CHAPTER ONE

1.1 BACKGROUND OF THE STUDY

Cost management is a set of techniques and methods for planning, measuring and

reporting intended to improve a company’s products and processes.(Oliver,2000).

Cost management is the control of actual and forecast costs incurred by a business. It

allows the business to predict impending expenditures and prevent over budget. Profit

is the resultant effect of two varying factors, sales and cost. The wider the gap

between these two factors, the larger the profit. Thus, profit can be maximized by

increasing sales or reducing costs as ascertained by management .(The Institute of

Cost Accountants of India, 2016).

According to Will Kenton [2021], Financial Performance is a subjective measure of

how well a firm can use assets from its primary mode of business and generate

revenue. The term is also used as a general measure of a firm’s overall financial

health over a given period.

Financial Performance is a complete evaluation of a company’s overall standing in

categories such as; assets, liabilities, equities, expenses, revenue and overall

profitability.(Corporate Finance Institute).

Financial performance is the single most important factor in assessing growth

potential, earnings capacity and overall financial strength. The business dictionary

defines financial performance as measuring results of a firm’s policies and operations

in monetary terms and these results are reflected in firm’s return on investments,

return on assets,return on capital employed, sales, profitability, return on equity,

liquidity and solvency.

Business Organization is an entity formed for the purpose of carrying on commercial

enterprise. Such an organization is predicated on systems of law governing contract

and exchange, property rights, and incorporation (S. Nicholas Woodward). Business

organizations customarily take one of the three forms: individual proprietorships,

partnerships or limited liability companies(or corporations). It can also be profit

making or non-profit making organization.

In order to increase sales, there must be a corresponding increase in costs(cost of

sales, carriage outwards, etc) because of the increased amount/level of work involved.

These increased costs are what needs to be curtailed (cost management), in order to

still maintain a favorable financial level/performance in business organizations. The

ultimate goal of every firm is to minimize cost and maximize profit through proper

cost management, in order to maximize shareholders wealth(Christian 2019). It is so

to say therefore that any business that wants to achieve and maintain a favorable

financial performance and also to succeed in a competitive environment should

consider effective cost management strategies.

1.2 STATEMENT OF THE PROBLEM

Cost management is a set of techniques and methods for planning, measuring and

reporting intended to improve a company’s products and processes.(Oliver,2000).

Cost management is a method of reducing operating or production expenses in order

to provide less expensive products or services to consumers. In other words, it’s the

process management uses to analyze its production and streamline its operations to

keep costs low and manage expenses in the future.( Accounting Dictionary).
Financial performance is a subjective measure of how well a firm can use assets from

its primary mode of business to generate revenues. It is a complete evaluation of a

company’s overall standing in categories such as; assets, liabilities, equities, expenses,

revenue and overall profitability.it is also used as a general measure of a firm’s

overall financial health over a given period.

Despite the rise in the output and product prices in Nigeria, the high rate of business

failure casts a doubt on the effectiveness and efficiency of managers of these

businesses. This scenario calls upon any rational investor to question why buiness

failures? and where are the mistakes coming from?. This turned out to be a source of

worry to the government, investors, business owners, stakeholders and concerned

citizens.

It is therefore of great importance to determine what business organizations are not

doing right. It’s also in this premise that cost management is viewed as a ‘value

adding’ activity within any organization and thus should be an integral part of

management decision. Therefore, in line with these, this study evaluated the effects of

cost management on the financial performance of profit making organizations in

Nigeria.

1.3 OBJECTIVES OF THE STUDY

The main objective of this study is to determine the effects of cost management on the

financial performance of profit making organizations in Nigeria.

The specific objectives are to:

1. Determine whether there is a relationship between cost management and financial

performance of profit making organizations in Nigeria.

2. Determine the effects of cost management on the financial performance of profit

making organizations in Nigeria.

3. Determine whether there are obstacles to the efficient use of cost management for

an effective financial performance of profit making organizations in Nigeria.

1.4 RESEARCH QUESTIONS

These research questions were developed for the study.

1. What is the relationship between cost management and financial performance of

profit making organizations in Nigeria?

2. What are the effects of cost management on the financial performance of profit

making organizations in Nigeria?

3. Are there obstacles to the efficient use of cost management for an effective

financial performance of profit making organizations in Nigeria?

1.5 RESEARCH HYPOTHESES

The following research hypotheses were formulated for this study.

Hypothesis one

Ho: There is no significant relationship between cost management and financial

performance of profit making organizations in Nigeria.

H1: There is a significant relationship between cost management and financial

performance of profit making organizations in Nigeria.

Hypothesis two
Ho: Cost management has no significant effect on the financial performance of profit

making organizations in Nigeria.

H1: Cost management has a significant effect on the financial performance of profit

making organizations in Nigeria.

Hypothesis three

Ho: There are no obstacles to the efficient use of cost management for effective

financial performance of profit making organizations in Nigeria.

H1: There are obstacles to the efficient use of cost management for effective financial

performance of profit making organizations in Nigeria.

1.6 SCOPE OF THE STUDY

The study focused on the effects of cost management on the financial performanceof

profit making organizations in Nigeria. It also focuses on the following:

1. Determine whether there is a relationship between cost management and financial

performance of profit making organizations in Nigeria.

2. Determine the effects of cost management on the financial performance of profit

making organizations in Nigeria.

3. Determine whether there are obstacles to the efficient use of cost management for

an effective financial performance of profit making organizations in Nigeria.

1.7 LIMITATION OF THE STUDY

This research work is limited to the effects of cost management on the financial

performance of profit making organizations in Nigeria.

1. To determine whether there is a relationship between cost management and

financial performance of profit making organizations in Nigeria.

2. To determine the effects of cost management on the financial performance of profit

making organizations in Nigeria.

3. To determine whether there are obstacles to the efficient use of cost management

for an effective financial performance.

1.8 SIGNIFICANCE OF THE STUDY

At the end of this study, it will be of great importance to management of profit

making organizations in terms of the effects of cost management on financial

performance of profit making organizations in Nigeria.

It will be of great help to investors as to how to make a good investment decisions.

It will also be helpful to students of accounting and other related courses for academic

and research purposes.

This study will equally serve as a reference to researchers who may be interested to

embark on a research related to this topic.

It will also contribute to the body of literature or knowledge.

1.9 DEFINITION OF TERMS

Cost Management: Cost management is the control of actual and forecast costs

incurred by a business. It allows the business to predict impending expenditures and

prevent over budget. It refers to cost cutting and it’s a common approach that

managers use to respond to the decreasing sustainable profitability(Anderson, 2007).

Financial Performance: The business dictionary defines financial performance as

measuring results of a firm’s policies and operations in monetary terms and these

results are reflected in firm’s return on investments, return on assets,return on capital

employed, sales, profitability, return on equity, liquidity and solvency.

Profit Making Organization: A profit making Organization is one that operates with

the goal of making money. Most businesses are for-profits that serve their customers

by selling a product or services. The business owner earns and income from the for-

profit and may also pay shareholders and investors from the profits.

REFERENCES

Blocher, E. J., Chen, K. H., Cokins, G. & Lin, T. W., (2005).Cost management: A

strategic emphasis (3rd ed), Boston: McGraw-Hill Irwin.

Groth, John C. & Kinney, Michael R (1994). Cost Management and Value Creation.

Management Decision.
LaDue, E. L., Gloy, B. A., and Hyde, J. (2002). “Diary Farm Management and Long

Term Farm Financial Performance.” Agr. and Resour. Econ. Rev. 31, 2: 233S47.

Mishra, R. k. (1999). Problems of Working Capital, Mumbai Somaiya Publications

Pvt. Ltd.

Oliver, L., (2000), The Cost Management Toolbox- A Manager’s Guide to

Controlling Costs and Boosting Profits, (New York: AMACOM).

CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.1 INTRODUCTION

This chapter is all about literature review which includes conceptual review,

theoretical review, empirical review and review summary. The conceptual review

includes definition of cost management, cost management strategies, determinants of

financial performance and effects of cost management on financial performance. The

theoretical review to be considered in this chapter includes cost management and

efficiency theory, theory of constraints, transaction cost economics theory and

financial stewardship theory. The empirical review will look into the previous works

of various researchers on related issues of cost management and financial

performance.

2.2 CONCEPTUAL REVIEW

In this conceptual review, the definition of cost management and cost management

strategies were considered. It also considered the determinants of financial

performance and the effects of cost management on financial performance.

2.2.1 COST MANAGEMENT

Cost management is at the core of every enterprise performance management, as it

represents the bottom line for every business organization.

Cost management often refers to cost cutting and it's a common approach that firm

managers use to respond to the decreasing sustainable profitability (Anderson, 2007).

According to Oliver, (2000), cost management is a set of techniques and methods for

planning,measuring and reporting intended to improve a company’s products and

processes. Its ultimate purpose is to provide information that companies need to

provide the value that customers demand. The most important managerial tools are

cost management strategies (Zengin and Ada, 2010), and cost management strategies

are considered as critical factors to increase revenue for the success of manufacturing

companies (Kumar and Shafabi, 2011). According to Drury (2004), Cost management

focuses on cost reduction and continuous improvement and change rather than cost

containment. The term cost reduction could be used instead of cost management.

Whereas traditional cost control systems are routinely applied on a continuous basis,
cost management tends to be applied on an adhoc basis when an opportunity for cost

reduction is identified. Cost management consists of those actions that are taken by

managers to reduce costs, some of which are prioritized on the basis of information

extracted from the accounting system. Although cost management seeks to reduce

costs, it should not be at the expense of customer satisfaction. Ideally, the aim is to

take actions that will both reduce costs and enhance customer satisfaction. Cost

management has become an essential emphasis in today’s highly competitive business

environment.

Companies are not only measuring productivity and insisting on improvements but

also insisting that quality means to bring to market products that satisfy customers,

improve sales and boosts profits. The idea of cost efficiency of a production unit was

first introduced by Farell (1957), under the concept of “input oriented measure”.

2.2.2 COST MANAGEMENT STRATEGIES

Cost management strategy supports decision making and improves competitive

advantage that results in a better resource allocation (Ellram and Stanley, 2008). In

addition, cost management may be an integral feature of overall businesses'

management effectiveness and facilitate to determine accurately estimated cost before

process starting and can help to forecast cost occurrence in the future. Cost

management strategy effectiveness helps to finish the task with the spending of

limited allocated resources and makes valuable to firms such as working capital

invested reduction, lower cost per unit, and better quality of the process and product

(Groth &
Kinney, 1994). Limited resource and apparent continuous competition influence firms

to better managing cost of production by implementing standard costing, budget

system, monitoring cost information, and focusing on value added activities by

eliminating non-value added activities through supplier coordination, and

emphasizing on cost structure by analyzing cost and finding the way to reduce costs in

the stage of pre-production. Firms with cost management strategy implementation are

able to know when the amount of cost will incur in the future if they have current and

future cost information. Thus, managers can make better decision which will

positively improve the financial performance of business organizations.

Traditional cost systems were based on controlling costs and quality and balancing

them temporary, and also focus on internal efficiency. On the contrary, cost

management is a process of quality planning and cost decreasing that manages the

costs before their occurrence. A well planned cost management system will provide

improvements in quality, cost/price and functionality of a product. Business

organizations use modern cost management techniques in their daily operations which

has a great impact on their financial performance. The three dimensional cost

management strategies includes:

1. Managing cost of stock,

2. Cost of labor and

3. Cost of sales and distribution.

2.2.3 DETERMINANT OF FINANCIAL PERFORMANCE

Financial performance is the single most important factor in assessing growth

potential, earnings capacity and overall financial strength (Richardson, 2002). The
business dictionary defines financial performance as measuring results of a firm’s

policies and operations in monetary terms and these results are reflected in firm’s

return on investments, return on assets, return on equity, liquidity and solvency. Salter

(1995) suggested that performance measurement of corporate and business unit has

three dimensions: (1) effectiveness, (2) efficiency (3) adaptability. Morgan (2012)

suggested that business performance consists two aspects: market performance and

financial performance. Market performance relates to customer behaviors while

financial performance is measured in accounting terms.

Nelly (2010) observed that financial performance measures mainly serve three

purposes. One they serve as a tool of financial management, two they serve as major

objectives of business and three they serve as a mechanism for motivation and control

in an organization. Various researchers have used different financial performance

measures. Doyle (1994) says that profitability is the best most commonly used

measure of performance in Western companies. Pandey (2008) defines financial

performance as a subjective measure of how well a firm uses assets from its primary

mode of business to generate revenues. He further says that the term can also be used

as a general measure of a firm's overall financial health position over a given period

of time, and can be used to compare similar firms across the same industry or to

compare industries or sectors in aggregation. Evaluating performance of firms is

critical in order to ascertain whether the business is viable. A key performance

measure used in modern financial management is the financial ratio analysis.

Financial performance measures are intended to evaluate the effectiveness and

efficiency by which business organizations use financial and physical capital to create

value for shareholders. The key recommended measures of financial performance

include: profitability, liquidity and solvency(Zengin&Ada, 2010). Profitability

measures the extent to which a business generates profit from its factors of

production: labour, management and capital. Liquidity measures the ability of the

business to meet its financial obligations as they fall due, without disrupting the

normal, ongoing operations of the business. There are many different ways to measure

financial performance, but all measures should be taken in aggregation. Some of the

indicators of financial performance are return on equity, return on capital employed,

liquidity ratios, asset management ratios, profitability ratios, leverage ratios and

market value ratios.

2.2.4 EFFECT OF COST MANAGEMENT ON FINANCIAL PERFORMANCE

The expected relationship between cost management strategies and financial

performance is as follows: The researcher anticipates either a positive or negative

relationship of cost management strategies and financial performance. One school of

thoughts argues that there is a positive relationship in that cost management strategies

are considered as critical factors to increase revenue for the success of business

organizations. Another positive relationship is that cost containment techniques such

as standard costing, sourcing and budgeting system limit the highest cost that could be

incurred and as a result for the same level of income, the expenses are lower which

results to increase in profitability.

Cost management which refers to an attempt to attain lower current fixed and variable

costs associated with an essential activity(Groth and Kinnery, 1994).

As a result of this, total output of assets is low compared to the resulting income

generated. These results to rising of (ROA) ratio hence increase in profitability. Cost
avoidance which refers to the eliminated activities that generate costs of non-added

values has a positive impact on profitability in that costs which increase expenditure

with no future income generation are done away with hence reducing the negative

impact on income. Positive elevation of income leads to increase in ROA and in

profitability as well which is the measure of financial performance in this study.

Another approach which indicates a negative relationship of cost management to

financial performance measurement advocates for supplementing traditional cost

accounting measures with a diverse mix of non-costing measure that are expected to

capture key strategic performance dimensions that are not accurately reflected in short

term accounting measures.

2.3 THEORETICAL REVIEW

This research work will focus on the following theories:

2.3.1 COST MANAGEMENT AND EFFICIENCY THEORY

Efficiency theory negate that managers plan and control expenditures by arming

themselves with better information on when and where costs occur and what costs add

to the value of a product. In the “traditional model of cost behavior”, costs are

classified as either fixed or variable. Fixed cost remains constant within relevant

range while Variable costs change proportionately with changes in the activity driver

(Steliaros, 2006). In the second model, managers deliberately adjust resources in

response to changes in volume. While efficient production specifies the optimal

combination of inputs for a given level of output, several factors may intervene to
preclude or limit resource adjustments. These factors are hypothesized to lead to

“sticky” cost behavior in which costs adjust asymmetrically; more quickly for upward

than for downward demand changes. A key factor in determining whether adjustment

occurs is the cost of adjustment itself. For example, increasing labor inputs may

require search, recruitment, and training costs while decreasing these same inputs

might require severance payments. When adjustment costs are present, managers

weigh the costs of releasing (adding) resources when activity decreases (increases)

against the alternative of not adjusting. Adjustment occurs if the adjustment costs are

more than compensated by incremental profits associated with producing efficiently at

a new level of output (Kallapur & Eldenburg, 2005). Adjustment costs may be a

property of the production function, as in the example of labor adjustments, or they

may arise if managerial incentives diverge from those of the firm. For example, if an

individual manager experiences loss (gain) of status or position when the number of

his subordinates decreases (increases), his decisions about reducing (increasing) labor

resources may be colored by private adjustment costs (Hamermesh,1995). In cases in

which manager’s compensation, job satisfaction or other rewards are linked to span of

resource control, agency theory predicts that private adjustment costs motivate

managers to grow faster than they shrink. Thus, a theory (or theories) about individual

adjustment costs could be used to motivate tests of asymmetric cost behavior. In that

case, one basis for the null hypothesis would be that adequate management controls

and appropriate competition within the firm for scarce resources prevent this

influence of individual managers from being manifest in sticky (asymmetric) cost

behavior for the firm (Moel & Tufano, 2002). Aside from the costs of adjustment,

uncertainty about future events creates another impediment to adjustment. With

certainty about the future level of demand, managers can easily calculate a payback
period for recouping adjustment costs associated with re-establishing the optimal

resource level for future output. Adjustment occurs when the new level of demand is

expected to be sustained and/or adjustment costs are modest. With uncertainty about

future demand this calculation becomes more difficult. In particular, while adjustment

costs may be certain, the period in which they will be recovered is uncertain

(Steliaros, 2006). Indeed, part of the uncertainty is that in the future, the need for new

and different adjustments may be indicated. In many circumstances significant

uncertainty favors the “do nothing” alternative; however, it is important to note that

this choice is itself cost management.

Moreover, like firm-level adjustment costs, theory does not support the thesis that

uncertainty is associated with asymmetric adjustment that favors upward versus

downward activity changes. Finally, no consideration of the effect of adjustment costs

on efficiency decisions is complete without considering how managers evaluate losses

incurred from producing with a sub optimal mix of resources. In a perfectly

competitive market, failure to adjust would cause the firm to face higher costs than

competitors who adjusted (or who entered the market with new, optimized production

technology and capacity) while receiving identical (market) prices (Anderson et al,

2003).

2.3.2 THEORY OF CONSTRAINTS

The theory of constraints (TOC) is a systems-management philosophy developed by

Eliyahu (1995). The fundamental thesis of TOC is that constraints establish the limits

of performance for any system. Most organizations contain only a few core
constraints. TOC advocates suggest that managers should focus on effectively

managing the capacity and capability of these constraints if they are to improve the

performance of their organization. Once considered simply a production-scheduling

technique, TOC has broad applications in diverse organizational settings (Luehrman,

1998). The theory of constraint focuses its attention on constraints and bottlenecks

within the organization, which hinder speedy production. The main concept is to

maximize the rate of manufacturing output i.e. the throughput of the organization.

This requires examining the bottlenecks and constraints which are defined: A

bottleneck is an activity within the organization where the demand for that resource is

more than its capacity to supply (Flint, 2000). A constraint is a situational factor,

which makes the achievement of objectives more difficult, and then it would

otherwise be. Constraints may take several forms such as lack of skilled employees,

lack of customer’s orders or the need to achieve a high level of quality product output.

Using above definition, therefore, a bottleneck is always a constraint but a constraints

need not be a bottleneck (Innes, 1998). Theory of constraints challenges managers to

rethink some of their fundamental assumptions about how to achieve the goals of their

organizations, about what they consider productive actions, and about the real purpose

of cost management. Emphasizing the need to maximize the objectives & revenues

earned through sales theory of constraints, focuses on understanding and managing

the constraints that stand between an organization and the attainment of its goals

(Beverley, 1996). The financial professional, playing a pivotal role in theory of

constraints implementation, uses management accounting to focus on identifying,

analyzing, and reporting key events and opportunities affecting the organization.

Emphasizing the development and maintenance of core management information

sources within an organization, management accounting serves as the basis for

integrating the diverse sources of data available to decision makers (King, 2008).

2.3.3 TRANSACTION COST ECONOMICS THEORY

The optimum level of inventory should be determined on the basis of a trade-off

between costs and benefits associated with the levels of inventory. Costs of holding

inventory include ordering and carrying costs. Ordering costs is associated with

acquisition of inventory which includes costs of preparing a purchase order or

requisition form, receiving, inspecting, and recording the goods received. However,

carrying costs are involved in maintaining or carrying inventory and will arise due to

the storing of inventory and opportunity costs. There are several motives for lower or

higher levels of inventories and highly depends on what business a company is in.

The most widely and simple motive of managing inventories is the cost motive, which

is often based on the Transaction Cost Economics (TCE) theory (Emery and Marques,

2011). To be competitive, companies have to decrease their costs and this can be

accomplished by keeping the costs of stocking inventory to a reasonable minimum.

This practice is also highly valued by stock market analysts (Sack, 2000).

2.3.4 FINANCIAL STEWARDSHIP THEORY

This theory explains how information asymmetry between principals and agent may

impair the efficient allocation of capital leading to higher costs of capital(Botosan, M.

& Plumlee, S. 2002).

Tayles, K. (2007) in their research, found some support for the fact that, amongst

Malaysian companies, greater information asymmetry between investors and the

management in high financial management companies meant that there is greater

scope for surprise, resulting in stock market volatility and stock price over-reaction.

When information is asymmetric in the market, investors without inside information,

such as details concerning human capital, are in a disadvantaged position when

judging the quality of companies and this affects the agricultural performance of the

firms. Often, principals engage intermediaries such as financial analysts and rating

agencies to seek private information to uncover manager’s superior information. The

privileged position of analysts, via private meetings with company management,

permits some degree of access to additional information not available to ordinary

shareholders.

2.4 EMPIRICAL REVIEW

Laitinen & Toppinen (2006) in their report, found out the cost-management

indicators, statistically, explain better on the short-term financial performance, than

value- added creation, which has an effect on long-term financial performance and
turnover growth in the future. They conclude that, cost-efficiency is a prerequisite for

the business, and the latest worldwide economic recession is just the best example to

confirm the validity.

Agha (2010) cost and profit in business undertakings form part of what determines

the financial position of a business concern. Since management is concerned with

profitability, which is a measure of business performance, especially in a

manufacturing concern, the need for higher sales will arise and this will facilitate the

need to increase production capacity, which in turn brings about increase in cost. The

corporate bodies should watch the cost and the profit will take care of itself. The

implication is that cost should be controlled rather than embarking on unscientific cost

reduction that may translate to lowering the quality of product.

Ahmed (2005) illustrates that management is normally forced to adopt various

methodologies and techniques in order to regulate (control) rather than reduce cost.

Cost increases as various production activities are embarked upon and the need to

keep cost in check arises because standards for production will be set and actual

production will be made thereby bringing about variances which can only be reduced

or eliminated through effective cost control.

Eluyele, Akomolafe & Ilogho (2016) investigated into the cost management and

performance of manufacturing. The study adopted secondary data using the financial

statement of the listed companies. The findings from this work shows that there is a

positive relationship that exist between cost management and performance of

manufacturing firms in Nigeria. The study recommended that companies should

embark on several cost management reduction strategy in relation to administrative

overhead and production overhead cost. By doing so, companies will achieve their

overall profit maximization and wealth creation objective.

Tomasi (2018) examines into cost control: A fundamental tool towards organization

performance. The objective of the study intends to assess the effect of budgeting on

organization performance; to examine the effect of standard costing on organization

performance and to determine the relationship cost control and organization

performance. The study used a case study design where both quantitative and

qualitative approaches were used, primary and secondary data was collected using

document review, questionnaires and interviews, and it involved a population of 80

and a sample size of 67, simple and purposive sampling techniques were used. The

study findings on the effect of budgeting on organization performance indicated that

budgeting explains the variation in the organization performance up to 8.5% as

denoted by R2 value (0.085) and the remaining 91.5% is attributed to other factors

other than budgeting. The study findings on the effect of standard costing on

organization performance indicated that standard costing explains the variation in the

in organization performance up to 5.8% as denoted by R2 value (0.058) and the

remaining 94.2% is attributed to other factors other than standard costing. According

to the study findings on the relationship between cost control and organization

performance, it was evident that there exists a significant and strong positive

relationship between cost control and organization performance where (r=0.425,

p<0.01).
Gichuki (2012) examines the effect of cost management strategies on the financial

performance of manufacturing companies listed on the Nairobi Securities Exchange.

The study use causal research design specifically multi – variance linear regression

model. It studied effects of various variables on another and the extend of causation

was documented. Study population was six out of eight manufacturing companies

listed, on Nairobi security exchange. The two were accepted due to inaccessibility of

data. The variables were positively related to financial performance of the

manufacturing companies. The study recommended of the management focused on

managing cost of distribution, cost of labour and cost of stock. That is ensuring just

enough stock is available, the supply chain is reasonable and labour is minimal and

efficient.

Kinyugo (2014) investigate the effect of cost efficiency on financial performance of

companies listed on Nairobi Securities Exchange. The sample consisted of 47

companies listed in the NSE who had published financial data is available

continuously over the sample period of the study 2008 to 2013. The sample included

firms in the following sectors, Agriculture, Automobile and accessories, Banking,

Commercial & Services, Construction & Allied, energy and Petroleum, Insurance and

Investment firms. The research adopted a descriptive survey design. The population

of interest for this study was all the listed companies at NSE in Kenya. Thus it was a

census survey. The study utilized secondary sources of data. In order to situate the

study theoretically and generate the conceptual framework with which to work on the

secondary sources was obtained from financial statements and NSE Handbooks of the

companies for a 6 year-period (2008-2013) and publications were also used. The

findings established that assets management measures demonstrate how efficient

management uses a firms assets to generate sales over a certain period of time. Asset

management ratios show how efficiently and intensively assets are used to create

Revenue efficiently and intensively.

James & Luke (2014) examines the effect of quality cost management on firm

profitability. The paramount objective of a firm or organization is to earn and

maximize profit in the long run. To achieve this, firms put in place diverse strategies,

one of which is quality improvement. This value-added activity has some attendant

cost implications, so also do the failures in a firm’s product or service. These cost

implications together make up the group of quality costs, and they put a strain on the

profit making ability of a firm. The objectives of this study were to find out how

quality costs can be managed and how their management affects the profitability of

firms. The survey design was adopted to gather data from the hospitality industry in

Bayelsa State. The correlation analysis (SPSS version 20) was used to analyze the

data and from the results obtained it was concluded that there is a significant

relationship between quality cost management and firm profitability. It was

recommended that effective quality cost management systems be put in place by firms

to enhance their profitability and that firms should channel more efforts towards

prevention and appraisal activities, this will reduce the extent to which they spend on

internal and external failures and lead to increased profitability.

2.5 REVIEW SUMMARY

This chapter looked into three aspects; conceptual, theoretical and empirical review.
Under the conceptual review, definition of cost management and cost management

strategies were considered. It also considered determinants of financial performance

and the effects of cost management on financial performance. This chapter also

looked into theories like cost management and efficiency theory, theory of

constraints, transaction cost economics theory and financial stewardship theory. This

chapter also considered empirical review from studies of previous researchers and

empirical review from these studies show that cost management has a positive

relationship with financial performance.

CHAPTER THREE

METHODOLOGY

3.1 INTRODUCTION

This chapter dealt with the research method used in this study. It presents the research

design used, population of the study, sampling size and sampling techniques, sources
of data, data collection method, techniques of data analysis, description of variables,

analytical tools and hypothesis test procedures applied in this study.

3.2 RESEARCH DESIGN

A research design is a plan, structure and strategy of investigation that is adopted with

the aim of obtaining answers to research questions with optimal control of variables..

It is a plan to answer a set of questions. It is an inquiry which provides specific

direction for the procedures in a research (Creswell, 2014). This is a step by step

procedure which is adopted by a researcher before the data collection and analysis

process commences so as to achieve the research objective in a valid way.

Research design is the blue print for the collection, measurement, analysis of data

and a plan to obtain answers to research questions.

This study employed ex-post facto research design using panel data analyses of

financial information extracted from published financial statements and accounts of

profit making organizations listed on the Nigerian Stock Exchange for a period of Ten

(10) years (2009 -2018).

3.3 POPULATION OF STUDY

Population can be defined as a comprehensive group of individuals, institutions or

objects with common characteristics. It is the researcher’s group of interest to which

the researcher would like the result of the study to be generalized.

The Institute of Chartered Accountants of Nigeria (ICAN) 2006 defined population as

being made-up of specific conceivable traits, events, people, subjects or observation.

The sample frame for this study comprises of the ten listed consumer goods

companies under the consumer's good category of the Nigeria Stock exchange.

These goods are for direct consumption by the consumer in their respective target

market