A RE-EXAMINATION OF THE CONCEPT AND APPLICATION OF MARGINAL COSTING TECHNIQUE AND ITS EFFECTS ON MANAGEMENT DECISION MAKING

A RE-EXAMINATION OF THE CONCEPT AND APPLICATION OF MARGINAL COSTING TECHNIQUE AND ITS EFFECTS ON MANAGEMENT DECISION MAKING ( A CASE STUDY OF NESTLE NIGERIA FOOD PLC)

 

ABSTRACT

This study examined the re-examination of the concept and application of marginal costing technique and its effects on management decision making a questionnaire was designed and administered to fifty (50) junior and senior staff randomly for Nestle Food Plc on the basis of the data gathered analysis was done using simple percentage to test the research hypotheses. Finding from the data gathered revealed among others that:

• That marginal costing technique is effectively
• That management of Nestle Nigeria Plc has been making a positive decision
• That adherence to marginal costing technique will enhance profitability level

Recommendation based on  the findings were made to the effect that:

• The management should provide adequate teaching facilities and stimulate learning
• The management should ensure the provision of conducive physical environment or surroundings in the company. This could be done gradually at it would involve large amount of money
• The management should ensure improved reward system for performance to encourage those working relentlessly. It is hoped that thee recommendations will be implemented for better performance and productivity.

 

TABLE OF CONTENT

TITLE PAGE                                                                                   I

CERTIFICATION                                                                            II

DEDICATION                                                                                  III

ACKNOWLEDGEMENT                                                               IV

ABSTRACT                                                                                    VII

TABLE OF CONTENT                                                                            VIII

1.1    INTRODUCTION                                                                            1

1.2    STATEMENT OF THE PROBLEM                                               4

1.3    PURPOSE OF STUDY                                                                  5

1.4    RESEARCH QUESTIONS                                                   6

1.5    RESEARCH HYPOTHESIS                                                6

1.6    SCOPE AND LIMITATION OF THE STUDY                     7

1.7    SIGNIFICANCE OF THE STUDY                                       7

1.8    DEFINITION OF TERMS                                                     9

CHAPTER TWO

LITERATURE REVIEW

2.0    INTRODUCTION                                                                  10

2.1    MARGINAL COSTING                                                         10

2.2    CHANGES IN THE LEVEL OF ACTIVITY                         24

2.3    BENEFITS OF MARGINAL COSTING                               24

2.4    PROBLEMS OF MARGINAL COSTING                                      26

2.5    SHORT RUN FACIAL DECISION                                       29

2.6    MARGINAL COSTING TECHNIQUES VERSUS

ABSORPTION COSTING TECHNIQUES                          32

2.7    PRODUCT MIX AND CONSTRAINTS                               34

2.8    FIXING SELLING PRICES                                                  39

 

CHAPTER THREE

RESEARCH METHODOLOGY

3.1    INTRODUCTION                                                                            41

3.2    POPULATION OF THE STUDY                                          41

3.3    SAMPLE AND SAMPLING TECHNIQUES                        41

3.4    RESEARCH INSTRUMENT                                                          42

3.5    VALIDITY OF INSTRUMENT                                              42

3.6    RELIABILITY OF INSTRUMENT                                        43

3.7    PROCEDURE FOR DATA COLLECTION                         43

3.8    METHOD OF DATA ANALYSIS                                         43

CHAPTER FOUR

PRESENTATION OF DATA ANALYSIS                                              45

 

CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1    INTRODUCTION                                                                            52

5.2    SUMMARY OF FINDINGS                                                  52

5.3    CONCLUSION                                                                      53

5.4    RECOMMENDATIONS                                                        54

REFERENCES           

APPENDIX

 

 

CHAPTER ONE

1.1    INTRODUCTION

One of the most important things in life of a business is decision making, decision making is an all pervasive activity taking place at every level in the organization covering both the short and long term. It is concerned with the further and involved choice between alternatives. The decision making of a business contexed open the information possessed by the decision makers.

However, plans are activated by decision which requires some form of financial or quantitative analysis in order that a rational choice can be made. It is because of that the practicing relevant information or decision making process. The overall objectives of a business enterprises is to make a profit and as such decision in which method of operating profit to be used at any given time is a very crucial management decision.

In traditional cost in SSAP 9 emphasizes accounting conventions based on historicists. It is not recommended for measuring the efficiency of operators and for decision making because the determination of the stock valuation and profit figures are open to judgement. It is recommended that marginal costing should be used in all depression making process of the management.

The perception of marginal costing by the economist is different from that of the accountants. To the economists marginal costing is defined as the extra cost required to produce one addition. To the accountants, it is an accounting techniques which determines the marginal cost by distinguishing between fixed and variable cost.

The major differences between marginal costing techniques and absorption techniques is the treatment of overheads, while the later treats overheads as product cost the former treat it as period cost. It should be noted that many overheads vary with time that output and also that many overheads could be identified with a department or cost centre.

Marginal costing will be viewed in the following areas:

1. Cost behavior
2. The relationship between sales and revenues variable cost and contributions
3. The treatment of fixed costs
4. Breakeven analysis

There are some fundamental principles guiding marginal costing techniques decision.

1. Decision related to event in the future (only the future cost and revenue are therefore, used in a decision making analysis)
2. Given that the best decision is the one that maximizes the profit of an organization
3. All decisions should be based on identifying the differences between the income and the different between cost.

1.2    STATEMENT OF THE PROBLEM

The primary purpose of marginal costing is to provide information to management on that effects of costs and resume changes in the volume and types of output in the short run.

However, marginal costing techniques has always been truncated by the following problems.

1. Inadequate information to achieve the primary purpose of marginal costing
2. In constituency in the application of stock valuation method in the preparation of financial statement
3. Improper production management technique adopt because of high contribution rate
4. Incorrect treatment of fixed cost when marginal cost when techniques is used
5. The application of return on capital employed at it results in taking sub-optional decisions

1.3    PURPOSE OF STUDY

The purpose of this research work is to evaluate the critically examine marginal costing techniques as it is important for making managerial decisions. The objectives will include:

1. Determining alternative used by managerial period to the advents of marginal costing principles
2. Showing the importance of marginal costing as a tool for planning and short term decision making
3. Ascertaining the formal used in presenting marginal listing information by management accountant to the management
4. Ascertaining the relevant costs used in marginal costing computation
5. To recommend the appropriate timing for the usage of technique by the management

1.4    RESEARCH QUESTIONS

1. How can the management of Nestle Nigeria Plc been making decision, before the advent of marginal costing
2. How effectively preferred is marginal costing techniques to adoption costing in an organization?
3. To what extent has marginal costing technique contributed to decision making in an organization?
4. Does short adherence to marginal costing techniques enhance profitability level and growth of the organization?
5. What are the factors that influences decision made under marginal cost techniques

1.5    RESEARCH HYPOTHESIS

The following hypothetical statements are put forward in the study for proper analysis of the raw data:

H₁:    The marginal costing techniques is effectively preferred in an organization

H₂:    The management of Nestle Nigeria Plc has been making a positive decision

H₃:    Adherence to marginal costing technique will enhance profitability level

1.6    SCOPE AND LIMITATION OF THE STUDY

The scope of this study will focus on the concept and application of marginal costing techniques in Nestle Nigeria Plc. This study could have been extended to cover as many companies in order to allow for more representations, but the time and financial constraints, this study will be limited to the activities of Nestle Nigeria Plc Ltd.

1.7    SIGNIFICANCE OF THE STUDY

The study is expected to be tremendous help to students and managers in production sector of the economy alike. At the end of the study, it would be clearly understand and appreciate that marginal costing is a useful techniques but there are certain dangers. The dangers will be highlighted we would also find out if used with car and adopted to meet the diverse conditions which supply in a real life environment marginal costing could extremely useful. The accounting firms and management after this research work will allow see the fact that is system of marginal costing techniques is necessary.

This study will advance the use of marginal costing technique as a tool used in making decisions from the study, it would be appreciated how and why marginal costing can be an important and necessary aid to be useful to auditors. Management of companies, research institution professional bodies and the general public.

1.8    DEFINITION OF TERMS

ABSORPTION COSTING: It is the approach used all published accounts and all financial accounting statements. It emphasizes a functional classification of cost.

BREAK EVEN ANALYSIS: It is the term given to study of the relationship between cost, volume and profits at various level of activity.

CONTRIBUTION: It is the difference between the sales and variable cost of a product in a given period of time.

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