The Effectiveness Of Standard Costing As A Control Tool For Performance Evaluation In Manufacturing Industries (a Case Study Of Juhel Pharmaceutical Company Limited Emene, Enugu)

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This research work titled “the effectiveness of standard costing as a control tool for performance evaluation in manufacturing industries” examined the effectiveness of the application of standard costing system in controlling the production cost. Identified the variance that do occur and how they are analyzed for management control of cost. And also gave suggestions as to the improvement of their standard costing system for an effective control for good performance evaluation. Data for the study was sourced from two main sources which include Primary and Secondary sources of data collection. Primary data: Questionnaires and oral interviews were used to collect information from the respondents. Secondary data: Journals, magazine and other relevant materials relating to the area of my investigation will be review. Extensive literature review was carried out on direct literature and indirect literature on books, journals and past works. The research instrument used in this study includes oral interview and questionnaire.  The questionnaire is structural as to contain both close and open ended question. Simple tables, pie-charts and percentages was used in treatment of data while chi-square was used in the research work. Based on the findings, conclusions were drawn and recommendations were also made in the last chapter of this work which is the fifth chapter.




Title page                                                              i

Approval                                                                ii

Dedication                                                             iii

Acknowledgement                                                  iv

Abstract                                                                vi

Table of contents                                                    vii



1.1      Background of the study                                   1

1.2      Statement of the problem                                 3

1.3      Objectives of study                                         6

1.4      Research question                                            7

1.5      Significant of the study                                     8

1.6      Scope of the study                                           9

1.7      Limitation of the study                                     10



2.1      Meaning of standard                                               11

2.2      Types of standard                                            12

2.3      Objective of standard costing and variance

analysis                                                          14

2.4      Setting of standard                                                 14

2.5      Cause of variance                                            17

2.6      Use of standard costing and variance analysis             18

2.7      Purpose of variance analysis                              19         

2.8      Merit and demerit of variance analysis                20

2.9      Problem of standard costing and variance            22






3.1 Research  Design                                              24

 3.2Area of study                                                  25

3.3    Population and sampling                                 25

3.4    Sampling method                                           26

3.5     Research instrumentation                              27

3.6  Validity and reliability of research instrument27

3.7  Method of investigation                                    28



4.1 presentation and Analyses of results                           30

4.2 Data Analysis                                                    31




5.1  Summary of Findings                                       42

5.2  Conclusion                                                      43

5.3  Recommendation                                             45

       Bibliography                                                    49

       Appendices                                                     50




Knowing that a standard is an established basis or measure against which actual result of performance is bench marked. Standard cost is a predetermined or established cost, or target or goal which the management of a firm or industry aims at achieving given a conducive operating condition with a view of attaining maximum efficiency in its production. Therefore, standard costing is a costing technique which compares the standard cost of a unit of product with the actual cost to determine the efficiency of operations with the ultimate intention of carrying out any remedial action whenever necessary.

Based on the fact that they are pre- determined units cost estimates deviation are bound to occur and these are pin pointed in that they represents measures of performance. These deviations are termed variance, and are isolated for an in-depth analysis to reflect in the variance aids to the initiation of corrective and control action, so as to direct the operational activities  of the firm to conform with the standard cost as determined prior to those activities.

JUHEL Pharmaceutical Company limited, the case study of the researcher, is not an exception to these assertion. For cost reduction and minimization it is necessary that firms adopt standard costing and make effective use of it as a cost control measure with which to evaluate its performance

JUHEL Pharmaceutical Company limited Emene Enugu, the case study of the researcher is a 100% indigenous company incorporated in 1987 with RC No. 104.648 as a whole sale Pharmaceutical company. In answer to calls for local provision of cost-effective generic products to fill the gap left by multinational companies operating in the country; the founder, Dr. Ifeanyi Okoye with a focused vision, ventured into production and the factory was commissioned in 1989 as the first Pharmaceutical tablet manufacturing company in old Anambra state.


       The problem of control as a function of the business manager and evaluation of the performance of the entire organization has become a hydra – headed outlook. Moreso, the economic hardship characterized by high rate of inflation, fluctuation in the prices of goods, high cost of production among other task has led many companies to find ways of their production facilities in operation till a time when the economy is expected to improve. Such companies adopt cost control over production cost as to reduce and eliminate wastages.

Standard Costing is one of the cost control techniques which have been developed for years. And its widely application by many companies has proved it to be effective in supplying use information for cost control.

It is also worthy to note that standard costing in itself cannot control costs but can only be useful when the information supplied by this is applied to cost. With standard costing, technique efficiency can be determined through comparism of the actual incurred cost with the existing  standard but for the fact that production input are procured in an open market, it is affected by the inflation rate. This becomes a problem to the cost accountant in supplying accurate cost information. Therefore cost information supplied today may become outdated the next day.

In addition quality maintenance of the product given the current economic hardship and high cost production is concern to both the management of the company and its consumers. To guarantee the customers loyalty and there by ensure continuous profit, the quality have to be maintained through it might be costly. It is left for the company to decide on whether to use high quality material   which might be costly or low quality material at lower cost but would lower the quality of the product.

In the view of a company to survive this economic hardship operate effectively, efficiently and ensure profitability, it must take care of its cost of production which is the basis on which profit is realized. It is the purpose of this study to examine carefully how a company operating is an inflationary economy maintain an effective standard costing system.


This research aimed at knowing how the manufacturing companies precisely JUHEL Pharmaceutical Company limited, the case study of this research used standard costing technique in controlling its production cost so as to maintain cheaper prices its product (irrespective of the inflation crises is the country) in order to ensure continuous demand and then guarantee profit.

As an evaluative and  descriptive study it tries to find out how well applicable, this concept of standard costing is in this JUHEL Pharmaceutical Company limited if  compared with what has been written by some scholars. Specifically the following step will guide the investigation

a.          An analysis of the manufacturing cost as it relates to a unit product.

b.          Determine the effectiveness of the application of standard costing system in controlling the production cost.

c.           Identifying the variance that do occur and how they are analyzed for management control of cost.

d.          Giving suggestion as to the improvement of their standard costing system for an effective control for good performance evaluation.


This study on the effectiveness of standard costing as a control tool for performance evaluation will be based on the following question

i.            Is standard costing practicable in the operational activities of manufacturing industries?

ii.            Does standard costing have anything to do with reduction of the production costing of a firm?

iii.         Of what use is variance analysis?

iv.         Does standard costing data influence managerial decision making?

v.          Can this standard costing system help in the elimination and reduction of wastage?


This research is mainly carried out as a requirement in the partial fulfillment of the award of National Diploma (ND) in accounting.

It is also expected to help the researcher and other interested studies to have an insight of the practicability of the wholesome theoretical as seen in many textbooks on the concept of standard costing technique.

This additionally brings to the notice of the Nigeria would be entrepreneur and already existing companies the need to appreciate the use of standard costing in controlling costs and basis for  performance evaluation.


This research is intended to cover the control of production costing which include direct material cost direct labour cost and factory overhead cost, through the use of standard costing system and also the analysis of variance which might arise as a result of comparing the actual cost incurred with the existing standard cost determined by the management accountant. It is also worthy to note that this will cover standard cost and types.


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