIFO, LIFO, etc will be used accordingly, thus ensuring that the base stock carried at its original cost forms part of whatever is the value of the ending

Standard Price Method

Under this method a predetermined price is the standard price method price to unrealized profit or loss. In a situation where the actual material price is less than the standard set, it results to unrealized profit, while on the other hand if the actual material price is higher than set standard, it results to unrealized losses. This gives room for variance analysis to set in.

Current Market Price

Under the current market price method, each issue is charged out at current rates. To maintain proper stores control, differences between cost and prices must be debited or credited to stores adjustment account.

HIFO: Highest In First Out

HIFO charges material issues at the rate of the highest priced material in stores. This rate continues either until the material at the highest price is exhausted, after which the next highest price is used or until a new batch of material is received at a rate which is higher than the previous high price. This method attempts to ensure that materials issued to production absorb the high cost of materials, leaving stocks at relatively low-priced rates. In times of a rising price market, it would be rather similar to the current market price, with the exception that it would use actual prices paid rather than prices which are current in the market.

NIFO: Next In First Out

Under this method materials are not charged at a price which has been paid, but at a price which has been committed or ordered. For example, if there are two batches of materials in stock one is at N2.40 and the other at N2.60 and there is a further batch of materials on order at N2.80 which has not yet been received. If materials were issued now, they would be priced at N2.80. This method is obviously an attempt to be more realistic than the current market price method. Instead of ascertaining the current market price at the time of issue, one uses the latest price at which one has ordered new supplies of the materials values being shown only in the stores ledger in the office.

According to Owler et al. in Wheldo’s Cost Accounting 1st Edition, this record has the advantage of equipping the store keeper with it details at hand, and can note in it such information as quantity ordered, probable requirement for particular contracts and other details.

Where transfers between inter-departmental stores are numerous, an additional section may be included on the stock record sheets Tor details of the transfers as distinct from issues to the shops.

2.10 Stores Material Control Record

An alternative to bin cards is a stores material control record written up in the stores and/or by production control in a loose-leaf book or card file. On this record, as on the bin cards, quantities only are recorded, all monetary.

Stores Ledger

The stores ledger is kept in the cost department and is identical with the bin cards, except that monetary values are shown. Accurate stores accounting in as important as accounting for cash hence the separation of this clerical work from the actual handling of the materials.

2.11 The Perpetual Inventory System

The perpetual inventory system may be defined as a method of recording stores, balances after every receipt and issue and/or sale, in order to facilitate regular checking and to obviate closing down for stock taking. It is sometimes referred to as “Continuous Inventory”. Under this system the balance of any account in the stores ledger should agree with the balance shown on the bin card or stock control record; for the same item of material, and a frequent checking of these dual records should be made, as well as of the actual quantity in stock.

Owler and Brown (1984) postulate that a close ally to the perceptual inventory system is the continuums checking of the stock. Under this continuous stock taking system a number of items are counted daily or at frequent intervals, and compared with the bin cads and stores ledger by a stores audit clerk.

Discrepancies are investigated; many may be clerical errors which will be corrected. When however the stock is incorrect, an enquiry is made after which any shortage or surplus is adjusted in the records to make them correspond with the physical count. This may be done conveniently by making out a credit or debit note, as the case may be, for the difference, and then after obtaining authority to pass for adjustment through the cost journal debiting (or crediting) a stock adjustment account. The balance on that account is written off direct to profit and loss account at appropriate time.

In Principle of Cost Accounting: A managerial prospective (pp. 23), Alan Pizzey contributing on perpetual inventory system has this to say; “As the purpose of the perpetual inventory record is the control of stocks from day to day, it is essential that it be kept up to date. It is primarily intended as an aid to material control, but if value columns are added it can also be used for cost accounting purposes. In order to ensure accuracy of perceptual inventory records, physical stocks should be checked systematically under a system referred to as continuous stocktaking whereby:

  1. A few items are checked each day
  2. All items are checked with in some definite period, such as three or six months.
  3. The checking is carried out by staff having no other responsibility for either stock records or the stocks themselves.
  4. All differences are recorded on an appropriate report form, the entries providing the basis upon which the perceptual inventory record and the stores control account in the cost ledger are adjusted.

The physical check is frequently made at the time each order for fresh supplies is made out. Stocks are at a low level at this point and the checking of both quantity and condition are facilitated. It is useful to find the true physical stock at this stage in order to make a realistic order, and to hasten supply if necessary. The main causes of difference between physical stock and the perceptual inventory are as follows:

  1. The entry of incorrect quantities in the records;
  2. The making of postings to the wrongs stock account;
  3. Errors of addition and subtraction;
  4. Over or under issue;
  5. Losses on breaking bulk;
  6. Variations of weight caused by drying, or the absorption of moisture; and
  7. Theft

The first three items can normally be traced by comparing the bin card and the stock record. The others are often more difficult and the auditor must investigate the counting or weighting methods, including the conversion factors when goods are weighed, instead of being counted.

The maintenance of satisfactory perpetual inventory records obviates the need for the physical checking of all stock at the year end. As long as each stock has been checked at sometime during three or six months before the close of the year, any discrepancies have been adjusted, and the system is found to be working properly, the balances on the perpetual inventory records may be accepted as stock on hand. This avoids the dislocation of production, which arises when all the stocks are checked at one time. It also provides stock figure for monthly or four weekly accounts that could not normally be prepared satisfactorily without this information. In addition a sound perpetual inventory system coupled with a continuous stores audit, reveals stock losses much earlier than an annual stock taking, and as the work is cashed out systematically and without undue haste, the figures are generally more reliable.

2.12 Advantages of Perpetual Inventory System

The advantages of the perpetual inventory and continuous stock taking systems can further be outlined as follows:

(a) The long and costly work of stock-taking count is avoided, and the stock of materials, as shown by the stores ledger (but not the work in progress) can be obtained quickly for the preparation of a profit, and loss account and balance sheet at interim period if required.

(b) A detailed reliable check on the stores is obtained.

(c) Experienced man can be employed lo check the stock at regular intervals.

(d) It is not necessary to stop production so as to carry out complete physical stock-taking except possibly at the end of each year

(e) Discrepancies are readily discovered and localized, giving an opportunity for preventing a recurrence in many cases

(f) The moral effect on the staff tends to produce greater care and serves as a deterrent to dishonesty

(g) The audit extends to comparing the actual stock with the authorized maxima and minima, thus ensuring that adequate stocks are maintained within the prescribed limits

(h) The storekeeper’s duty of attending to replenishment is facilitated, as he is kept informed of a stock of every kind of material, thus ensuring uninterrupted and safe manufacturing stocks.

(i) The stock being kept within the limits decided upon by the management the working capital sunk in the store material cannot exceed the amount arranged for. The disadvantages of excessive stocks are avoided as (Whelden’s Cost Accounting) 25th Ed. put it.

(i) Loss of interest on capital locked up in stocks

(ii)Loss through deterioration

(iii) Danger of depreciation in market values

(f) The moral effect on the staff tends to produce greater care and serves as a deterrent to dishonesty

(g) The audit extends to comparing the actual stock with the authorized maxima and minima, thus ensuring that adequate stocks are maintained within the prescribed limits

(h) The storekeeper’s duty of attending to replenishment is facilitated, as he is kept informed of a stock of every kind of material, thus ensuring uninterrupted and safe manufacturing stocks.

(i) The stork being kept within the limits decided upon by the management, the working capital sunk in the stores materials exceed the amount arranged for. The disadvantages of excessive stocks are avoided as (Whelden’s Cost Accounting) 15th Ed. put it.

(j) loss of interest on capital locked up in stocks

(k)Loss through deterioration

(l) Danger of depreciation in market values

(m) Risks of obsolescence

The above itemized advantages give impetus on the selection of this research topic which sees costing as an indispensable tool for efficient and effective materials management. Without the application of costing techniques organization’s material inventory would be exposed to the various risks associated with the lack of control, lack of accountability, planlessness, etc.

2.13 Turnover of Stores Material

In an organization that has various grades and kinds of materials, it becomes necessary to identify movement of stock, thus enabling management to avoid locking up capital in undesirable stock. The regularity or otherwise of stock movement (stock turnover) is measured often in terms of the ratio of cost of materials consumed to the average stock held during the period thus:

The number of times obtained from the above formula indicates the number of times a particular stock moves within a given period. For example a stock turnover of six times per annum shows that on the average, stock is being held for two months. This revelation is a very essential guide at any point in time as to what quantity of a particular material to order in comparison with the production demands for such materials within a given period and, at the same time the period of expectation of arrival of materials ordered so as to:

(i) To avoid, materials arriving when there is no space for storage.

(ii) To avoid break down in production, waiting for the arrival of materials.

The various materials level necessary for adequate control has been’ reviewed earlier in this chapter.

2.14 Valuation of Material Issues And Inventory Control

It has been pointed out earlier that materials are the principal substances for any production process. They form the bulk any of inputs which are processed or transformed into finished goods.

Considering the importance of material in any production process and indeed the fact that it is the Hallmark of business existence even in a merchandizing concern the need for adequate control of this essential element of business existence need not be over emphasized. As was postulated by Trevor Daff in his book “Cost and Management Accounting” that the whole purpose of stock control is to ensure that the right materials and components required by production are in the right place and at the right time and in the quantities and this with the minimum investment of capital. The main aim of inventory management is to guard against the holding of excessive or adequate level of inventories and maintain just the size of inventory required to keep production going on at operating capacity and to meet the immediate customer demand.

Orekie (1989) talking on the need for inventory management was of the view that the central problem is to avoid the two danger points of inventory management which are:

(a) Over stocking of material inventory

(b) Understocking of material inventory

(c) To balance inventory at a point of optimality were the risk are perfectly balanced against profitability

On the danger of over-stocking, the company stands to run the risk of tying up funds unnecessarily and it will not be fair to the working capital or liquidity position of the firm where, or in a situation of slow moving inventory since this could have been better invested in a more profitable venture. As for overstocking, the consequences are that there might be production disruption or hold-ups and failure to meet customers’ demands.  In the extreme case of out of stock situation, the firm cannot take advantage of any available business opportunity as production could be stopped (i.e. resulting to issues). This equally gives rise to under-utilization of a firm’s installed capacity.

Hence the underlying need for inventory management is to strike a balance or an equilibrium between over-stocking and under-stocking of materials, ensuring that stocks or inventory are held at that quantity where it will be profitable to take advantage of business opportunity as well as ensure the least cost of holding, storing or ordering them. True to type, inventory management is the science base which aims at ensuring that inventories of the correct quantity and quality are made available as and when required, with regard to economy in storage and ordering cost purchase prices and working capital. However, Eneh Christiantus is of the opinion that it is most encouraging to hold higher stock of materials in an inflationary economy rather that in a deflationary economy.

2.15 Material Control Procedure

To ensure effective and efficient accounting for material inventory, three principal documents must be maintained which include the purchase requisition, purchase order and the receiving report or the issuance record. Materials control in accounting materials starts and ends with the purchase and issuance of materials stated in accounting terms as:

Opening balance of materials            xx

Add purchases of materials                xx

Materials available for use                 xx

Less closing stock of materials           xx

Cost of materials issued/consumed   xx

The purchase requisition is the document from stores to a buying office requesting the purchase of goods. Thus the cost that is entered in the materials purchase requisition is that amount charged to materials consumed or issued.

Contributing to an article on inventory control and management in the “Modern Accountant” a journal publication of Association of Students Accountants ESUT chapter, Eneh Christiantus holds that for the complete control of material purchases, a purchases department has to be established whose responsibility it is to organize a purchasing system that will avoid production delays, excessive scrap and stocks. To achieve this, the purchases department must establish purchases requisition which must, be authorized by a responsible official; ascertain company’s supplies which must be genuine, ensure that receipt, of quotation must be considered, engaged in the actual purchases and receipt of materials.

The receipt of materials automatically makes it imperative that a stores department be established whose duty it is to ensure that materials are in good condition and well secured. In most organizations experience has shown that there are three general patterns for stores organization namely:

(a) Centralized buying and holding of stocks

(b) Centralize purchasing of stocks but decentralized handling of materials.

(c) Decentralized buying and handling of stocks

The end of the materials control procedures is the issuance or sale of material inventory. The sales or issuance of materials are kept under the care of sales representatives. This department keeps track of the quantity of goods that were sold or- issued and at what price and the cost of materials that was sold or issued. This is basically the point where the costing of the materials is necessary in the sense that purchase of material inventory is frequently or on a regular basis, and following the nature of the economy, purchases might be made at different prices. Problem arises on how to determine the cost of materials being issued out or sold.

2.16 Costing and Valuing Materials

Valuing of materials arose following the fact that materials lose their separate identities and also prices change for each of these separate identities of materials. Costing of materials involves a complete material control so as to determine at any point in time the value of the ending balance of material and also the cost or value of the materials that were issued.

Materials control involves

(i) Stock- taking

(ii) Stock Valuation

According to Osisioma (1990), stocktaking is an exercise whereby physical store items are checked from time to time. The checking reveals the actual quantity of materials in stock at a particular period. For effective control, personnel who are not directly associated with the material storage are assigned the responsibility.

Having earlier reviewed the two methods of stock taking (perpetual and periodic stock-takings), it is noteworthy that stock taking precedes stock valuation when after ascertaining the physical material stock, the price is applied to the quantity as counted to determine its value. The end result of stock taking and stock valuation is the determination of:

  1. The value of ending balance of materials
  2. The value of the issuance of material inventory.

In accounting, the value of the material issuance becomes the cost of goods sold and will be charged to the revenue of the period, while the value of the ending inventory forms the asset in terms of closing stock, and will be added to the current assets of the business.

To achieve the objective of costing materials, the stock card is used to show:

  • the purchases/receipts of materials
  • the issuance/sales of materials
  • the balance of materials on hand

This could be represented diagrammatically as follows

Date Receipt/Purchases Issues/Sales Balance
  Qty Unit cost Amount Qty Unit cost Amount Qty Unit cost Amount

For costing and control purposes, various methods are available for valuing materials issues.  These methods have been discussed earlier.




The foregoing chapters have been devoted to buttress the point which the topic of this research work postulates. That is to say that the primary concern of this study is to determine the impact of costing as an essential instrument in materials management and control. In striving to accomplish this core concern, the rest of the chapters will X-ray the extent of work done by the researcher.

The researcher adopted both the empirical and survey research method in order to get the required information to present a research work a research work that suits the academic purpose of this level which is also worthy of future reference.

3.1 Population of the Study

The total population of the study consists of four hundred (400) workers made up as follows.

Table 3.1

Department Number
Stores 85
Cost 19
Accounts 25
Production 256
Internal audit 15
Total 400

3.2 Sample and Sampling Procedure

For the purpose of this study, the researcher chose a sample size of eighty (80) which was derived using the formula below.

n = N/1 + N(e)


n = sample size

N = population size = 400

e = Allowable error  = 10

Hence n =

= 80

Since the sample size used was eighty (80) as derived from the above formula, it means that 80 questionnaires were administered.

3.3 Research Method and Designs

As stated earlier, survey method of research was employed for the study. Extensive use was made of the questionnaire as the basic tool. Furthermore, multiple choice questions were used in designing the questionnaire in an attempt to exhaust all the possible responses which the researcher called for.

3.4 Sources of Data

Both primary and secondary source of data were utilized in gathering relevant information for the purpose of this study.

3.4.1 Primary Sources

The primary sources of the data consist of the following description

  1. Questionnaire
  2. Oral interview

The researcher decided to employ these techniques because of the attendant advantages. The questions were uniformly designed for all the selected departments and the staff involved with the aim of utilizing the data after a careful analysis in arriving a t the research findings and validity or otherwise hypotheses.

Mostly close-ended quest ions were structured for use in gathering the information although oral questions were mainly used to make it easier for the researcher while analyzing the data collected.

3.4.2 Secondary Sources

The secondary sources of data were also used for reference in order to give the work both theoretical and practical touch. Some of the secondary sources utilized include textbooks, newspapers and related articles in academic and journals.

3.5 Area of Study

The researcher studied the materials management and control mechanism of Emenite Limited. These include the materials control procedure (receipts, requisitions, issues) with focus on the following departments.

(i) Stores

(ii) Cost

(iii) Accounts

(iv) Production

(v) Internal audit

3.6 Instruments for Data Collection

For the purpose of this research, the following instruments were used in gathering data.

  1. Questionnaire
  2. Oral interview

3.7 Validity of Instruments Used

Validity of measuring instrument refers to the degree to which an instrument (Test) measures what it is supposed to measure. Basically no interesting aspect of the study was omitted in designing the survey questions coupled with the fact that the oral interviews held with the chief stores officer, the raw material stores officer and the cost accountant respectively were crosschecked through the questions in the questionnaire as a confirmation of the responses received in their case.

3.8 Reliability of Instruments Used

Reliability refers to the degree at which an instrument (Test) consistently measures what is supposed to measure. The questions contained in the questionnaire have been structured to draw out the exact information needed by the researcher for the study. The questionnaire which forms the basic instrument used was developed after going through some previous work on the role of costing for effecting materials management and control.

3.9 Method of Data Collection

The researcher made several visits to Emenite Limited and collected information using the following techniques.

(i) Personal. administration of the questionnaire distributed to the eighty (80) staff who were randomly chosen from five departments – cost, stores, Accounts, Production and Internal Audit to ensure confidentiality to the respondents and explanations made where necessary.

(ii) Personally collecting the questionnaires from the respondents.

The questionnaires were collected after five (5) days. This was to allow the respondents enough time to go through the questions and to fill the questionnaires at their own discretion and conveniences. All those whom the questionnaires were given to, in the opinion of the researcher were knowledgeable enough to understand the questions contained in the questionnaire.

Multiple choice questions were seldomly used in designing the questionnaires with dichotomous (two ended) approach frequently used i.e. ‘Yes and No”. The gathered data were carefully analyzed with various instruments with the aim of providing solution to the research problems as well as validate the research hypotheses.

3.10 Method of Data Analysis

Simple percentages were simultaneously used in quantifying the effect and relationship one data has with another. As shown in the next chapter on data analysis, the respondents were classified according to their responses arid expressed in their percentage representation.

The chi-square (X2) was the statistical tool used in testing the acceptability or otherwise of hypotheses posed for this study. The chi-square formula is;

X2 = ∑(O – E)²/2

where X2 = Chi-square

O = Observed frequency

E = Expected frequency

Tabular representation of distribution and return of questionnaire

Table 3.2

Stores 17 17 100
Cost 4 4 100
Accounts 5 5 100
Production 51 51 100
Internal Audit 3 3 100
Total 80 80 100




The purpose of this chapter is to present analyze and interpret the data collected ill the course of this research study. Before proceeding further, it is worthwhile to reflect on the topic once again, viz “Costing As An Essential Instrument in Materials Management and Control”. This reflection becomes necessary judging from the fact that the topic will form the basis for the conclusions and recommendation in the final chapter.

Based on this, the data collected for the research through questionnaire were presented in tables and further analyzed with the aid of statistical tool. The table below shows classification of the respondents according to their various departments.

Table 4.1: SEX

MALE 12 4 3 49 2 70 87
FEMALE 5 2 2 1 10 13
TOTAL 17 4 5 51 3 80 100



The application of costing has made no significant impact in the materials management and control in Emenite Ltd.

YES 7 1 10 18 22.5
NO 10 4 4 41 3 62 77.5
TOTAL 17 4 5 51 3 80 100


Costing is proved again to be responsible for materials management and control in Emenite Ltd as can be attested to in table 4.2 above.



Which of the costing methods is applied in handling materials issues?

FIFO 15 4 3 30 3 55 69
LIFO 1 1 15 17 21
AVERAGE 1 1 6 8 10
TOTAL 17 4 5 51 3 80 100


In the analysis FIFO is identified as the costing method applied in handling materials issues as proved by 69% response rate in the table.


TABLE 4.4: Age

20 – 30 7 3 2 25 1 38 47
31 -45 8 1 2 22 2 35 44
46 and above 2 1 4 7 9
TOTAL 17 4 5 51 3 80 100


TABLE 4.5: Work Experience

1 – 5 yrs 5 1 2 18 1 27 34
6 – 10 yrs 7 2 2 20 2 33 41
11 -20 yrs 3 1 6 10 12.5
21 and above 2 1 7 10 12.5
TOTAL 17 4 5 51 3 80 100


With 100% response rate as shown in the above table, a good reference point has been established and the researcher is convinced that the opinions or data received represent a fair view o f the effectiveness of costing applications in materials control as it operates in the entire organization. The above tables are significant because they show the disposition of the sample size in the case study and the members of staff who responded to the questionnaire represented the percentage assessed accordingly.

The responses to two ended questions posed in the questionnaire are analyzed in the tables presented below.

Table 4.6: Does your company have an organogram?


YES 17 4 5 51 3 80 100
TOTAL 17 4 5 51 3 80 100


The responses and their percentage easily be interpreted from the table set out above. However the response rate in table 4.6 above shows that all the respondents recognized the existence of an organogram in the company, while Table 4.8 below indicated the agreement of correspondence to the fact that all the departments are working in cooperation to the achievement of a common goal. The success story of Eminite Limited over the years can no doubt be attributed to this level of cooperation.

Table 4.7

In your opinion do you think the organogram has helped your organization in achieving a measure of control in all its operational arms or departments?


YES 15 4 5 35 3 80 100
NO 2 16
TOTAL 17 4 5 51 3 80 100


Table 4.8

Does your answer in Table 4.6 above suggest that all the departments are working hand in hand (co-operatively) towards the achievement of a common goal?

YES 17 4 5 51 3 80 100
TOTAL 17 4 5 51 3 80 100


Table 4.9

Materials management is not essential in the continuous existence of an industry. Do you agree?

YES 2 6 8 10
NO 15 4 5 45 3 72 90
TOTAL 17 4 5 51 3 80 100


From the response rate of 90%, it is established that materials management is essential in the continuous existence of an industry although 10% of the respondents did not agree that materials management is essential in the continuous existence of an industry.

TABLE 4.10

Materials control and management is the basic ingredient towards the growth of any organization.

YES 15 4 5 45 3 72 100
NO 2 6
TOTAL 17 4 5 51 3 80 100


This table depicts that 90% of the respondents attested that materials control and management is the basic ingredient towards the growth of any organization while 10% reflects a negative opinion of the other respondents which could be attributed to the ignorance of what materials control and management is all about.

Table 4.11

The level of materials control in Emenite Ltd is attributed to the application of costing methods.

YES 10 4 4 41 3 62 77.5
NO 7 1 10 18 22.5
TOTAL 17 4 5 51 3 80 100


A 77.5% response rate affirms that the application of costing methods accounts for the level of materials control in Emenite Ltd. While 22.5% of the respondents who probably did not understand the application of costing methods responded negatively.

Table 4.12

Any other method apart from the three mentioned above?

YES 4 4 25 3 36 45
NO 17 1 26 44 55
TOTAL 17 4 5 51 3 80 100


From this record it is evident that 45% of the respondents said that there is another method while 55% gave a negative answer.

Test of Hypotheses

In this second part of the chapter we are going to test the formulated hypotheses in chapter one which were designed and fashioned as questions in the questionnaire. Question numbers 13, 14 and 17 represent the hypotheses to be tested separately.

As it had been earlier mentioned, chi-square is the statistical tool or instrument, used in analyzing or testing the formulated hypotheses.

Decision Rule

Accept the null hypothesis if the calculated chi-square value is less than. the critical value otherwise reject the null and accept the alternative.

Hypothesis No. 1: Question No. 13

Ho: Materials Management is not essential in the continuous existence of an industry. Do you agree?

H1: Materials management is essential in the continuous existence of an industry and the ingredient towards the growth of any organization.

Table 4.13

YES 2 6 8 10
NO 15 4 5 45 3 72 90
TOTAL 17 4 5 51 3 80 100

Operational Assumption

Level of significance 95%

Degree of freedom (df) = (r-1)(c-1 ) = (2-1 )(5-1 ) = 4

Expected data = (Row total x Column total)/Total value

O E O – E (O – E)² (O – E)²/E
2 1.7 0.3 0.09 0.052941
0 0.4 -0.4 0.16 0.4
0 0.5 -0.5 0.25 0.5
6 5.1 0.9 0.81 0.158824
0 0.3 -0.3 0.09 0.3
15 15.3 -0.3 0.09 0.005882
4 3.6 0.4 0.16 0.044444
5 4.5 0.5 0.25 0.055556
45 45.9 -0.9 0.81 0.017647
3 2.7 0.3 0.09 0.033333


Since the calculated chi-square (X2) is greater than the critical value in the chi-square distribution table (i.e 1.56 > 0.71 l), the null hypothesis is therefore accepted which means that materials control and management is the basic ingredient towards the growth an industry.

Hypothesis No 3: Question No. 17

Ho: The application of costing has made no significant impact in materials management and control in Emenite Ltd.

H1: The level of materials control in Emenite Ltd attributable to the application of costing methods.

YES 7 1 10 18 22.5
NO 10 4 4 41 3 62 77.5
TOTAL 17 4 5 51 3 80 100


O E O – E (O – E)² (O – E)²/E
7 3.825 3.175 10.08063 2.635458
0 0.9 -0.9 0.81 0.9
1 1.125 -0.125 0.015625 0.013889
10 11.475 -1.475 2.175625 0.189597
0 0.675 -0.675 0.455625 0.675
10 12.175 -2.175 4.730625 0.388552
4 3.1 0.9 0.81 0.26129
4 3.875 0.125 0.015625 0.004032
41 39.525 1.475 2.175625 0.055044
3 2.325 0.675 0.455625 0.195968


The calculated chi-square (X2) value is greater than the critical value in the chi-square distribution table (ie 4.93 > 0.71 1) hence the null hypothesis (HO) is rejected and the alterative hypothesis (H1) is therefore accepted. This goes a long way to prove that the level of materials control in Emenite Ltd is attributable to the application of costing methods.

Hypothesis No. 2 Question No. 14

Ho: Materials management and control have not contributed to the growth of Emenite Ltd.

H1: Materials management and contributed to the growth of Emenite Ltd.

O E O – E (O – E)² (O – E)²/E
15 15.3 -0.3 0.09 0.005882
4 3.6 0.4 0.16 0.044444
5 4.5 0.5 0.25 0.055556
45 45.9 -0.9 0.81 0.017647
3 2.7 0.3 0.09 0.033333
2 1.7 0.3 0.09 0.052941
0 0.4 -0.4 0.16 0.4
0 0.5 -0.5 0.25 0.5
6 5.1 0.9 0.81 0.158824
0 0.3 -0.3 0.09 0.3


Since the calculated chi-square is greater than the critical value of the chi-square in the distribution table, it therefore means that the null hypothesis (Ho) is rejected. Therefore the alternative is accepted which means that materials management and control have contributed to the growth of Emenite Ltd.




Having conducted an extensive research on the topic under discussion, the researcher presents this concluding chapter under the following arrangements.





5.1 Summary of Findings

From the outcome of the data analyzed and presented from the preceding chapter, it can be seen from the various analysis and tests of hypotheses that the results go to authenticate the topic of the research work. The researcher came up with the following findings.

  1. Although there is an in-built internal control in the system of material management and control, there is no cost department but even at that the respondents who attested to the usefulness of costing in achieving materials control command the greater percentage of the sample size
  2. Another important area of attention discovered is that effective materials control and management is the pivot of growth in any industry and this can be proved by the steady and continuous growth witnessed in Emenite Ltd.
  3. A further study is to be carried out to determine the degree or frequency at which the application of costing is instrumental to the level of materials management attained in Emenite Ltd, the finding was positive and significant.

5.2 Conclusion

The foregoing chapters have been able to highlight the significance of costing in materials management. This suggests that the research work makes a case for every company whether privately owned or publicly owned to have a cost department manned by a qualified cost accountant.

No wonder most companies do not last long in business rather fold up shortly after its products have caught market attention. When a product commands a substantial part of the market, the tendency is that the manufacturing concern is on the threshold of growth but surprisingly such companies liquidate all of a sudden as a result of lack of costing application in materials handling, leading to material wastages, pilferages, etc. This judgment is based on such companies where management adopt a causal approach in running company affairs. This is most rampant in Government owned companies. The Anambra Vegetable Oil Products (AVOP), Nkalagu Cement Company are cases in point.

5.3 Recommendations

This research study has established the fact that costing plays an indispensable role in materials control and management and consequently in the growth of any industrial organization. However, this is not to say that the application of costing guarantees maximum control and efficiency, hence there is always room for improvement in any area of human endeavour.

The researcher therefore makes the following recommendation based on the findings made in analyzing the data collected.

  1. To ensure enduring performance, the use of costing in materials handling of every industrial organizations that do not have one in place.
  2. Management should create a conducive working atmosphere to enable the department function effectively without hindrance because a healthy work environment will eradicate the incidence of abnormal loss and at the same time go a long way to reduce normal loss situations to the bearest minimum.
  3. The Government and Educational administrators in the country should map out plan to develop the study of costing in our tertiary institutions.

5.4 Areas for Further Research

As pointed out earlier in chapter 5.2, it is noticeable that some industries especially government owned go into liquation after their products have come to limelight and have made great impact in the market. The researcher is disturbed by this development but could not go further to investigate the exact cause of this unenviable situation due to time constraint to carry out an extensive research in other organizations outside the one being studied.

It will be a very interesting area of study to carry out an extensive research on the cases of industrial failures where:

  1. Cost departments are not operational
  2. Cost departments arc operational



An Introduction to Budgetary Control, Standard Costing, Material Control and Production Control. Institute of Cost and Works Accountants, 61 Portland Place, London W.I

Brown J.L. and Owler L.W. J(l989): Wheldon’s Costing Simplified 5th Edition.

Eneh Christiantus: Lecture Notes on ACC 23 1.

Haper W.M(l986) Cost Accounting, 2nd Edition.

Lucy T(1989): Costing 3rd Edition.

Matz A and Usury F (1976): Cost Accounting, Planning and Control, 6th Edition.

Pitcher M.A( 1979): Managing Accounting for the Lending Bankers, The Chartered Institute of Bankers.

Pizzy Alan (1987): Principles of Cost Accounting, a Managerial Perspective 5th Edition.

The Modern Accountant, Official Journal of the Association of Students Accountants, ESUT Chapter Nov. 1 No 4.

Osisioma B.C: Studies in Accountancy, Texas and Readings 1st Edition, 1990.

Owler L.W.J et al: Weldon’s Costing Accenting, 15th Edition.

Koontz,. Harold, et al: Management. 7th Edition 1983.




Dear Sir/Madam,

The researcher is a post graduate (MBA) of the above named institution conducting a research on the topic “Costing as an Essential Instrument in materials management and control.

You are requested to kindly thick in the box provided, answers you consider appropriate to each question. Please note that all information supplied shall be strictly used for academic purpose only and must be treated in confidence.



  1. Name of Establishment:
  2. Sex: Male ( ) Female ( )
  3. Designation ( )
  4. Department ( )
  5. Age: 20-30 years ( ) 31-45 years ( ) 46 years and above (     )
  6. Educational Qualification: WASSCE/GCE( ) Diploma/ NEC ( ) HND (     ) BA/BSC/E.Ed/LL.B (     ) MBA / MSc / MA (      ) ACA/ACIS/ACIB/FCA (    )
  7. Work experience: 1 – 5 Years ( ) 6 – 10 years ( ) 11 – 20 years (     ) 21 years and above (      )
  8. Has your company an organigram? Yes ( ) No ( )
  9. In your own opinion, do you think the organigram has helped your company in achieving a measure of control in all its operational arms/departments? Yes ( ) No (   )
  10. Does your cost department ensure effective materials control and management? Yes ( )
  11. Does your cost department work hand in hand (cooperate) with stores department in achieving this common goal? Yes ( )
  12. Material Management is not essential in the continuous existence of an industry. Do you agree? Yes ( ) No (     )
  13. Material control and management are the basic ingredients toward the youth of any organization Yes ( ) No ( )
  14. The level of material control in Emenite Ltd is attributable to the application of costing methods. Yes ( ) No (    )
  15. Would you say that the application of costing has made no significant impact in materials management and control in Emenite Ltd. Yes ( ) No ( )
  16. Which of the costing methods is applied in handling material issues? FIFO ( ) LIFO ( ) AVERAGE STOCK (     )
  17. Any other method apart from the three mentioned above? Yes ( ) No (      )
  18. If your answer to No. 17 above is yes, please state the method ____________________

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