MALAWI ADVENTIST UNIVERSITY

LAKEVIEW CAMPUS

BUSINESS DEPARTMENT

ASSESSING THE EFFECT OF COST CONTROL ON PROFITABILITY OF SELECTED

MANUFACTURING INDUSTRIES IN MALAWI

A RESEARCH PROPOSAL SUBMITTED TO THE DEPARTMENT OF BUSINESS

ADMINISTRATION IN PARTIAL FULFILMENT OF THE REQUIREMENTS OF THE
AWARD OF DEGREE OF BACHELOR OF BUSINESS ADMINISTRATION,
ACCOUNTING (BBA)- ACCOUNTING

SUBMITTED BY: MAYESERO SOLOMON

ID NUMBER: SSOLMA01

DUE DATE: FEBRUARY, 2023

Table of Contents
CHAPTER 1..............................................................................................................................................1
1.1 Introduction.................................................................................................................................1
1.2 Background Information..............................................................................................................1
1.3 Problem statement......................................................................................................................2
1.4 Objectives of the study................................................................................................................3
1.4.1 Main Objective.....................................................................................................................3
1.4.2 Specific Objectives...............................................................................................................3
1.5 Research Questions.....................................................................................................................3
1.6 Research hypothesis....................................................................................................................4
1.7 Conceptual framework................................................................................................................4
1.8 Theoretical framework................................................................................................................4
1.8.1 Frictional Theory of Profits...................................................................................................4
1.8.2 Clark's Dynamic Theory of Profit (1991)...............................................................................5
1.8.3 The Compensatory Theory of Profits...................................................................................6
1.9 Purpose of the study....................................................................................................................6
1.10 Scope of the study.......................................................................................................................6
1.11 Significance of the Study..............................................................................................................6
1.12 Limitations of the study...............................................................................................................6
1.13 Delimitation of the study.............................................................................................................7
1.14 Definitions of significant terms used in the study........................................................................7
1.15 Organization of Study..................................................................................................................7
CHAPTER 2..............................................................................................................................................8
2.1 Introduction.................................................................................................................................8
2.2 Conceptual Framework................................................................................................................8
2.2.1 Cost control..........................................................................................................................8
2.2.2 Profitability........................................................................................................................10
2.3 Relationship between cost control and organizational performance........................................11
2.4 EMPRICAL REVIEW.....................................................................................................................11
CHAPTER 3............................................................................................................................................15
3.1 Introduction...............................................................................................................................15
3.2 Research Design.........................................................................................................................15
 3.3 Area of the Study.......................................................................................................................15
3.4 Population and Sampling design................................................................................................15
3.5 Sample Size................................................................................................................................16
3.6 Research time horizon...............................................................................................................17
3.7 Sampling technique...................................................................................................................17
3.8 Data Collection instrument........................................................................................................17
3.9 Data Collection procedure.........................................................................................................17
3.10 Data Analysis Technique............................................................................................................17
3.11 Ethical issues..............................................................................................................................17
REFERENCES........................................................................................................................................18
 CHAPTER 1
INTRODUCTION

1.1 Introduction
This research aimed to assess the effect of cost control on profitability of manufacturing firms in
Lilongwe city, Malawi. This chapter covers background of the study, the problem Statement, the
objectives of the study, the research questions, the hypothesis, the conceptual frame work with
the theoretical frame work as well as definition of terms and organization of study.

1.2 Background Information

The history of cost control dates back to the 20th century where cost reporting was designed to
meet the information needs of the property managed institutions like banks. With the
introduction of revolutionary industrialization, complex companies became sophisticated and
cost management practices were eminent. Model emphasized stewardship, decision making, and
performance evaluation was emerged. This information was designed to support managerial
decision making and cost management in companies (Deconan, 2013).

Vosselman (2005) defined cost control as a set of cost accounting methods and management
techniques with the goal of improving business cost efficiency, by reducing costs or at least
restricting their rate of growth. Businesses use cost control methods to monitor, evaluate and
ultimately enhance the efficiency of specific areas, such as departments, divisions or product
lines within their operations. Cost control as a practice of comparing the cost of a business
activity with the original cost in order to ascertain if the cost is as planned. In this study cost
control is conceptualized as cost analysis, cost allocation and Cost monitoring in the
organizations (Siyanbola & Raji, 2013)

Cost analysis is a systematic approach to estimating the strengths and weaknesses of alternatives
(for example in transactions, activities, and functional business requirements or projects
investments) (Alrjoub et al., 2012). According to Oyedokun et al., (2019), cost analysis is used to
determine options that provide the best. It is the act of breaking down a cost summary into its
constituents and studying and reporting on each factor. It is the comparison of costs (as of
standard with actual or for a given period with another) for the purpose of disclosing and
reporting on conditions subject to improvement. Oyedokun et al., (2019), defined cost allocation

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as a process of providing relief to shared service organization's cost centers that provide a
product or service. In turn, the associated expense is assigned to internal clients' cost centers that
consume the products and services. For Cost monitoring and control arise from activities
designed to limit the agents' (from the principals' point of view) harmful actions. Bonding
expenditures result from the agents' actions to assure the principals that they will not take certain
actions (Rachael & Adinoyi, 2019).

Warganegara & Tamara, (2014) defined profitability as the difference between the revenue
generated by corporate firm and expenses incurred during the operation of the business. He
further classified that various costs incurred by these firms some of which are fixed costs like
rent while other are variable costs which can easily change for example electricity expenses and
the corporate firms can easily achieve increased sales.

The success of a company largely depends on the profit that it can realize. The profit is
determined by the costs that are made and the extent in which these costs are. Therefore, it is
essential for a company to know the costs and being able to control them. Manufacturing
companies in developing countries such as Malawi are suffering from less profitability due to
improper cost control (Siyanbola & Raji, 2013). Failing to realize profit targets, in ability of cost
recovery, poor sales volume and less competitiveness are the major signs of poor profitability.
Incase this problem (poor profitability) remain unchanged it may cause liquidation of many
companies, bankruptcy and insolvency which negatively reflect to the entire wellbeing of the
economy of a country like Malawi. Based on the problem mentioned, the researcher examined
whether cost control can influence the profitability of manufacturing firms.

1.3 Problem statement

Siyanbola & Raji (2013), pined that it is the primary goal of every for business organization to
earn profits. Investors cannot be willing to invest in a business in which there is no profit (Zidan,
2020). Oyedokun et al., (2019) stressed that most managers think that they can increase profit
margin only by increasing their sales forgetting that in the quest of increasing sales, there must
also be an increase in the amount of units to be produced in order to meet sales demand which in
turn also increases the cost of production, hence, these increased costs need to be curtailed. He
continued to say smart managers maintains the costs of production at a minimum level but that

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will not decrease the quality of the product in order to increase the profitability margin other than
just relying on increasing sales. Aswir & Misbah, (2018), also noted that cost control helps to
maintain the cost of production at a minimum level with the increased sales, hence increasing the
profit margin.

Rachael & Adinoyi, (2019) concluded that failure by organizations to control their costs leads to
high unnecessary costs which leads to low profitability or even loses, in turn most companies
shut down their operations. Bamwesige (2019), conducted the similar research, focused on cost
avoidance as a measure of cost control. Another research done by Macharia (2018), focused on
the effect of budgetary control on profitability in Nairobi, Kenya. Also Girmay, (2017), studied
on the consequences of financial management on profitability in Kenya. He used cost reduction
as the independent variable. These studies did not address other cost control measures that affect
the profitability of a company such as cost monitoring, and cost allocation, and also the literature
search in Malawi, yielded little or no information on studies on cost control and profitability
hence there is a geographical gap.

It is from this background that the researcher intends to critically assess the effects of cost
control on the profitability of selected manufacturing industries in Lilonwe city, Malawi to fill
the identified gaps.

1.4 Objectives of the study

1.4.1 Main Objective
The purpose of the study is to establish the effect of cost controls on profitability of
manufacturing firms in Lilongwe, Malawi.

1.4.2 Specific Objectives

1. To determine the role of budgeting on profitability of selected manufacturing firms in
Lilongwe, Malawi.
2. To ascertain the effect of cost allocation on profitability of selected manufacturing firms
in Lilongwe, Malawi.
3. To assess the effect of cost monitoring on profitability of selected manufacturing firms in
Lilongwe, Malawi.

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1.5 Research Questions
1. What role does budgeting play on profitability of selected manufacturing firms in
Lilongwe, Malawi?
2. What effect does cost allocation have on profitability of selected manufacturing firms in
Lilongwe, Malawi?
3. How does cost monitoring affect profitability of selected manufacturing companies in
Lilongwe city, Malawi?

1.6 Research hypothesis

1. H0: cost control has no significant impact on the profitability of manufacturing firms in
Lilongwe, Malawi.
2. H1: cost control has significant impact on the profitability of manufacturing firms in
Lilongwe, Malawi.

1.7 Conceptual framework

Independent Dependent

Cost controls
Profitability
 Budgeting
 Cost allocation  Gross Profit margin
 Cost monitoring

Above formulation, shows that organization’s profitability requires it to control its costs either
through budget control, cost allocation, or cost monitoring. According to the formulation,
profitability can be measured using gross profit margin

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1.8 Theoretical framework
1.8.1 Frictional Theory of Profits
According to this theory there exists a normal rate of profit which is a return on capital that must
be paid to the owners of capital as a reward for saving and investment of their funds rather than
to consume all their income or hoard them.

In a static economy where no unanticipated changes in demand or cost conditions occur, in long-
run equilibrium the firms would be earning only normal rate of profit on their capital and
entrepreneurial talent. This theory treats profit as a cost element and that profit is the price for the
‘function' of capital, hence it is a functional theory of profit. Under these conditions economic
profits would not accrue to the firms. Frictional theory of profit explains that shocks or
disturbances occasionally occur in an economy as a result of unanticipated changes in product
demand or cost conditions which cause disequilibrium conditions. It is these disequilibrium
conditions that bring into existence positive or negative economic profits for some firms. On the
other hand, when firms are making losses (i.e. negative profits), some firms will leave the
industry. This will cause price of the product to rise so that losses are eliminated and the
remaining firms make only normal profits. When economic profits are made in the short run,
more firms will enter the industry in the long run until all economic profits are driven down to
zero (that is, firms will be making only normal return or profits on their capital investment)
(Kulter, 2007).

1.8.2 Clark's Dynamic Theory of Profit (1991)

Clark's Dynamic Theory of Profit (1991) suggest that profit is a residue, the difference between
price and costs, due to the reductions in the cost effected by changes in the economy such as
population increase (this reduces wages), increased capital supply (this reduces the interest rate
charged and hence the cost of capital comes down), innovations (reduces costs), higher inventory
(windfall profits occur when the cost of production remains the same but the price shoots up
perhaps due to inflation or higher demand), forms of organization (reduces costs), technological
improvements (reduces the costs). This theory is also known as windfall theory of profits. This
theory treats profits as a residue in price after deducting costs, hence it is a residual theory of
profits. The static economy is one in which the things do not change significantly or remains
unchanged. Such as, the population and capital remain stationary, goods continue to be
homogeneous, production process remains unchanged, and the factors of production enjoy

5
freedom but does not move because the marginal product in each industry remains the same.
Also, there is no uncertainty and risk. On the contrary, the dynamic economy is characterized by
the generic changes such as an increase in population, improvement in production techniques,
change and increase in the consumer demands, changes in the organizational forms, and increase
in capital. The major function of an entrepreneur is to work in a dynamic economy to take the
advantage of these changes and promote his business, reduce costs, and expand sales (Horngren,
2005).

1.8.3 The Compensatory Theory of Profits

Frank Knight argued that economic profit is a return to the entrepreneur in exchange of the risk
undertaken by him (her) in the operation of a business enterprise. Because the other three factors
of production (land, labour and capital) have contractual agreements of payment for their
services – wages, rent and interest, economic profit is a residue that may exist after these other
factors have been compensated. No other factor income can be zero or negative’ but profit can
be, since at times there may be no profit at all or even a loss. Thus the entrepreneur is exposed to
a certain degree of risk. Consequently, according to the risk-bearing theory, if all goes well, the
entrepreneur is entitled to any positive return over all costs. Moreover, because the other factors
take little or no risk, they get a return which is contractually fixed. Due to the risk involved, the
profit potential of the product must be high enough to induce the entrepreneur to undertake the
organization, development and operation of the business. Usually, the riskier the business, the
greater must be the prospect of profit. In this sense, profit is the premium for risk-taking.

1.9 Purpose of the study

The study will convey a need that organization should control their costs in order to have high
levels of profitability which is crucial to firms’ survival and growth.

1.10 Scope of the study

This research work will be undertaken to assess the impact of cost control on profitability of
companies which is important for company’s survival. This study brings into a need of
controlling organizational costs to increase company’s profitability.

1.11 Significance of the Study

 The study will benefit the managers and owners of manufacturing firms who are
experiencing nowadays cost control problem and improving their understanding towards
the role of cost control on profitability of manufacturing firm.

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  Despite conducting research as an obligation for the award of the Bachelor's degree in
Business Administration in accounting, the researcher also acquired research skills that
will be necessary in future career success.

1.12 Limitations of the study

In conducting this research, the researcher faced such as:

 Time factor as the researcher had to collect data from different manufacturing firms
hence much of the time was spent doing this research leaving other issues.

 Finances: Doing research requires finances to be used in various research activities such
as data collection activity which requires movements which was actually difficult due to
inadequate finances.

1.13 Delimitation of the study

The study only took consideration in assessing the impact of cost control on selected profitability
measures in selected manufacturing industries of Lilongwe city concentrating on the top senior
level officials only. Due to time factor the study was conducted in selected Lilongwe-based
manufacturing industries only.

1.14 Definitions of significant terms used in the study

Cost: a word used to reflect a monetary measure of the resources sacrificed or forgone to achieve
a specific objective, such as acquiring a good or service (Drury, 2012).

Cost control: set of cost accounting methods and management techniques with the goal of
improving business cost efficiency, by reducing costs or at least restricting their rate of growth
(Vosselman, 2005).

Profitability: the difference between the revenue generated and the costs incurred to produce the
same revenue during a given accounting period (Brinker, 2002).

Manufacturing firm: is any business that uses components, parts or raw materials to make a
finished good.

1.15 Organization of Study

The whole study would be grouped into five chapters. Chapter one will contain the introduction
to the study, study background, problem statement, objectives of the study, research questions,
significance of the study, the expected limitations, the scope and the methodology to be used and

7
the organization of the study as a whole. Chapter two would be centered on the literature review
which will explain about concepts and approaches. Chapter three will be based on the research
design, data collection instruments, population and sample used, the mode for collecting the data
and the analysis of the data collected and then a brief side view of the selected manufacturing
firms in Lilongwe district, Malawi. The results of analysis to merge and findings will contain in
chapter four. Chapter five contains the summary of major findings, conclusion and
recommendations.

CHAPTER 2
LITERATURE REVIEW

2.1 Introduction
This chapter focuses on the concepts of cost control and profitability. It highlights theories, and
opinions from different authors and theoretical perspectives. It also describes related studies and
it also involves secondary data obtained from textbooks, journals and internet.

2.2 Conceptual Framework

2.2.1 Cost control

According to Vosselman (2005), cost control is a set of cost accounting methods and
management techniques with the goal of improving business cost efficiency, by reducing costs or
at least restricting their rate of growth. Businesses use cost control methods to monitor, evaluate
and ultimately enhance the efficiency of specific areas, such as departments, divisions or product
lines within their operations. Cost control as a practice of comparing the actual cost of a business
activity with the planned cost in order to ascertain if the cost is as planned.

Cost control across the globe is fundamental as organizations strive to attain a competitive edge,
Shrank (2001) opined that to determine the strategic impact of cost cutting, management across
the globe is fundamental if the organization has to weigh the net effects of the proposed change
on all areas of the business. For example, reducing variable costs related directly to
manufacturing a product, such as materials and transportation costs, could be the key to greater
incremental profits. However, management must also consider whether saving money on
production is jeopardizing other strategic interests like quality or time to market. If a cheaper
material or transportation system negatively impacts other strategic variables, the nominal cost

8
savings may not benefit the company in the bigger picture, i.e. it may lose sales. In such scenario
manager requires the discipline not to place short term savings over long term interests. They
further opined that one trend in cost control has been toward narrowing the focus of corporate
responsibility centers, thereby shifting some of the cost control function to day-to-day managers
who have the most knowledge or influence over how their areas spend money (Marcus, 2015).

The African design of countries provides a means for which cost control for the profitability of
the organizations. Cashin (1998) posited that responsibility accounting is a system designed to
accumulate and report costs by individual levels of responsibility, each supervisory area is
charged only with the cost for which it is responsible and over which it has control. The
responsibility accounting system should also provide costs for establishing policies and for
making daily decision. Most cost accounting systems were originally designed to accumulate and
distribute costs for product or inventory cost and for general cost control. The accounts were set
up to gather products costs and period costs in accordance with the needs of the income
statement and balance sheet.

In this study cost control is conceptualized as budget control, cost allocation and Cost monitoring
in the organizations

Budgeting

The key to better Administration of resources and their costs are planning and control. Budgetary
control is the procedure of creating strategies for an industry projected operation and control
operations to assist in carrying out their policies (Anatoli & Katarina, 2017). The goal of
budgeting includes: Assist in creation of strategies of developing companies plan revenues and
costs. It as well assists in organizing and collaborating their plans to major steps of management
(Brown et al, 2016). Additionally, it also articulates a basis for companies cost control and better
revenue to benefit from budgetary control, the company must first put in place measurable
objectives, explain the duties of each person and create the operational aims. As per the study,
short or a long term of just a year are usually framed in a planned budget period (Fauré &
Rouleau, 2011).

With time, for an organization to achieve its success it has to become imperative by planning its
financial activities through the use of budgets. The future expectation of the organization

9
requires the detailed financial plan which quantifies it using the available resources. The success
of the organization is not guaranteed by its budget but, the budget only helps in avoidance of
failure in the future. Many forms and functions are taken by the budget. It gives a foundation for
the sales target, cash investment, borrowing, inventory production, staffing plans and many
more. The expectation of the formal quantitative expression is granted by the financial plan. The
ineffective and inefficiency of the organization plans and coordination procedures is tamed as
inessential. The financial plans are effective administration weapon that facilitates the
organization administration to attain its objectives. In the business key areas such as production
and staffing becomes very impossible if done without the budget (Abernethy & Brownell, 2014).

Cost allocation

According to Baba, (2019), Cost allocation is a process of providing relief to shared service
organization's cost centers that provide a product or service. In turn, the associated expense is
assigned to internal clients' cost centers that consume the products and services. For Cost
monitoring and control arise from activities designed to limit the agents' (from the principals'
point of view) harmful actions. Bonding expenditures result from the agents' actions to assure the
principals that they will not take certain action. Kaplan and Cooper (2015), argued that an
effective cost allocation methodology enables an organization to identify what services are being
provided and what they cost, to allocate costs to business units, and to manage cost recovery.
Under this model, both the service provider and its respective consumers become aware of their
service requirements and usage and how they directly influence the costs incurred. There are
usually significant differences in cost measurement between cost accounting for external
reporting and costing for managerial purposes, the latter requiring a broader perspective that
measures how resource expenses are consumed and reported as costs of the organizations
activities and outputs. Yeng (2010) argued that cost allocations are sometimes made to influence
management behavior and thus promote goal congruence and managerial effort. Consequently,
in some organizations there is no cost allocation for legal or internal auditing services or internal
management consulting services because top management wants to encourage their use. In other
organizations there is a cost allocation for such items to spur managers to make sure the benefits
of the specified services exceed the costs.

Cost monitoring

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The Cost Monitoring is a System that measures and records consumption of adhesive for the
purpose of efficiency and cost analysis (Kakuru, 2005). When used along with production
schedules, clients can determine the exact cost per part. Compare this data to the baseline and
clients can easily determine their efficiency level. In short, it offers assurance that employees
apply the correct amount of adhesive. Cost Monitoring is critical for project success. The
information on cost monitoring is essential so that we can make management decisions. Cost
Monitoring is necessary to ensure that we meet financial targets. Cost Monitoring can avoid
budget and project overrun.

2.2.2 Profitability
According to Kakuru (2005), profitability is the difference between the revenues generated by
corporate firm and expenses incurred during the operation of the business. He further classified
that various costs incurred by these firms some are fixed costs like rent while others are variable
costs which easily change for example electricity expenses and the corporate firms can easily
achieve increased sales.

The profitability is classified into two main types namely: financial and non-financial
profitability. The financial profitability means measuring the results of a firm's policies and
operations in monetary terms. These results are reflected in the firm's return on investment,
return on assets, value added, profitability, etc (Petravick, 1997). While the non-financial
profitability means any quantitative and qualitative measure of either an individual or an entity’s
profitability that is not expressed in monetary units. This includes any ratio-based profitability
measure in that a non-financial profitability measure that is ratio-based omits any monetary
metric in either the numerator or denominator of that ratio (Richard, 2009). Common examples
include measures of customer or employee satisfaction, quality, market share, and the number of
new products. Non-financial profitability measures are sometimes considered to be leading
indicators of future financial profitability, while current financial profitability measures such as
earnings or return on assets are commonly considered to be trailing measures of profitability
(Koutoupis, 2009).

However, this research is intended to focus on financial profitability and will focus on gross
profit margin as a profitability measurement.

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2.3 Relationship between cost control and organizational performance
According to 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. Sikka (2017)
was of the opinion that cost control system consists of methods and procedures that help to
regulate the cost of operating and undertaking and ensures that cost do not go beyond a certain
level. Cooper and Dart (2009) in the areas of budgetary control, activity based costing, target
costing and value analysis. All of these techniques are geared toward controlling a firm’s cost to
improve corporate performance. The processes when systematized become an integrated cost
control system. Corporate performance reflects the accumulated outcome of efforts of a firm. It
is the summary of attainment of set goals and objectives of the firm.

One way of measuring corporate performance of a firm is by measuring its profitability.

Profitability is the financial measure of how well the business is doing (how much is the firm
earning its operations after deducting all its costs). Profitability of a firm can be measured in
different ways such as using net profit margin, gross profit margin, net profit, return on assets,
return on investments and many others.

2.4 EMPRICAL REVIEW

This section focuses much on the empirical discoveries of the studies done on the influence of
internal auditing on effective corporate governance. There are numerous studies conducted by
several individuals on the stated above topic.
There are so many researches that have been conducted on the impact of cost controls on
profitability. According to research conducted by Vambe, (2018), on cost control measures and
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their impact on profitability of manufacturing companies, a case study of Primeseed.co. (2018).
He used descriptive approach. Primary data was used collected through both qualitative and
quantitative approaches. Sample size of 30 employees was used in the research. h findings
showed that cost control measures have a positive impact on the profitability of manufacturing
companies as reducing costs directly reflect an increase in the level of profits of an organization,
it was evident that element of costs such as materials, labor and overhead costs and workers
behavior could be strategically controlled with measures like budgetary control, standard costing
and variance analysis, accounting to achieve higher profit levels.

Fabiana Meijon Fadul, (2019) conducted a research on cost control techniques and profitability
in a manufacturing firms in Western Uganda: a case study of gourmet burger kitchen G.B.K
group of companies (2019). The researcher cost control and profitability of manufacturing
companies in Rwanda. A case study of Bralirwa ltd, Kicukiro district, Rwanda used both a cross-
sectional research design and survey design which included both qualitative and quantitative
method of data collection, the quantitative method was used to collect numerical data in form of
numbers representing particular facts or measurements which helped the researcher to obtain
information from respondents in depth. Findings indicated that budget control significantly
affects the profitability of manufacturing firm of G.B.K Group of Companies Limited, this effect
therefore implies that budget control contribute to the profitability of manufacturing firm of
G.B.K Group of Companies Limited.

Another research done by Murungi, (2016) on cost control and profitability of manufacturing
companies in Rwanda, a case study of Bralirwa ltd, Kicukiro district, Rwanda (2016). The
research design was descriptive and correlational design. Both qualitative and quantitative
methods were used. Primary data and secondary data were also used. The population of this
research was 1031 respondents including employees of Bralirwa Ltd. The sample size was 91
people. Questionnaires were used to collect data and it was analyzed using SPSS. Study found
that logistical cost is one of the major challenges facing profitability of most manufacturing
companies.

Oyedokun et al., (2019), studied on “cost control and profitability of selected manufacturing
companies in Nigeria (2019)”. The research had a population of 78 listed manufacturing
companies and a sample of 23 companies. The study used purposive sampling technique. The

13
study took descriptive approach. The findings show that there is a significant negative
relationship between the cost of raw materials (CoRM) and profit before tax of manufacturing
companies in Nigeria. The study concluded that cost control has a significant positive effect on
the profitability of manufacturing companies in Nigeria for the period under review. Therefore, it
is recommended adequate management and alternative sourcing of raw materials.

Suparyanto dan Rosad (2015, 2020) on “cost control and profitability of manufacturing
companies in Rwanda, a case study of Sulfo. It took a period of three years from 2011 to 2013.
The research has been carried out by analyzing primarily secondary data (production statement
and profit statement); an interview was used in data collection. The findings concluded that using
cost control has importance to the organizational profitability.

Aswir & Misbah, (2018), conducted a research on “cost controls and profitability in
manufacturing firms in Hargeisa, Somalia”. Descriptive approach was used. Both questionnaires
and interviews were used. Descriptive statistics were used in this study included frequencies,
means on analysis on variables. The findings revealed that cost control significantly affects the
profitability of manufacturing firms in Hargeisa Somalia. The researcher concluded that cost
control has a considerably high influence on the profitability of the manufacturing organizations,
hence there is need for improving the cost controls to enhance profitability.

Siyanbola & Raji, (2013) studied The Impact of Cost Control on Manufacturing Industries’
Profitability. In carrying out this research, budget was considered as the basic tool for achieving
effective cost control and the study was concentrated on West African Portland Cement Plc
(WAPCO), where cost control was viewed from a strategic perspective. Pearson correlation
model was used in analyzing the data and the hypotheses tested confirmed positive impact of
cost control on the industries’ profitability.

According to a study by Macharia (2018), effect of budgetary controls on financial performance

of agro-veterinary medicine manufacturing companies in Kenya. . A descriptive research design
was adopted and the unit of observation comprised of all the 28 companies registered in Kenya
for the manufacture of agro-chemicals in Kenya. Census study approach was used and involved
all the 28 companies. Secondary data were gathered through a document review guide, and ran
through STATA version 14. Descriptive and inferential analysis were carried out. The
correlation analysis results indicated that there was a strong positive and significant association

14
between firm size and ROE, strong positive and significant association between PVR and ROE
and also that there was a negative and significant association between labor productivity and
ROE.

A study by Okafor (2010), on the impact of budgetary control on the profitability of business
organization (a case study of three oil industries), showed that effective budgetary control have a
strong and positive impact on the profitability of any business organization. Data was obtained
using questionnaires and was analyzed with the help of Chi-Square.

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 CHAPTER 3
RESEARCH METHODOLOGY

3.1 Introduction
This chapter outlines various methods which will be applied in conducting this research. It
includes the research design, research strategy, research time horizon, and population and
sampling techniques of the study, data collection instrument, procedure for data collection, data
analysis and ethical consideration.

3.2 Research Design

According to Orodho (2003) research design is a program that guides the researcher in
collecting, analyzing and interpreting observed facts. A research design helps the researcher to
allocate resources for an effective and efficient research (Cooper & Schinder, 2008). This study
will adopt quantitative design. This means that questioner will have close ended questions only.

3.3 Area of the Study

The study will be conducted in Lilongwe city with the population consisting of middle level
managers and support staff of different manufacturing industries.

3.4 Population and Sampling design

The research comprises of 14 targeted manufacturing firms in Lilongwe. The researcher will use
purposive sampling by picking 14 manufacturing firms found in Lilongwe City consisting of 40
managers and support staff. Manheim and Rich (2011) define purposive sampling as a technique
in which an investigator handpicks elements to be included in a sample on the basis of expert
judgement from a population. Saunders (2007) also pinned out that purposive sampling is used to
select elements that will best answer research question(s) and the research objectives. This type
of sampling is mostly applied when dealing with very small samples.

Table 2: Population

Name of a firm Number of respondents

Lilongwe daily 4
Central Plastics Manufacturers 2
Sheema Enterprises 3

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 Ketch International 3
Seba Foods 3
Capital Foods ltd 2
Bakers Pride 3
Capital Plastic Center 2
Robray ltd 3
Den Cement center 3
Shayona Cement Corporation 4
Titan Power 2
Durobloc Construction & Joinery Ltd 3
Golden plastics manufacturers 3
TOTAL 40

3.5 Sample Size

A sample size is a given number of members from the accessible population which is carefully
selected so as to be a representative of the whole population with relevant characteristics.

Therefore, sample size was calculated using the Slovin’s formula below;

N
n= 2
1+ N (e )

Where: n is the desired sample size, N is the population of the study and e is the confidence
interval of the study/desired sampling error.

Therefore, the formulation gives the following:

40
Formula: n= 2
1+ 40(0.05 )

40/1.100

36 respondents

The targeted sample is 36 respondents

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3.6 Research time horizon
According to Saunders et al., (2007), the time horizon is the time framework within which the
research project is intended to complete. In this study Cross-sectional approach will be used
since Cross- sectional studies provide quick results within a short period of time.

3.7 Sampling technique

The Researcher will use simple random sampling in the of selection respondents. This technique
ensures that each member of the targeted group has an equal and independent chance of being
included in the sample of this study

3.8 Data Collection instrument

In this study the researcher will use the primary data source hence, a questionnaire instrument
will be used. The questionnaire will have close ended questions. The close ended questions are
those questions that restrict the interviewee and have optional answers.

3.9 Data Collection procedure

The researcher will use the primary data. Data will be obtained using Questionnaires which will
be given to 40 managers and support staff.

3.10 Data Analysis Technique

Gay (1992), observed that data analysis involves organizing, accounting for and explaining that
data; that is making sense out of data in terms of respondent’s definition of the situation noting
patterns, themes, categories and regularities. The collected data from questionnaire will first be
checked for completeness and accuracy and if these are in order, data will be analyzed,
summarized and interpreted using descriptive and statistical approaches with the help of SPSS
and Microsoft Excel. The study will use Quantitative Method to analyze data. The findings will
be presented in form of tables, figures and charts.

3.11 Ethical issues

Saunders, Lewis, & Thornhill (2007), defined research ethics as the appropriateness of
researcher behavior in relation to the right of those who become subject of the study work. The
researcher will protect the participant’s privacy, keeping information confidential, and will allow
the participant to remain anonymous.

18
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Questionnaire

Dear Respondent,

My name is Mayesero Solomon, I am pursuing Bachelor’s degree in Business Administration

(Accounting) at Malawi Adventist University. I am conducting a study, “Assessing the effect of
cost controls on profitability of manufacturing companies”. Will you please assist my study by
filling and answering the questionnaire? I assure you that your answers will be kept confidential.

Section A: Demography of Respondents

Q1. What is your Gender?

Male

Female

Q2. What is your age?

1. 21-30 years
2. 31-40 years
3. 41-50 years
4. 51 and above

Q3. Level Education:

Primary Secondary College University

Q4. How long have you worked in this organization?

Less than 1 year 1-3 years 3-5 years 6 years and above

Q5. Position held in the organization

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Administrator Human resource Accountant/Assistant Accountant Other support Staff

Section B: The role of budgeting on the profitability

The following is the list of statements that explains the role of budgeting on the profitability of
manufacturing companies in Lilongwe. Kindly indicate the extent you agree or disagree with the
statements using the following guide: Strongly Disagree (SD), Disagree (D), Not Sure (NS),
Agree (A), and Strongly Agree (SA).

STATEMENTS SD D NS A SA
Q6 Budget gives a foundation on the estimated costs and target
sales
Q7 Budgets help managers to avoid overspending or spending
unnecessarily to ensure low spending
Q8 Budgeting ensures that the estimated benefits/sales are greater
than the budgeted costs thereby giving a room for the
realization of profits
Q9 Budgeting helps management to spot potential cashflow
problems to assist in planning potential ways of dealing with
such problems to ensure increased revenues

If there are other roles that budgeting play on profitability, list them below

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Section C: The effect of cost allocation on profitability

The following is the list of statements that explains the effect of cost allocation on the
profitability of manufacturing companies in Lilongwe. Kindly indicate the extent you agree or
disagree with the statements using the following guide: Strongly Disagree (SD), Disagree (D),
Not Sure (NS), Agree (A), and Strongly Agree (SA).

Statement SD D NS A SA
Q10 The organization costs are allocated at the firms
specific cost centers
Q11 Costs allocated truly reflect what is/was previously
incurred by
cost centers
Q12 Cost allocation help the cost center managers to
determine if the value/benefits derived from the
center exceeds the costs consumed by it
Q13 Cost allocation, which includes recognizing cost
center managers that meet/exceed the profitability
expectations, motivates the managers to strive even
for more, leading to improved company profitability
Q14 Cost allocation enables an organization to manage
cost recovery

Section D: effect of cost monitoring on the profitability

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The following is the list of statements that explains the effect of cost monitoring on the
profitability of manufacturing companies in Lilongwe. Kindly indicate the extent you agree or
disagree with the statements using the following guide: Strongly Disagree (SD), Disagree (D),
Not Sure (NS), Agree (A), and Strongly Agree (SA).

Statements SD D NS A SA
Q15 Allocated costs are frequently monitored in comparison with
the what was budgeted and desired results
Q16 Collective measures are undertaken to align the actual and
budgeted costs if there are deviations
Q17 When the estimated costs are less than the actual costs, cost
reduction is adopted as a collective measure to align them
Q18 Cost reduction as one of the collective measures undertaken to
align the budgeted and actual costs does not necessarily
decrease the production levels to avoid reducing the revenues

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