The Impact of Cost of Production on Return on Capital in Dispersed and Concentrated Manufacturing Firms in Nigeria

Abstract

In Nigeria, production firms amidst of challenging forces struggle to maintain their going-concern as against earnings and invested capital. The manufacturing sector of the economy are at risk because of the increase in economic downturn, inflation, demand and supply fluctuation, high cost of raw material, epileptic power supply that resulted to high cost of over head in running the production processes, and poor patronage of local products as against imported ones. Because of these militating factors warrant the manufacturing firms to struggle for their survival and to manage their resources (capital) judiciously in order to satisfy themselves and the interest of their investors. Hence this study is motivated by this background to investigate the impact of cost of production on return on capital of dispersed and concentrated manufacturing firms in Nigeria from 1998 to 2007. This study adopt two -variable linear regression model and we discovered that for dispersed firms examined there was a positive non-significant impact of cost of production rate (CPR) on return on capital (ROC), therefore, an increase in cost of production rate as to enhance the return on capital of dispersed firms will increase, though not significantly. The concentrated firms examined, there was a positive non-significant impact of cost of production rate (CPR) on return on capital (ROC). Hence, with dispersed firms, cost of production rate increases return on capital of Firms as well increases return on capital for concentrated firms. The study recommends that the government should provide basic social capital that is highly efficient so that industrialist could be saved from very high overhead costs. Also the government should facilitate power supply, create an enabling environment for the firms, ensure basic incentives of support for local content, tax holidays and provision of subsidy to firms in order to boost the economy.

Keywords: Cost of Production, Return on Capital, Dispersed firms, Concentrated firms.