MARGINAL COSTING AS AN ESSENTIAL TOOL FOR DECISION MAKING IN A MANUFACTURING COMPANY
(CASE STUDY OF ANAMMCO ENUGU)
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 efficiency of marginal costing as an essential tool of 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 effectiveness and efficiency.
(b) Finding out any inherent deficiencies in its application.
(c) To determine the criteria for cost control and analysis
(d) How products 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 questionnaire administered to management staff and few senior staff who have knowledge about the technique under application.
Moreso, useful pieces of information were got from libraries. The collected data were classified analyzed and interpreted by tabular discussion and simple percentage analysis and the hypothesis were tested by using the chi-square method. From the analysis of data, the major findings were that:
ANAMMCO apply marginal costing techniques in valuation of stock, cost planning and control.
(a) The company purposefully uses this technique for the following reasons:
i. Decision making
ii. Controlling of cost
iii. Fixing of prices
(b) ANAMMCO uses marginal costing because it is simple to operate.
(c) ANAMMCO uses 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 recommendation were made:
(a) The organization should find a way of ensuring that instrumentality is closely tied to productivity or output of the employee.
(b) Due to the difficulty associated were receipt of orders, the orders for basic raw materials should be made long in advance.
(c) Where there is a request for special ore,r marginal costing should be applied.
(d) The company budgetary control system should be supported with the standard costing technique for effective control of materials and labour cost.
Above all, I strongly believe that if those recommendations are accepted and vigorously pursued, the decision making will meet the set organizational objectives.
TABLE OF CONTENTS
Title page
Certification
Dedication
Acknowledgement
Preface
Abstract
Table of contents
List of tables
CHAPTER ONE
1.0 Introduction
1.1 Background of study
1.2 Statement of problem
1.3 Objectives of study
1.4 Significance of study
1.5 Scope of the study
1.6 Limitations of the study
1.7 Definition of term
1.8 Hypothesis
CHAPTER TWO
2.0 Review of related literature
2.1 Marginal costing
2.2 The principles of marginal costing
2.3 Marginal costing and decision making
2.3.1 Acceptance of special order
2.3.2 Add or drop decision
2.3.3 Make or buy decision
2.4 The contribution margin theory
2.5 Marginal versus absorption costing
2.6 Marginal costing and profit
2.7 The breakdown analysis and decision making
2.8 Advantages and disadvantages of marginal costing
References
CHAPTER THREE
3.0 Research design and methodology
3.1 An overview
3.2 Sources of data
3.3 Sample used
3.4 Method of investigation
3.5 Problem encountered in data collection
CHATPER FOUR
4.0 Data presentation and analysis
4.1 An overview
4.2 Analyses of responses
4.3 Hypotheses
CHAPTER FIVE
5.0 Findings, conclusions and recommendations
5.1 Summary of findings
5.2 Conclusions
5.3 Recommendations
Organizational chart
Bibliography
Appendix
LIST OF TABLES
Table I The contribution break even
2 Costing techniques are applied
3 How the costing technique is applied
4 Reason for using the costing techniques
5 Costing technique used inv having stock
6 How profit is generated using this techniques to estimate the profit position
7 How cost are allocated to different cost centre
8 How the performance of the costing technique can be assessed
9 Policy decision of the company
10 Use of computer in stock management
11 How the computer aid efficient management of stock
12 The method of valuing material issued out for production
13 Methods used in determining product price
14 Criteria used in decision take about alternatives
15 Determinations of the standards for material quantity
16 Technique(s) applied where there is a special order
17 Budgeted production and actual production compared
18 The range of variance observables
19 Chi-square for testing hypothesis
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF STUDY
The reality of modern business management in a free enterprises economic system in the level of competition among all enterprises where only the fittest enterprise survive. The motive for maximization of profit in business and quest for wealth creation being in Hogue, management continues to remain under increasing obligation to improve its share of market, its assets, its credit worldliness and its overall potential.
These in turn require an improvement in the quality of decision therefore in order to responds effectively to the challenges of time, management requires good factors in business decisions. The 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 Anambra Motor Manufacturing Companies (ANAMMCO) as a case study. The 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 is ended under the techniques
An appraisal is necessary in order to determine effectiveness and efficiency of the management accounting technique. In carrying out this research work, data was gotten from questionnaire, information and analysis of data using the percentage method to analyze the responses elicited from respondents. Also the personal observation method were used together with relevant information from libraries.
BRIEF HISTORY OF ANAMMCO
Against the background of rapid economic growth, the federal military government in 1975 was faced with the enormous task of developing the
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