The Effect of Overhead Costs and Material Costs on Profitability of Consumer Goods Firms in Nigeria

The Effect of Overhead Costs and Material Costs on Profitability of Consumer Goods Firms in Nigeria

Akinleye Gideon Tayo, Fakorede Oluwatosin Mary

Department of Accounting, Ekiti State University. Ado Ekiti. Ekiti State

DOI: https://dx.doi.org/10.47772/IJRISS.2025.906000177

Received: 28 May 2025; Accepted: 31 May 2025; Published: 05 July 2025

ABSTRACT

This study investigated the effect of material and overhead costs on the profitability of consumer goods firms in Nigeria over a ten-year period (2014–2023). The study analyzed secondary data from ten chosen organizations using a fixed-effect model and panel data regression, using return on assets (ROA) as a metric for profitability. The findings indicate that material and overhead costs have a substantial positive influence on the profitability of manufacturing companies in Nigeria. Specifically, a 67.3% rise in ROA is linked to a 1% increase in overhead cost, while a 5.3% gain in profitability seems to be associated with a 1% increase in material cost. The model’s R-squared value of 0.629 indicates that the firm size, material costs, and overhead costs account for almost 63% of the variation in ROA. The results highlight how crucial efficient cost control is to improving the sector’s financial performance. The positive correlation between costs and profitability may suggest that businesses can maximize earnings in spite of economic constraints by strategically controlling overhead and material expenses and using them efficiently. In light of these findings, the study recommends that managers implement stringent cost controls, particularly for material and overhead expenses, to maintain consistent earnings.

Keywords: cost control, overhead costs, material costs, profitability, return on assets.

INTRODUCTION

Given the regrettable pattern of early company closures, it is now essential to examine cost management strategies and their impact on profitability within Nigeria’s consumer goods companies. Any company’s ability to effectively control costs is crucial to its growth trajectory. This is mostly due to the fact that cutting expenses is essential to increasing earnings. Every business must manage costs and profitability since the extent to which businesses control or reduce their expenses has a big impact on their profit margins (Abdul and Isiaka, 2015).

According to Abdul and Isiaka (2015), cost control involves regulating operating expenses for businesses in order to prevent the unnecessary use of precious resources and to encourage cost consciousness and efficiency. For businesses to maximize material resources in their operations, good cost control is therefore essential. Additionally, it includes putting cost-management strategies into action that are in line with management goals. Businesses must incur fair expenses in the highly competitive business environment, and management must make sure that resources are used wisely and effectively in order to meet goals (Aduwo, 2023).

Reaching cost control, a concept mainly related to businesses and organizations, denotes excellent performance in either maintaining or lowering costs per unit of production. The main function of cost accounting is to aggregate the costs of organizational goods and services. To decide on inventory valuation, selling prices, and eventually profitability, managers in manufacturing companies use cost control and performance strategies (Akayisenga & Mulyungi, 2019). Because of erratic market pressures and insufficient cost management measures, real profitability frequently falls short of expectations despite the increased focus on operational operations within Nigerian enterprises and the institutional backing (Akeem, 2017).

One of the main issues that businesses face is their incapacity to efficiently manage and cut expenses, which has a negative impact on revenue growth and, ultimately, profitability. Many businesses continue to suffer with excessive manufacturing costs even after putting various control mechanisms in place, which eventually forces them to raise their selling prices. A key component of corporate management is cost containment, especially in the current unstable market climate. It entails determining the acceptability and affordability of a company’s expenses by recognizing and evaluating them. Following that, suitable measures can be implemented, including cost-cutting measures like cutting expenses, renegotiating contracts, or changing service providers. According to Temitayo and Adegbie (2020), management must therefore have a say in the choices and actions of managers in charge of tasks, expenses, and revenue production.

Furthermore, a thorough analysis of the body of research showing that cost control has a mixed effect on firm profitability includes studies by Etale and Bingilar (2016), Lawal (2017), Oyerogba et al. (2014), Egbide et al. (2019), Fadare and Adegbite (2020), Ali-Momoh (2022), Aduwo (2023), Suleiman et al. (2023), and Fakiri and Adewale (2023). There is a knowledge gap because, although some studies (Myocardia & Adebisi, 2014; Lawal, 2017) show a favorable link between cost control measures and company performance, others (Emengini, 2014) suggest a negative relationship. Furthermore, it is clear that research findings on the effect of cost management on company profitability, both inside and outside the Nigerian economy, are inconsistent. It is also difficult to generalize results because the analyzed studies differ in terms of sample sizes, methodology, and sectors examined. Furthermore, because political, economic, and cultural circumstances differ, research done outside of Nigeria might not be directly applicable. Moreover, a lot of research only looks at particular independent and dependent factors, which adds to the inconsistent results that have been published. Therefore, the impact of material and overhead costs on the profitability of consumer goods companies in Nigeria is the main emphasis of this study.

The study’s objectives were to:

1. examine how Nigerian consumer goods companies’ profitability is impacted by overhead costs;
2. ascertain the impact of material costs on Nigerian consumer goods firms’ profitability;

In null form, the objectives were hypothesized as follows:

1. Overhead costs have no discernible impact on Nigerian consumer goods firms’ profitability.
2. Nigerian consumer goods firms’ profitability is not significantly impacted by material costs.

REVIEW OF LITERATURE

Conceptual Literature

Overhead Cost

Expenses that are not directly related to a particular project, good, or service are referred to as overhead costs, or indirect costs (Godwin et al. 2019). Although they cannot be linked to a single cost object, they are essential to a business’s overall operation. Others, like utility bills, raw materials for production processes, and maintenance supplies, do vary with the level of production. Some, like electricity, water, and gas used in manufacturing or office spaces, are semi-variable overheads that have both fixed and variable components, like telephone bills that have a fixed monthly charge plus costs for additional usage (Okwo & Ugwunta 2012). Other overhead costs, like rent, insurance, and the salaries of permanent staff, are fixed and remain constant regardless of the level of production or business activity. These expenses are crucial for determining the pricing of goods or services by guaranteeing that all expenses are met, and they aid in precisely anticipating and budgeting financial requirements (Godwin et al.). Finding places where expenses can be cut without affecting output is how overhead costs are used for cost control (Blocher et al. 2015).

Material Costs

The expenditures paid to acquire the components and raw materials needed to manufacture a product are referred to as material costs. According to Kumar and Vimala (2016), material costs might be either direct or indirect. Raw materials utilized directly in the manufacturing of goods are referred to as direct materials (Lawyer 2014). Indirect materials are those that are utilized in the production process but are not directly included in the finished product; examples include steel for the manufacture of automobiles or flour for bread making. Cleaning supplies and lubricants for equipment are two examples (Blocher et al. 2015). Examples of material expenses include the basic materials required to make items, such as cotton, steel, plastic, or wood; components purchased from suppliers and combined into the finished product; and materials used to package and safeguard things throughout transportation (Lawyer 2014). The expenses are utilized for inventory management, which lowers holding costs and guarantees ideal inventory levels through effective material cost management. These expenses are also utilized to reduce waste, such as cutting down on waste and scrap during the manufacturing process (Nwosu 2010).

The goal of material cost management is to keep inventory holding costs as low as possible (Brown, 2022). Methods like the inventory turnover ratio measure how quickly a business sells its stock over a given period of time (Etale & Bingilar, 2016). In order to decrease waste and lower production costs, effective raw material management requires the careful use of materials throughout the production process (Akeem, 2017). By evaluating how quickly a business sells and restocks its stock, the inventory turnover ratio acts as a gauge of the effectiveness of inventory management (Asaolu et al., 2012). Recycling and reuse, just-in-time inventory systems, supplier cooperation, and product design optimization are among the tactics that can be used to reduce material usage costs (Erasmus 2021).

Profitability

Profitability is the difference between revenue and expenses. Essentially, the direct relationship between profit and cost is demonstrated by the fact that profit is obtained by deducting costs from revenue. According to Adebayo and Onyeiwu (2018), profitability, liquidity, and solvency are crucial indicators for evaluating financial success. Any company’s main goal is to become profitable because long-term survival depends on ongoing profitability. As a comprehensive performance indicator, profitability captures all aspects of a business’s activities (Erasmus, 2021). It can be defined as an investment’s capacity to generate income through its use (Monica, 2014). Profitability is a key indicator of economic performance that provides a concise assessment of a company’s success or failure.

Considering both present performance and future uncertainty, managers of businesses frequently struggle with worries about profitability (Agbaje & Funso, 2018). One of the primary factors that determine financial performance and is essential for maximizing wealth is profitability. A non-profitable business cannot be sustained over time, especially in the face of the fierce rivalry that exists in the industrial sector. Although the terms “profit” and “profitability” are commonly used synonymously, they have different meanings. Profit is defined as net income from total sales less total expenses during a given time period, while profitability is related to how well a business operates (Oluwayemisi et al., 2022). It displays the company’s ability to produce a profit from sales, guaranteeing sufficient returns on investment, land, and labor.

Return on Assets

One important indicator of a company’s success is its return on assets (ROA) (Garcia, 2019). Policy choices and outside variables like the state of the economy and governmental laws have an impact on banks’ return on assets (ROA). ROA is frequently seen by regulators as the best indicator of bank profitability (Adeleke, 2014). ROA provides useful information for evaluating corporate profitability since it shows how well a company can produce returns from its asset portfolio (Akintoye et al., 2020). By dividing a company’s yearly earnings by its total assets, it provides a measure of management efficiency in using assets to generate earnings (Garcia, 2019) (Akinyomi, 2014). When there is an increase in return on assets, it reflects higher performance, but a decrease in return on assets indicates a lower performance level (Bamidele et al., 2025).

Theoretical Review

Stewardship Theory

Introduced by Davis et al. in 1997, this theory suggests that if left to their own devices, managers will serve as effective guardians of the resources they oversee. The expectation is that corporate leaders will safeguard the interests of shareholders and make choices that benefit them. Their primary aim is to foster a thriving organization to ensure shareholder wealth. Organizations that adopt stewardship combine the roles of CEO and chairman into a single position, with a board largely composed of internal members. This structure facilitates a profound understanding of the company’s operations and intensifies their commitment to achieving success. Stewardship theory is a conceptual model that asserts individuals are inherently driven to work for others or organizations to fulfill the duties and responsibilities they have taken on, as noted by Davis et al. in 1997. In essence, it posits that individuals tend to think collectively and prioritize the organization over personal pursuits, thus striving to reach organizational, group, or societal objectives, which provides them enhanced levels of fulfillment.

Consequently, the theory serves as one approach to understanding the incentives behind management behavior across different types of organizations. Stewardship theory claims that managers function as responsible caretakers of the organization’s resources, as referenced by Suleiman et al. in 2023. Managers emphasize organizational goals above their individual interests, deriving intrinsic satisfaction from the achievements of the organization, as indicated by Temitayo and Adegbie in 2020. Stewardship encourages collaboration and assigns greater importance to organizational aims, as stated by Temitayo and Adegbie in 2020. In their role as stewards, managers align their initiatives with the objectives of the organization, putting the firm’s success ahead of personal benefits, as mentioned by Temitayo and Adegbie in 2020. The theory highlights the significance of goal-oriented expectations and grants managers the autonomy to chase organizational goals, as discussed by Temitayo and Adegbie in 2020. For this study, the implications of this theory suggest that achieving cost efficiency should promote productivity.

Empirical Review

This part presents a thorough analysis of empirical research that supports the goals of this investigation.

Overhead Cost and Profitability

The study by Sinta et al. (2021) looked at the connection between Pt.’s financial success and operating costs. Jaya Gotong Royong. The research methodology employed was quantitative data collection. Despite this, the data used was secondary. To get a complete view of how variable operating costs affect financial performance, this study’s data analysis used simple linear regression analysis. To ascertain whether the independent variable significantly affects the dependent variable, a straightforward linear regression model is employed. According to the report, PT is significantly impacted by operating costs. Performance of Gotong Royong Jaya’s finances.

The impact of sales, trade payables, and operational expenses on net income in the Food & Beverage Company Sector listed on the Indonesian Stock Exchange for the years 2015–2018 was examined by Yeni et al. (2020). In the food & beverage industry listed on the Indonesia Stock Exchange for the 2015–2018 period, the purpose of this study was to test and examine the relationship between operational costs, accounts payable, and sales to net income. The study employed a quantitative methodology that included descriptive and deductive research features. Using the purposive sampling technique, a sample of 12 companies was selected from the total population of 18 companies. Multiple linear regressions were employed in the data analysis method. The test findings demonstrate that net income is impacted by sales, accounts payable, and operating expenses. According to the partial test results, net income is positively impacted by operating costs and sales and negatively impacted by trade payables. According to the coefficient of determination test,

Additionally, Lee (2019) used a case study methodology to analyze lead time reduction in project management. Project plans, timelines, progress reports, and performance indicators were among the data gathered by project management teams or organizations in charge of different projects. Stakeholder and project management interviews most likely enhanced the data collection procedure. The study examined lead time reduction aspects using case study analysis, potentially incorporating qualitative analysis, Earned Value Management (EVM), and critical path analysis. Effective communication, better resource allocation, and improved project planning were the main tactics found to cut lead time. According to the study’s findings, cutting lead time in project management calls for a combination of effective planning, resource management, and communication techniques that prioritize proactive management and stakeholder involvement. In order to reduce lead time and streamline procedures, it was suggested that tools and approaches such as project management software, Agile principles, and the Critical Path Method (CPM) be used.

Godwin et al. (2019) used regression and correlation statistics to analyze data and investigate how cost control affected the profitability of a few Nigerian manufacturing enterprises. The cost of salaries, wages, and profit before taxes of Nigerian manufacturing firms was found to be significantly correlated negatively.

Muriithi (2017) investigated the relationship between Kenyan occupational pension systems’ financial performance and their operational costs. The study concentrated on secondary data from 164 pension plans between 2007 and 2009. The stratified approach was used to get a sample of 329 pension plans. Financial performance was found to be negatively correlated with both administrative and investment management expenditures.

Kiaritha et al. (2014) examined the influence of operational costs on the financial success of SACCOs. A descriptive research approach was utilized. The SACCOs served as the focus group, and they were sampled using a stratified technique, with respondents chosen through simple random sampling. The study revealed that the policies implemented by the SACCOs were highly effective in managing their operational costs. Specifically, it was noted that employees agreed that the primary expenses incurred included salaries, rental payments, and interest charged on deposits made by members in their SACCO.

Material Cost and Profitability

Jonathan et al. (2023) investigated how Vitafoam Nigeria Plc’s profitability was affected by cost reduction. For the analysis, the study used ratio, vertical, and horizontal analysis. The inquiry revealed a troubling pattern in the business’s profitability, which is declining due to constraints imposed by the growing cost of raw materials. Despite this difficulty, the company has maintained a positive operating profit, according to the three analytical techniques used in the study. While administrative and distribution costs have not changed, raw material and other manufacturing input prices have been significantly impacted by the volatility of foreign currency rates. In order to solve these problems, the report suggests that Vitafoam’s management should address cost-related concerns, especially obtaining foreign currency to finance their inputs, in addition to increasing sales income.

Aduwo (2023) looked into how cost strategies affected the expansion of Nigerian manufacturing firms. Panel regression analysis was employed in the study. It was found that Nigerian manufacturing companies’ sales growth was negative and that changes in material costs had little effect on it.

The effect of inventory management on the development of sales of companies that manufacture food and beverages in Lagos State, Nigeria, was investigated by Akinlabi and Sanko (2021). The study’s population consisted of upper, middle, and lower-level managers from particular food and beverage companies in Lagos State, and it used a cross-sectional survey design. Data collection was made easier by stratified random sampling, and descriptive and inferential statistics were used for analysis. The findings demonstrated the critical role that inventory control plays in the financial success of individual businesses in the industry by showing a significant impact of inventory management on the financial performance of the tested food and beverage producers.

Using administrative costs and revenues as variables, Prempeh (2015) investigated the impact of effective inventory management on the profitability of manufacturing companies in Ghana. Ordinary Least Squares (OLS) and multiple regression techniques were used to analyze cross-sectional data taken from the annual reports of four manufacturing companies listed on the Ghana Stock Exchange. The study found a strong and favorable correlation between manufacturing enterprises’ profitability and their administrative costs.

RESEARCH METHODS

This research employed a descriptive design, concentrating on the impact of cost control on the profitability of publicly listed consumer goods companies in Nigeria. This design was chosen because of the inherent volatility and unpredictability of the variables derived from the ex post facto analysis. The study population consists of all twenty (20) consumer goods manufacturing firms registered on the Nigerian Exchange Group (NGX). A purposive sampling method was utilized to pick a sample of ten (10) publicly listed consumer products manufacturing firms. The selection of these companies was based on criteria including corporate size, economic impact, profitability, and data accessibility. Secondary data was collected from the annual financial statements of the companies analyzed for the period from 2014 to 2023 (ten years).

Model Specifications

This study utilized the model proposed by Egbide et al. (2019), in their study on the association between cost reduction techniques and the growth of manufacturing enterprises in Nigeria. The model is this below:

Where:  

      = Value of the Firm;

     = Cost of raw material; 

   = Administrative Costs;

    = Cost of sale turnover ratio.

    = Selling and Distribution costs; 

         = Firm size as control variable.

Nevertheless, the updated model was altered by substituting return on assets (ROA) for the dependent variable in place of firm value. Additionally, material cost and overhead cost were substituted for the independent variables of selling and distribution cost, cost of sale turnover ratio, and raw material cost. Firm size continues to be the control variable in the interim. Based on the data that was available, these factors were selected. The model for this study was created with the following specifications in mind:

In regression form equation 3.3 is written as:

……………. (3.3)

Where:  

     = Return on assets of listed consumer goods firm i in year t;

    = Overhead cost of listed consumer goods firm i in year t; 

   = Material cost of listed consumer goods firm i   in year t;

       = Firm size of listed consumer goods firm i in year t.

  = Stochastic error terms

t           = time period

Table 3.1: Variable Identification

Source: Data Compilation (2025)

Estimation Techniques

Descriptive statistics and inferential statistics were employed to examine the traits of the studied variables. The descriptive statistics applied consist of mean, median, standard deviation, kurtosis, and skewness. For inferential statistics, correlation analysis and panel regression techniques like the least squares method (LSM), fixed effect model (FEM), and random effect model (REM) are utilized to evaluate the influence of cost management on profitability.

RESULTS AND DISCUSSION

Descriptive Analysis

Table 4.1: Descriptive Analysis

Source: Data Analysis, (2025)

Table 4.1 offers a summary of descriptive statistics that shed light on the profitability of publicly traded consumer goods companies in Nigeria. The analysis reveals several important results: The average return on assets (ROA) stands at 0.562, reflecting that these companies attained a financial success rate of 56.2% during the timeframe studied. This result exceeds the industry standard of 20%, pointing to a strong performance in the field. The average overhead cost is reported at 0.281, denoting that 28.1% of the total expenditures of these firms were spent on indirect costs annually. This ratio illustrates proficient management of overhead expenses. The average figure for material costs is 0.127, suggesting that 12.7% of the total manufacturing expenses were allocated to materials. This ratio is regarded as standard within the industry. The average firm size is noted as 0.358, indicating that the chosen publicly traded consumer goods companies account for 35.8% of the entire population of consumer goods firms in Nigeria in this sector. Importantly, the standard deviation figures for all variables are below their respective average values, which points to a well-distributed dataset.

Panel Unit Root Tests:

Table 4.2:  Unit Root @ Level

Source: Data Analysis, (2025)

The results of the panel unit root test using the ADF-Fisher method are shown in Table 4.2. There is no unit root in the ROA variable at the level, according to the test findings for financial success as determined by return on assets (ROA), which have a t-statistic of 227.785 and a p-value of 0.000. In a similar vein, the overhead cost (OHC) variable shows no unit root with a t-statistic of 55.5864 and a p-value of 0.000. Additionally, the material cost (MC) variable is free of unit roots, as indicated by its t-statistic of 48.8476 and p-value of 0.0000. Lastly, the firm size (FZ) variable is stationary and does not have a unit root, as indicated by its t-statistic of 66.2600 and p-value of 0.000. These findings suggest that all of the variables are level and that no additional testing is necessary to verify that these variables do not have unit roots.

Regression Analysis

Table 4.3: Fixed Effect (FE) Model

SERIES: ROA, OHC, MC, FZ

 Source: Data Analysis (2025)

The fixed effect (FE) model’s results are shown in Table 4.3, where the R-squared value is 0.628756. This suggests that the profitability of Nigerian consumer goods companies, as determined by return on assets (ROA), accounts for about 62.8% of the variation in overhead cost (OHC), material cost (MC), and firm size (FZ). The error term accounts for the remaining 37.2% of the variance. The OHC, MC, and FZ variables account for a significant 60% of the variance in the profitability of consumer goods companies in Nigeria, according to the adjusted R-squared value of 0.602924, even when other factors are included in the error term.
At 0.6730270, the overhead cost coefficient is significantly positive (P=0.0001<0.05). This shows that OHC has a significant positive impact on profitability, with a one-unit rise in OHC translating into a 67.3% increase in the profitability of Nigerian consumer goods firms.

At 0.0776553 (P=0.0017<0.05), the material cost beta value is likewise positive and statistically significant. This suggests that higher MC results in a 7.8% increase in profitability, demonstrating the beneficial impact of MC on the profitability of the companies. However, at -0.0744019 (P=0.0038<0.05), the firm size coefficient is adversely significant. This suggests that the profitability of consumer goods firms in Nigeria is negatively impacted by company size.

Hypotheses Testing;

Table 4.4 Hypothesis One

Source: Data Analysis (2024)

The results for Hypothesis 1 are shown in Table 4.4. A statistically significant positive effect of 0.6730270 is seen by the overhead cost coefficient (P=0.0001<0.05). The null hypothesis must be rejected in light of this conclusion, which indicates that there is, in fact, a substantial correlation between overhead costs and the profitability of Nigerian consumer products manufacturing companies.

Table 4.5: Hypothesis Two

Source: Data Analysis (2025)

The results pertaining to the second hypothesis are shown in Table 4.5. At 0.078, the material costs coefficient demonstrates a statistically significant positive relationship (P = 0.0017 < 0.05). Therefore, we reject the null hypothesis that there is no meaningful correlation between material costs and the profitability of Nigerian consumer goods manufacturing companies.

DISCUSSION OF THE FINDINGS

Using a fixed effect (FE) model, the study examined how material and overhead costs affected the profitability of consumer goods companies in Nigeria. The findings showed that material and overhead costs have positive and statistically significant coefficients, suggesting that consumer goods firms are more profitable when these costs are tightly controlled.

Additionally, as shown in table 4.9, where the overhead cost coefficient was 0.6730270 (P=0.0001<0.05), improvements in this area result in notable increases in profitability. This is supported by statistically significant positive coefficients for overhead costs. The study disproved the null hypothesis, which held that there is no meaningful correlation between Nigerian consumer goods firms’ profitability and overhead costs. The results show that there is a strong correlation. This suggests that the profitability of Nigerian consumer products manufacturing companies and overhead costs do, in fact, have a substantial link. In particular, reducing overhead has a significant positive impact on business profitability. To clarify, the profitability of Nigerian consumer goods firms increased by 67.3% for every unit rise in overhead cost control, demonstrating the positive impact of overhead cost management on business profitability. This result emphasizes how crucial overhead cost initiatives are to raising the profitability of Nigerian consumer goods firms. These findings are consistent with the earlier projections of the beneficial impact of overhead costs on consumer goods firms’ profitability. The findings are consistent with those of research by Lasisi and Nuhu (2015), Godwin et al. (2019), and Akinleye and Fajuyagbe (2022), which discovered that cost containment had a favorable impact on the profitability of the companies.

Furthermore, the material cost coefficients exhibit statistically significant positive coefficients, suggesting that enhancements in this domain result in notable boosts in profitability. According to the findings in table 4.10, hypothesis two, which looked at the connection between material cost (MC) and return on assets (ROA), had a successful and statistically significant result. The significance level (0.0017<0.05), which indicates statistical significance, further supports the computed statistic (0.078), which points to a significant effect. As a result, the null hypothesis which holds that material costs have a major impact on the profitability of consumer goods companies in Nigeria is disproved. This suggests that a 7.8% increase in the profitability level of Nigerian consumer goods firms is equivalent to raising material costs by one unit. These results highlight how crucial good material cost management techniques are to raising profitability in Nigeria’s consumer products industry. These findings are consistent with earlier projections that material costs would have a positive impact on consumer goods companies’ profitability. The findings are comparable to those of research by Akinleye and Fajuyagbe (2022) and Aduwo (2023).

However, at -0.0744019 (P=0.0038<0.05), the firm size coefficient is adversely significant. This suggests that the profitability of consumer goods firms in Nigeria is negatively impacted by company size. Table 4.7 shows an R-squared value of 0.628756. This suggests that the profitability of Nigerian consumer goods companies, as determined by return on assets (ROA), accounts for about 62.8% of the variation in overhead cost (OHC), material cost (MC), and firm size (FZ). The error term accounts for the remaining 37.2% of the variance. The OHC, MC, and FZ variables account for a significant 60% of the variance in the profitability of consumer goods companies in Nigeria, according to the adjusted R-squared value of 0.602924, even when other factors are included in the error term. Furthermore, the study’s high R-square value (0.628756) shows that the cost control variables under investigation account for a significant amount of the variation in profitability, highlighting their importance in financial decision-making and strategic planning for businesses in this sector.

CONCLUSION

In general, a company should maintain an effective cost control mechanism in order to balance cost management and profitability. With a coefficient value of 0.6730270 (p=0.0001<0.05), the study concluded that overhead costs exhibit positive but substantial coefficients, suggesting that improvements in this area result in notable increases in profitability. This suggests that for Nigerian consumer products manufacturing companies, a one-unit increase in overhead costs corresponds to a 67% increase in profitability levels. Furthermore, the material cost coefficients are positive but considerable, suggesting that advancements in this field result in notable boosts in profitability. With a p-value of 0.0017 and a test statistic of 0.078 (below the generally accepted significance level of 0.05), it is clear that material cost has a major impact on the profitability (ROA) of Nigerian consumer products manufacturing firms.

The study concludes by offering solid proof of the substantial impact that material and overhead costs have on the profitability of Nigerian listed consumer products manufacturing companies.

RECOMMENDATIONS

Based on the results, the study suggested that:

1. The leadership of consumer goods firms should prioritize stringent control over overhead costs due to their significant influence on profitability, ensuring that the proportion of overhead costs relative to the total costs of the organization is effectively managed.
2. The leadership of consumer goods firms must implement ongoing management of material costs since they positively impact profitability. This can be achieved by effectively overseeing costs related to materials, supply expenses, and other comparable costs.

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