BREAK-EVEN THEORY AND ACCOUNTING AS A MANAGEMENT DECISION A TOOL

CHAPTER ONE

 INTRODUCTION

1.1            BACKGROUND OF STUDY

The success of a business is generally attributable in great measure of the ability of its management personal to cope with probable conditions of the future.  Short  range as well as long-term plans must be made accomplished through sound management evaluation.  However, many aids have been controlling and co-ordinating the function of their business.  One of the tool which encompasses vital and needed information in guiding companies profit path is the Break-Even theory.  This is an extension of marginal costing; basically.  It is concerned with the point at which revenue and costs intercedes, hence the term “Break – Even”.

Break-Even system is a simple and easily understandable method of picturing to the management the effect of changes in volume on profits.  It predicts the effects of managerial actions today on future profits and company survival.  Business people do not view costs outputs and profits may be affected by their actions.  With the aid of Break-Even theory, they will be able to understand more and data revealed by the Break-Even analysis.  This system involves the marshalling of the cost – volumer – profit data and other data to guide manager in its day-to-day decisions.  Some of the data are best seen in a chart form for management to get a perspective view of the profit structure.

Moreover, at the beginning of the century a planning tool was developed by WALTER RAUTENSTRAUCH called the Break-Even chart.  This development made a major contribution as a management aid in profit planning, forecasting and decision-making. The concept show the significance in a firm between it’s costs, volume and relationship between the costs, illustrate the relationship between the  cost, that-the selling price is constant irrespective of the volume.

1.2     HISTORICAL BACKGROUND OF NIGERIA HOECHST PLC

          On the 18th of December, 1963 the company was formed under the name “Hoechst Nigeria limited”.  The company was registered as a private limited liability company  with an authorized share capital of $10000 divided into 100 ordinary shares of $1 each on the 10th of January, 1964.

          August 4th, 1971 the PVA plant at Ikeja commissioned for use.  The major and company sold their 40% shareholding to E.O Ashamu and sons (holdings) Ltd.  The same day the name of the company was change to “Nigerian Hoechst.