Evaluation of Factors Affecting the Concept of Profitable as a Guide to Policy Decision

Evaluation of Factors Affecting the Concept of Profitable as a Guide to Policy Decision

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Chapter One of Evaluation of Factors Affecting the Concept of Profitable as a Guide to Policy Decision

INTRODUCTION

BACK GROUND OF STUDY

According to Harper (1977) the concept of profitability can be defined as the concept which provides management with alternative course of action in accordance with the various degrees of profitability stating clearly in relevant cost account form individual projects which enables management to select the most profitable.

Most of the policy decision of manufacturing industries are generally directed towards profitability. Policy decisions made under this concept has a direct effect of increasing and enhancing the general profitability of the manufacturing industries concerned.

The origin of this concept can be traced back to the era of industrial revolution. Prior to this era, industrial were run as family concerns but with the industrial revolution, most business grew from the usual family arrangement to large groups. Resources were pulled together and handed over to other people to manage for the owner’s.

Naturally, resource owners must expect a profitable returns from the investments, this urgent obligations forced management to seek ways of carrying out their activities so as to make profitable returns to the resource owners. Investment grew in all dimension until the first and second world wars, one would have expected that after the world war industrialization would have been abandoned but as we have seen today, this was fortunately far from being so. Rather a large number of manufacturing industries grew in importance and also in complexity all in a bid to meet the demands and standard set by the developed countries.

Enough quantity of materials had to be bought and at the same time later which is a very vital commodity had to be allowed to operate in a conducive environment so as to enjoy the benefits of hiring labour prior to commencement or an expansion the manufacturing industry must move with the changing technology, meet it social responsibilities, operate under government stipulations, pay tax as and when due and meet the expectations of the shareholders.

High administrative cost, cost of changing technology, fierce competition, scarce resource, falling economy, cost of government restrictions, the need for maximization of shareholders wealth, poor capitalize etc must be accommodated and adjusted in such a way that total cost of manufacturing a product will not only be less than sales renew but give a good profit margin.

This stipulation of operating under many uncompromising variables gave rise to the need for policy  decision on such things as siting an industry.

–         Expansion of an existing industry

–         Introduction of a new product

–         A change in production design

–         Sell or process further

–         Close down.

–         The nature of this research project requires theoretical approach and analysis which will cover the three dimensional focus of the research, the research focus on the three major areas are;

–         The economical factor affecting the concept of profitability as a guide to a policy decision.

–         The Endogenous factor affecting the concept

–         The political factors.

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