The Importance of Marginal Costing Technique in Pricing Decision in a Manufacturing Company.
ABSTRACT
Decision-making has become the main concern of any organization, and efforts are being made by management to make sure that the 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 a few senior staff who have knowledge about the technique under the 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 was tested by using the chi-square method form the analysis of data, the major findings were that:
UNILEVER NIG. PLC apply the marginal costing technique in the valuation of stock, cost planning is control,
(a) The company purposefully uses these techniques for the following reasons:
(b) UNILEVER NIG. PLC uses marginal costing because it is simple to operate.
(c) UNILEVER NIG. PLC used the 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 a 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.
- The organization should fund a way of ensuring that instrumentality is closely tied to productivity or output of the employee.
- Due to the difficulty associated with receipt of orders, the orders for basic raw materials should be made long in advance.
- Where there is a request for special order, marginal costing should be applied
- 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 CONTENT
TITLE PAGE i
CERTIFICATION ii
DEDICATION iii
ACKNOWLEDGEMENT iv
ABSTRACT v
CHAPTER ONE
1.0 INTRODUCTION 1
1.1 BACKGROUND OF STUDY 1
1.2 STATEMENT OF THE PROBLEM 2
1.3 OBJECTIVE OF STUDY 2
1.4 SIGNIFICANCE OF STUDY 3
1.5 RESEARCH QUESTIONS 3
1.6 HYPOTHESIS OF STUDY 4
1.7 SCOPE AND LIMITATION OF STUDY 4
1.8 DEFINITION OF TERMS 5
1.9 HISTORICAL BACKGROUND OF STUDY 6
CHAPTER TWO
2.0 LITERATURE REVIEW 8
2.1 DECISION MAKING 8
MARGINAL COSTING 9
2.3 DIRECT COSTING 10
2.4 PRINCIPLE OF MARGINAL COSTING 10
2.5 FEATURES OF MARGINAL COSTING 11
2.6 ABSORPTION COSTING 12
2.7 DIFFERENTIALS COSTING 13
2.8 MARGINAL AND DIFFERENTIALS COSTING 13
2.9 ADVANTAGES OF MARGINAL COSTING 14
2.10 LIMITATION OF MARGINAL COSTING 14
2.11 COST VOLUME PROFIT ANALYSIS 15
2.12 MARGINAL COST EQUATIONS 16
CHAPTER THREE
3.0 RESEARCH METHODOLOGY 17
3.1 RESEARCH DESIGN 17
3.2 TYPES AND METHOD OF DATA COLLECTION 18
3.3 THE STUDY POPULATION 18
3.4 DATA COLLECTION 18
3.5 METHOD OF DATA ANALYSIS 19
3.6 VALIDITY TEST AND RELIABILITY OF THE STUDY 19
CHAPTER FOUR
4.0 DATA ANALYSIS AND PRESENTATION OF RESULT 20
4.1 INTRODUCTION 20
4.2 PRESENTATION OF DATA 20
4.3 ANALYSIS OF RESPONSE 20
4.4 HYPOTHESIS TESTING 24
CHAPTER FIVE
5.0 SUMMARY, CONCLUSION, AND RECOMMENDATION 31
5.1 SUMMARY 31
5.2 CONCLUSION 31
5.3 RECOMMENDATION 32
REFERENCES 33
QUESTIONNAIRE 34
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
One pronounced reality of modern business management is the advanced state of competition and rivalry whereby only the fittest enterprise survives, 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, the 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 its creditworthiness in the entire economy.
This in turn requires an improvement in the quality of decisions. Therefore in order to respond effectively to the challenges of the times, Management requires good decision analysis which leads to this research work.
This research work is principally concerned with investigating the principles and the application of the marginal costing technique at Unilever Nigeria Plc. The study will principally examine:
- The criterion for analysis of costs into fixed and variable components
- How these costs are controlled
- How prices are determined employing the techniques.
- How decision-making is aided under the technique.
An appraisal was necessary in order to determine the efficiency and effectiveness of this management accounting technique. In carrying out this research work, data were gathered from questionnaire information and analysis of same, employing the percentage method to analyze the responses elicited from the respondents. Also, a personal observation method was used coupled with relevant information from libraries.
REFERENCES
Berry, A. J. (2010).The Control of Capital Investment, Journal of Management Studies, 21: 61-81.
Basu, B. K. (2011), Lectures on Management Accountancy Principles, System and Practice (Calcutta: Chatterjee Publishing
Cooper. D., R. W. Scapens and J. Arnold (2000), Management Accounting: Research and Practice (London: CIMA).
Chadwick, L. (2004), Management Accounting (London: International Thomson Business Press).
Chakraborty. H. (2004), Management Accountancy, Vol. 1 (Calcutta: Nabavarat Publishers).
Garrison, H. Ray and Eric W. Noreen (2004-2005), Managerial Accounting (New Delhi: Irwin McGraw – Hill).
Horngren, C. T., G. L. Sundem and W. O. Stratton (2002), Introduction to Management Accounting New Delhi: Pearson
Hoque, Zahirul A. K. M. (1991), Researching Management Accounting Practice Kaplan, S. Robert and Anthony A. Atkinson (2001), Advanced Management Accounting New Delhi: Addison Wesley
Maheshwari, S. N. (2005), Management Accounting for Bankers (New Delhi: Sultan Chand & Sons Publishers).
Needles, E. Belverd Jr., Marian Powers and Susan Crosson (2002), Financial and Managerial Accounting (USA: Houghton Mifflin Company).
The Debate about Quantitative and Qualitative Research, Dhaka University Journal of Business Studies, 12(2): 19-32.
Be the first to comment