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MARGINAL COSTING AS A TOOL FOR
MANAGEMENT DECISION MAKING(A CASE STUDY OF ANAMMCO LTD ENUGU)
Abstract
The project
titled “marginal costing as a tool for management decision making” a case study
of ANAMMCO Ltd Enugu, was undertaking to evaluate marginal costing techniques
to wards ascertaining its efficiency and effectiveness. The researcher reviewed
literatures done by other authors for the purpose of this study. Data were
collected from questionnaire and other information gathered were presented on
tables, analyzed and conclusion drawn from percentage variations. The research
findings includes marginal costing techniques is well adopted by ANAMMCO as a
result of its efficiency and effectiveness in operation. The response conclude
that this techniques is very essential in organization, though no particular
costing technique is in itself a lasting panacea to all organizational ailment
or problems but depends on what the management needs. The researcher recommends
for the provision of raw materials in advance, which will assist in reduction
of customers dissatisfaction.
TABLE OF CONTENT
Title
page
i
Approval/certification
page ii
Dedication iii
Acknowledgement
iv
Abstract
v
Table of
content
vi
CHAPTER ONE
INTRODUCTION
1.1 Background of the study 1
1.2 Statement of problems 3
1.3 Objective of the study 4
1.4 Research questions 5
1.5 Significance of the study 5
1.6 Scope of the study 6
1.7 Limitations of the study 6
1.8 Definition of terms 7
CHAPTER TWO
REVIEW OF
RELATED LITERATURE
2.1 Framework 10
2.2 The principles of marginal cost 17
2.3 Marginal costing and decision making 20
2.4 Marginal versus absorption costing 32
2.5 Marginal costing and profit 41
2.6 The effect of marginal cost system on
decision making 43
CHAPTER
THREE
RESEARCH
DESIGN AND METHODOLOGY
3.1 Research design 45
3.2 Area of study
45
3.3 Population of study 45
3.4 Sources of data 45
3.5 Sample method 46
3.6 Research instrumentation 47
3.7 Validity and reliability of research
instruments 47
3.8 Methods of investigation 48
CHAPTER FOUR
DATA
PRESENTATION AND ANALYSIS
4.1 Data presentation 49
4.2 Data
analysis 49
CHAPTER FIVE
SUMMARY OF
FINDINGS, CONCLUSION AND RECOMMENDATION
5.1 Summary findings 55
5.2 Conclusion 56
5.3 Recommendation 58
Bibliography
Appendix I
Appendix II
CHAPTER ONE
INTRODUCTION
1.1 Background of 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 fittest enterprises
survive. The measure objective of every
organization is profit maximization. This could be achieved through? The
involvement of costing methods that should assist in decision making of make
buy.
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.
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 Company (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 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.
Against the
background of rapid economic growth, the Federal Military Government in 1975
was faced with the enormous task of developing the country’s infrastructure
from one geared toward peasant farming to one oriented towards mechanized
agriculture and industry.
The Anambra
Motor Manufacturing Company is the result of the economic and technological
co-operation between the government and the people of Nigeria and DAIMLER-BENZ
AG OF West Germany.
The company
is located at Emene Industrial layout, Enugu.
The site covers an area measuring over 300,000 square meters generously
leased by the state government.
1.2 Statement of Problem
In this
study we are to answer the questions listed below:
a. 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?
b. With this techniques applied in
costing, can production not be increased hence increasing the amount of fixed
cost in t5he production?
1.3 Objectives of Study
Marginal costing as a tool for
management decision-making. Marginal
costing technique of cost accounting tends to separate cost into variables and
fixed components. Bearing this in mind,
the objectives of this study among other things include
1. An evaluation of the marginal costing
technique towards ascertaining its effectiveness and efficiency.
2. Finding out any inherent deficiencies in its
application.
3. To determine the condition for cost control
and analysis
4. To Examine how product decisions are made by
management under this technique makes.
1.4 Research Questions
1. How effective and efficient is marginal
costing?
2. What are the challenges of the marginal
costing?
3. What conditions apply in profit
determination using marginal
costing?
4. In what way can product decision of
make-buy be made by management?
1.5 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.
It 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 the profit will improve.
1.6 Scope of the Study
This study is limited to the survey of
how the marginal costing technique is used to make decision at the Anambra
Motor Manufacturing Company (ANAMMCO) and how effective and efficient it is to
the company. This investigation is not
to be taken as an exhaustive piece.
1.7 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 (ANAMMCO) is said to be a competitive manufacturing
company concern and the General manager considers its risk to issue out
information required.
1.7 Definition of Terms
Manufacturing
Industry: A manufacturing industry is one that acquires raw materials and
intermediate goods and transfer them to finished goods through an industrial
process. The definition satisfies the
purpose of this study. A manufacturing
industry can also be defined as one where pre-occupation is the processing of
materials into other goods through the use of labour and factory facilities.
Marginal
Cost: Marginal cost is the amount at any
given volume of output by which aggregate cost are changed of the volume of
output is increased or decrease by one unit.
The marginal
cost of a product is alternatively known as its variable cost, which includes
direct material, direct labour and direct experiences and the variable part of
overheads.
Marginal
Costing:Marginal costing is defined by CIMA’S officials terminology as “A
principle whereby variable cost are charged to cost units and fixed cost
attributable to the relevant periods is written off in full against the
contribution in that period”.
Fixed
Cost:Fixed cost is a cost that accrues in relation to the passage of time and
which, within certain output and turnover limits, tends to be unaffected by
fluctuations in the level of activity.
It is
treated as period cost and are charged in full to the profit and loss account
of the accounting period which they are incurred.
Contribution:Contribution
is the different between sales value an the variable cost of those sales
expressed either in absolute terms or as a contribution per unit. This is the central point in marginal
costing. When the contribution per unit
is expressed as the different between the selling price and its marginal cost.
Marginal
costing cannot be used without calculating the contribution.
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