Academic journal article Journal of Financial Management & Analysis

Political Maneuverability and Product Costing Efficacy: Lessons from Rivers State Government-Owned Companies in Nigeria: Survey Findings

Academic journal article Journal of Financial Management & Analysis

Political Maneuverability and Product Costing Efficacy: Lessons from Rivers State Government-Owned Companies in Nigeria: Survey Findings

Article excerpt


Many experts across the world have cause to contend that economic growtii and development are better achieved when there is little or no government involvement in commercial and industrial activities. However, this is not yet tenable in many states of the Nigerian federation, as their governments are active participants in business and strategic economic endeavour. In fact, records have it that, all units of government (local, state, and federal) are active participants in business enterprise, as they plan, implement, and support various cornmercial/industrial development programmes in their domains. The existence, prevalence and dominance of government-owned companies (GOCs) in Rivers State of Nigeria is a critical case in point, attracting research attention such as this, on account of the tales of woes that have remained with the outfits for several years.

Like their private-sector counter-parts, GOCs are designed to operate as conventional business organizations, which produce and sell products that are demanded by competitive markets locally, nationally, internationally and globally. Unfortunately, negative financial experiences have been the order of the day for most of these GOCs. Rósete' had cause to beam the searchlight on 12 GOCs in the Philippines (where government had a definite corporate profitability policy), and found that all but one were operating at substantial losses, owing mainly to inadequate accounting systems, poor expenditure control, and weak marketing systems. In Nigeria, Fubara2 examined the reasons for prolonged abysmal GOCs' financial performance; and established the causal factors as inept management, insufficient funds, technology paucity/poverty, and incongruent management- organization-government objectives. The effect of political maneuverability on the association of product costing and profitability of the GOCs was the possibility explored in this study.

Political Maneuverability & Costing Imperatives in Government-Owned Companies

Organization's ability to compete efficiently and effectively in the global economy hinges largely on the cost and quality of products. Thus, the determination of accurate product costs is of the essence of corporate strategic and operational decisions (Gunasekaran, Marri & Grieve1; Blocher, Chen & Thomas4). Basically, product costing is the process of accumulating, classifying and assigning direct materials, direct labour and factory overhead costs to products or services. It provides useful cost information for both manufacturing and nonmanufacturing firms towards product and service cost determination and inventory measurement; management planning, cost control and performance evaluation; and strategic and operational decision-making. After all, no organization can efficiently and effectively conduct operations without knowing the cost of making the products or providing the services. Edmunds, Edmunds & Tsay5 had equally contended that companies need to know the cost of providing services or making products so they can plan their operations. Thus, the budgeting process cannot be well accomplished without knowing the cost of services or products. Product costing is also needed for cost control, so that corrective action could be taken when expected costs are inconsistent with actual costs. Product cost information may be used in pricing and reaching other short-term operational decisions (such as those relating to special order, outsourcing, and product elimination).

Fundamentally, product costing systems are concerned with cost accumulation (job or process costing), cost measurement, overhead assignment (traditional or activity-based costing), and treatment of fixed factory overhead costs (variable or absorption costing). However, the choice of a particular costing system ideally depends on the nature of the industry/ product, corporate strategy, management information systems (MIS) needs, and the cost-benefit profile of acquiring, designing, modifying and operating the costing system. …

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