Download Marginal-Costing-Its-Application-As-Tool-To

ABSTRACT
In modern industries where we have advanced state of competition and
rivalry, management makes use of predicted costs that is in a meaninful
manner. Since fixed costs are substantial proportion of costs in modern
industry, business organizations face hard times due to the continual draw
down on profits that arises as a result of the arbitrary allocation costs to
cost centers. This study evaluated and appraised the effectiveness and
efficiency of marginal costing application as a tool to decision making in
manufacturing company with the Anambra Motor Manufacturing Company
Emene as the case study. In the investigation of the above, data were
collected through the administration of questionnaires to some staff of the
company. The percentage analysis method was utilized in the analysis of
the responses that were elicited from respondents. Some staff o the
company were equally interviewed on the subject matter. The researcher
found out that the company employ marginal costing because of its
simplicity in operation and that the under and over absorption of overhead
is almost entire avoided. It was equally ascertained that the technique of
marginal costing shows meaningful and more realistic profit position of the
company as the technique writes of fixed costs in the period that they are
incurred. From the findings of the study it is recommended to the
management that the company’s budgetory control technique should be
supported with the standard costing in control of material and labour costs.
CHAPTER ONE
INTRODUCTION
1.1
BACKGROUND OF THE STUDY
One pronounced reality of the modern business management in the
advanced state of competition and rivalry whereby only the fittest
enterprise survive, management however, employs predicted cost which is
put in a meaningful manner. Essentially, while making a decision between
a number of alternatives, management is always, more concerned with the
cost and income difference between alternatives rather than the absolute
total themselves.
Due to wealth creation and the satisfaction of business motives
management continues to increase its shares assets and generally it credit
worthiness in the entire economy. These in turn requie an improvement in
the quality of decisions. Therefore in order to respond effectively to the
challenges of the times, Management reuire good decision analysis leads to
this research work.
This research work is principally concerned with investigating into the
principles and the application of marginal costing technique at Anambra
Motor Manufacturing Company, Emene. The study will principally
examined.
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The criterion for analysis costs into fixed and variable components
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How these costs are control and
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How prices are determined employing the principle.
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How decision making is aided under the principle.
An appraisal was necessary in order to determine efficiency and
effectiveness of this management accounting technique. In carrying out
this research work, data was got from questionnaire in formation and
analysis of same, employing the percentage method to analyse the
responses elucidated from the respondents. Also, personal observation
method was used coupled with relevant information from libraries.
1.2
STATEMENT OF PROBLEMS
Fixed costs are substantial and increasing proportion of costs in
modern industry. Business organizations are therefore facing hard times as
a result of the continual draw down in profits arising from the arbitrary
allocation of costs to products and cost centres.
This arbitrariness in the allocation of cost has given rise to high cost
of production, high cost of products and low turnover rate in the light of
this the future of business organizations in Nigeria is bleak.
The pertinent issue therefore, is diametrically linged in planning and
controlling costs through an efficient cost planning and reduction method.
This study will therefore try to ferret answers to the following questions.
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Can marginal costing reduce the arbitrary allocation of production
cost?
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With this technique of marginal costing, can production not be
increased without increasing the amount of fixed cost.
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When management is faced with decision about two alternatives is
marginal costing a useful tool to select or choose the alternative that
better?
1.3
OBJECTIVES OF THE STUDY
The technique of marginal costing is the one that differentiates costs
clearly into fixed and variable elements. Bearing this in mind the objectives
of this study inter-alia, includes:
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Evaluating the marginal costing technique in order to ascertain
effectiveness and equally its efficiency.
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Any efficiency in the application of the technique
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To determine the criterion for cost, control and analysis
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To generally examine how product decisions are made by
management under the technique.
1.4
HYPOTHESES OF STUDY
In order to get a classical analysis of the study, the following
hypotheses are hereby proposed for this research work.
Hi:
The principles of marginal costing aid prudent management decision
making
Ho: The principles of marginal costing do not aid prudent management
decision making
Hi:
The statements that are prepared employing the principles of
marginal costing are easier to understand by management.
Ho: The statements that are prepared employing the principles of
marginal costing are not easier to understand by management.
1.5
SCOPE AND LIMITATIONS OF THE STUDY
The study is limited to the survey of how the technique or marginal
costing in generally operated at the Anambra Motor Manufacturing
company, Emene otherwise known as (ANAMMCO) and how effective and
efficient the technique is to the company. However, this very investigation
should not be taken as being diametrically exhaustive. It is just a drop in
the ocean because the information that was available to the researcher
was very much limited. Due to the limited nature of the information that is
available, this research can not be considered as an end itself, rather as a
means to an end. Data that were required to have a profound evaluation of
the subject.
The constraint stemmed from the obvious fact that since (ANAMMCO)
very risky in divulging all the information that were required.
In carrying out a research of this magnitude, adequate time is
needed to do enough justice to the study, however, the time allocated to
the study was insufficient to facilitate thorough investigation on the study
and subject matter.
1.6
SIGNIFICANCE OF THE STUDY
One established fact is that any technique of costing that a profit
oriented business organization decided to adopt must be related to
profitability in view of the above fact, any effort that is therefore geared
towards establishing how the technique helps in the realization of the profit
of the organization will be worthwhile.
Since this have a reciprocal effect, any suggestion towards the
improvement of the costing technique should at least, have a modicum of
bearing one the improvement of profit. If productivity is to be enhanced
considerably and the satisfactory of profit guaranteed, therefore a
knowledge of cost behaviour and equally the analysis is completely
necessary. The researcher believes that based on the findings of this very
study and the proffered suggestions that the management of the
ANAMBRA MOTOR MANUFACTURING COMPNAY in particularly, if it
attaches strong importance to the suggestions that they will go a long way
toward enhancing their profit position. The manufacturing industries will
equally benefit from the findings of the study.
It is equally hoped that future researcher of this subject matter will
find this work of gatuam importance towards carrying out their respective
research works.
1.7
DEFINITION OF TERMS
Manufacturing industry: A manufacturing industry is one that acquires
raw materials and intermediate goods and transforms them to
finished goods through and industrial process. This very
definition of manufacturing industry can equally be viewed as
one that it’s primary or cardinal aim is the transformation of
materials into other goods through the employment of labour
and factory facilities.
Marginal cost: marginal cost is the amount of any given volume of output
by which aggregate cost are changed if volume of output is
increased or decreased by one unit. The marginal cost of a
product is alternatively known as its variable cost which
includes direct materials, direct labour, direct expenses and
equally the variable parts of the overheads.
Fixed cost: Fixed cost are cost which remain fixed over a given range of a
productive activity and also for a given time period. They are
therefore period costs since they relate to a given time period
and they are equally capacity costs because they relate to a
particular range of productive activity. Fixed costs are generally
fixed in total as they decrease unit –wise as output is
increased.
Contribution margin: Contribution margin is simply the difference
between sales and the marginal or variable cost of a product.