MARGINAL COSTING AS AN ESSENTIAL TOOL FOR DECISION MAKING IN A MANUFACTURING COMPANY
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Enugu, Nigeria
Nigeria
Enugu State
Nigeria
09080008483
info@projectng.com
09080008483
info@projectng.com

Marginal Costing As An Essential Tool For Decision Making In A Manufacturing Company

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MARGINAL COSTING AS AN ESSENTIAL TOOL FOR DECISION MAKING IN A MANUFACTURING COMPANY

(A CASE STUDY OF EMENITE ENUGU)

ABSTRACT

This project is a survey that aims at exploring the importance of marginal costing as an essential tools for decision making in manufacturing company bearing in mind their immense contribution for quick decision making to determine the efficiency and effectiveness of marginal costing, the following are put into consideration. How management decision is carried out in marginal costing,To find out the inherent deficiencies in its applications,To help in determining the criteria for cost control and analysis, How product decisions are made by the management under this techniques. In the course of investigation, data were obtained through questionnaires administered to the management staff and few from the senior staff of Emenite Nig Ltd Enugu who have knowledge about the techniques under review. Some information were got from internet the collected data were classified, analyzed and interpreted by discussion and analysis. The major findings were;The company applies marginal costing techniques in valuation of stock, cost planning and control for  Decision making, Fixing of prices Controlling of cost, Marginal costing is simply to operate, and that is the reason they use it, It helps on decision making, It reveals the contribution made by each product of department, It helps in making decisions that are quick based on acceptance or rejection of special order. Based on the findings, the following recommendations were made. Where there is a request for special order, marginal costing should be applied. Due to the difficulties associated with receipts of orders, the orders for basis materials should be made on time. The organization should support their company budgetary control system with the standard costing techniques for effective materials and labour cost control.

 

 

   

 

 

 

 

 

 

 

TABLE OF CONTENTS

Title page                                                                                                    ii       

Approval page                                                                                           iii

Dedication                                                                                                  iv

Acknowledgment                                                                                        v

Abstract                                                                                                      vi

Table of contents                                                                                        vii

CHAPTER ONE

1.0     Introduction                                                                                     

1.1     Background of study                                                                        1

1.2     Statement of problem                                                                       3

1.3     Objectives of study                                                                           4

1.4 research hypothesis                                                                                        5

1.5 Research questions                                                                               5       

1.6 Significance of the study                                                                       6

1.7 Scope of the study                                                                                7

1.8 Limitation of study                                                                               8                                                       

CHAPTER TWO

2.0     Review of Related Literature                                        

2.1            Marginal Costing                                                                              9       

2.2            The Principles of Marginal costing                                                   11

2.3            Marginal costing and decision making                                              17

2.4            The contribution margin theory                                                                  33

2.5            Marginal versus Absorption costing                                                          36

2.6            Break even analysis and decision making                                         42

2.7            Advantages and Disadvantages of marginal costing                         49

        CHAPTER THREE

3.0     Research Methodology                              

3.1            Design of the study                                                                           50

3.2            Area of the study                                                                              50

3.3            Population of the study                                                                    51

3.4            Sample and sample techniques                                                                   51

3.5            Instrument for data collection                                                           51

3.6            Validity of instrument                                                                       52

3.7            Reliability of instrument                                                                             52

3.8            Sources of data                                                                                 53

3.9            Analytical technique                                                                         53

CHAPTER FOUR

4.0     Data Presentation and Analysis                                             

4.1            Data Presentation                                                                             54     

4.2            Presentation of data                                                                          55

4.3            Testing of Hypothesis                                                                       68

 

CHAPTER FIVE

5.0     Findings, Conclusion and recommendation                            

5.1            Summary  of Findings                                                                      73     

5.2            Conclusion                                                                                        74     

5.3            Recommendations                                                                                     75

5.4            Implication of the study                                                                    79

5.5            Suggestions for the further studies                                                    79     

                                     

Appendix

Bibliography

CHAPTER ONE

1.0     INTRODUCTION

1.1  BACKGROUND OF THE STUDY

       The reality of modern business management in a free enterprise economic system is the level of competition among all the enterprise, where only the filter enterprises survive.  The motive for maximization of profit in business and quest for Wealth Creation being in vogue, management continues to remain under increasing obligation to improve its share of the market, its assets, its credit worthiness and its overall potential.

These in turn require an improvement in the quality of decision. Therefore in order to respond effectively to the challenges of time, management requires good factors in business decisions.

This research work is a real attempt to investigate into the principle and practice of marginal costing as an essential tool for decision-making in Manufacturing Companies using Emenite as a case study.  

This study will critically examine the following:

-      The condition for analyzing cost into fixed and variable components.

  -    How the cost are normally controlled,

-      And how management decision in aided under the technique.

An appraisal is necessary in order to determine effectiveness and efficiency of the management accounting technique.  In carrying out this research work, data was got from questionnaire.

Information and analysis of the data, using the percentage method to analyze the response elicited from respondents.  Also the personal observation methods were used, together with relevant information from libraries.

BRIEF HISTORY OF EMENITE LIMITED

The foundation stone of the company was laid 3rd October, 1961 by Late Dr. the Hon. M.I. Okpara, the premier of the Estern Nigeria and Historic details.

Emenite Limited is a part of the worldwide Etex Group and is leading provider of fibre  cement product to the construction industry in Nigeria. Emenite limited started production in 1961 since then the company has gained a Wealth of experience through meetinh requirement of the construction in promoting the development of Nigeria through the manufacturer of high and marketing its fibre cement roofing and ceiling products and also the supply of high quality of goods and services.

1.2  STATEMENT OF PROBLEM

       This study will try to answer the questions listed below:

a.          Can marginal costing reduce the arbitrary allocation of production cost to cost centres?

b.          With this technique of marginal costing can production not be increase without increasing the amount of fixed cost?

c.          When management is faced with two or more alternative choices of product, is marginal costing a useful tool for selecting or choosing the best alternative?

1.3  OBJECTIVES OF STUDY

       Marginal costing as an essential tool for decision-making.  Marginal costing technique of cost accounting tends to separate cost into variables and fixed components. The objectives of this study among other things include:

a.  To determine the condition for cost control and analysis

b.  Finding out any inherent deficiencies in its application.

c.   An evaluation of the marginal costing technique towards ascertaining its effectiveness and efficiency.

d.  Examine how management under this technique makes product decisions.

  

1.4 RESEARCH HYPOTHESIS

       The following hypotheses are proposed for this study.

Ho: The principles of marginal costing does not aid prudent decision making in the management.

Hi: The principles of marginal costing aid prudent decision making in the management

Ho: The management does not understand  the statement prepared using marginal costing techniques easily.

Hi: The management understand easily the statement prepared using marginal costing techniques or principles

Ho:  marginal costing does not help in the achievement of organizational goal.

Hi: marginal costing helps in the achievement of organizational goal.

      

1.5 RESEARCH QUESTION

The following research questions are asked.

a.  Does the principles of marginal cost aid prudent decision making in the management.

b.  Does the management understand easily the statement prepared using marginal costing techniques or principles.

c.   How did marginal costing help in the achievement of organizational goal.

 

1.6  SIGNIFICANCE OF THE STUDY

       Since it is a technique of cost accounting adopted by an organization to measure its profitability, any effort geared towards establishing how the technique helps in the profit realization of the organization in worthwhile.

       Since this relationship is reciprocal, any suggestion on the improvement of the costing technique should have some bearing on profit improvement.

       Its output or productively is to be enhanced, and profit maximized, a knowledge of cost behaviour and analysis into the various components is essential and worth undertaking.

       Based on the findings of this study and the suggestions proffered, it is strongly hoped that attention to them would go a long way in improving the profit position of the firm.

 

1.7 SCOPE OF THE STUDY

       This study is limited to the survey of how the marginal costing technique is used to make decision at the Emenite Limited and how effective and efficient it is to the company.  This investigation is not to be taken as an exhaustive piece.

 

 

 

 

 

1.8  LIMITATION OF THE STUDY

       This researcher had difficulties in collecting all the relevant data required for an depth evaluation of this subject.  This constraint emanated from the fact that the Company is said to be a competitive manufacturing company concern and the General manager considers its risk to issue out information required.

 

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