MARGINAL COSTING AS AN ESSENTIAL TOOL FOR DECISION MAKING IN A MANUFACTURING COMPANY
(A CASE STUDY OF ANAMCO ENUGU)
By
NWEKE, CHINYERE C.
Presented To
Department of Accountancy
ABSTRACT
Decision-making has become a main concern to any organization, and efforts are being made by management to make sure that best decisions are made.
Therefore, this study investigates the effectiveness and efficacy of marginal costing as an essential tool for decision-making. To determine this, the fundamental objectives of the study among others are
(a) An evaluation of the marginal costing technique towards ascertaining the effeteness and efficiency.
(b) Finding out any inherent deficiencies in its application.
(c) To determine the criteria for cost control and analysis.
(d) How product decisions are made by management under this technique.
(e) And how, management decision-making is aided under the technique.
In investigating the above, data were obtained through question mare administered to management staff and few senior staff who have knowledge about the technique under application. More so, useful pieces of information were got from libraries. The collected data were classified, analysis and interpreted by tabular discussion and simple percentage analysis, and the hypothesis were tested by using the chi-square method form the analysis of data, the major findings were that:
ANAMMCO apply marginal costing technique in valuation of stock, cost planning are control,
(a) The company purposefully uses these techniques for the following reasons:
- Decision making
- Controlling of cost
- Fixing of prices
(b) ANAMMCO uses marginal costing because it is simple to operate.
(c) ANAMMCO used marginal costing technique because it shows a meaningful and more realistic profit position of the company.
(d) The technique easily reveals the contribution made by each product or department.
(e) That when faced with decision about the best alternative the marginal costing technique is applied.
(f) When there is a special order, in deciding whether to accept or reject the special order marginal costing technique is used. Based on the findings the following recommendations were made.
a. The organization should fund a way of ensuring that instrumentality is closely tied to productivity or output of the employee.
b. Due to the difficulty associated with receipt of orders, the orders for basic raw materials should be made long in advance.
c. Where there is a request for special order, marginal costing should be applied
d. The company budgetary control system should be supported with the standard costing technique from effective control of materials and labour cost.
Above all, I strongly believe that if recommendations and accepted and vigorously pursued the decision-making will meet the set organizational objectives.
TABLE OF CONTENTS
Title page i
Certification ii
Dedication iii
Acknowledgment iv
Preface v
Abstract ix
Table of contents xii
CHAPTER ONE
1.0 Introduction 1
1.1 Background of study 1
1.2 Statement of problem 4
1.3 Objectives of study 5
1.4 Significance of study 5
1.5 Scope of the study 6
1.6 Limitation of study 7
1.7 Definition of terms 7
1.8 Hypothesis 9
CHAPTER TWO
2.0 Review of Related Literature 10
2.1 Marginal Costing 10
2.2 The Principles of Marginal costing 15
2.3 Marginal costing and decision making 20
2.3.1 Acceptance of special order 24
2.3.2 Add or Drop Decision 27
2.3.3 Make or buy Decision 31
2.4 The contribution margin theory 36
2.5 Marginal versus Absorption costing 39
2.6 Marginal costing and profit 46
2.7 The breakdown Analysis and Decision making 48
2.8 Advantages and Disadvantages
of marginal costing references 61
CHAPTER THREE
3.0 Research Design and Methodology 63
3.1 An Overview 63
3.2 Sources of Data 64
3.3 Sample used 65
3.4 Method of Investigation 65
3.5 Problem encountered in data collection process 67
CHAPTER FOUR
4.0 Data Presentation and Analysis 68
4.1 An Overview 68
4.2 Analysis of Responses 69
4.3 Hypothesis 83
CHAPTER FIVE
5.0 Findings, Recommendation and Conclusion 87
5.1 Summary of Findings 87
5.2 Conclusion 88
5.3 Recommendations 90
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