Value Relevance of Budgeting: A Study of Pharmaceutical Businesses in Nigeria

Abstract

The main objective of the paper was to evaluate the relevance of budgeting as management accounting tool for pharmaceutical sales businesses in Nigeria. The scope is limited to budgeting as the management accounting tools considered. It is a quantitative research and the survey design was utilized in conducting the research with the use of questionnaires to obtain primary data from the respondents. The study is premised on the contingency theory of budgeting. Pilot study was conducted with three pharmaceutical firms which were not part of the surveyed population and experts in both accounting and Pharmacy were employed to ascertain the reliability and validity of the research instrument. The data collected was analyzed using descriptive statistics by first presenting a statement of set up budgets, setting up of frequency, and setting up of users’ budget and purpose budget. The findings show that the main budget was used by most of the pharmaceutical firms; while purchase budget and sales budget were the most commonly used set ups from the partial budgets. The least commonly used budget set up from the main budget is the cash budget. Whereas, the stock budget is the least common budget set up from the partial budget of these firms. The findings further show that the most important purposes of budget are implementation of strategies, and planning and allocation of resources. The paper recommends that cash budgeting and stock budgeting should be taking serious by these pharmacists to ensure reduction in expired drugs through the adoption of First in First Out stock valuation method; and to enhance maxima utilization of cash. The paper also calls for further studies which would incorporate other aspects of management accounting tools in similar or different industries.