APPLICATION OF MARGINAL COSTING TECHNIQUE IN A MANUFACTURING COMPANY (A CASE STUDY OF NESTLE NIGERIA PLC)

ABSTRACT

This research work examines the importance of application of marginal costing technique in a manufacturing company using Nestle Nigeria Plc as a case study. It shows that application of marginal costing technique is a survival tool in Nigeria present economic situation.

It also shows that effective control of production and distribution of operational cost arises from the intelligent application of operational control, adequate cost accounting systems, analysis of cost data and variances, formulation of product policies and using of already established budgets.

In carrying out this research work, primary and secondary data were used. The primary source of data was through questionnaires, which was administered to the targeted staff. The secondary data method was also used to collect information for this study and it involves engaging in desk research with review of relevant textbooks, journals and magazines.

The research study revealed that application of marginal costing is a necessary tool for organization overall performance.

Based on the finding of this study, management should put adequate measure in place to ensure compliance with standard, appreciate the need for training of staff to improve their level of competence in order to discharge their duties effectively and efficiently.

TABLE OF CONTENTS

CHAPTER ONE

2.1 Introduction to the Study

2.2 Historical Background of Nestle Nigeria Plc

2.3 Purpose of Study

2.4 Significance of Study

2.5 Scope and Limitation

2.6 Hypotheses

CHAPTER TWO

2.0 Literature Review

2.1 Meaning of Marginal Costing

2.2 Theoretical Framework

2.3 The Importance of Marginal Costing To Management

2.4 Marginal Costing and Pricing

2.5 Advantages and Disadvantages of Marginal Costing

2.6 Pricing Strategy

2.7 Marginal Costing Vs Absorption Costing

2.8 Principles and Applications of Marginal Costing Price Fixation

2.9 Accounting Function, Cost Control and Responsibility Accounting

2.10 Break-Even Analysis

2.11 The Nigeria Present Economic Situation

CHAPTER THREE

3.0 Research Methodology

3.1 Research Design

3.2 Research Instrument

3.3 The Use of Questionnaire Method

3.4 Personal Interview

3.5 Population Characteristics

3.6 Sample Size

CHAPTER FOUR

4.0 Analysis of Data and Presentation

4.1 Introduction

4.2 Analysis of Data and Classification

4.3 Analysis of Data According To Test of Hypothesis

CHAPTER FIVE

5.0 Summary, Conclusion and Recommendation

5.1 Summary

5.2 Conclusion

5.3 Recommendation

Bibliography

CHAPTER ONE

1.0 INTRODUCTION TO THE STUDY

This project is designed to evaluate the application of marginal costing technique in a manufacturing company with special reference to Nestle Nigeria Plc as a case study.

It therefore examines the techniques of marginal costing as a tool of industrial survival in the Nigeria present economy. The project will also examine cost control system of Nestle Nigeria Plc so as to know whether or not a control system exists.

The effective control of production and distribution of operational cost arises from the efficient application of operational control, adequate cost accounting systems, analysis of cost data and variances, formulation of product policies and using of already established budgets.

Marginal costing techniques (MCT) will be ascertained in Nestle Nigeria Plc as related to:

1) Various methods of valuing material issues.

2) Labour remuneration.

3) Determination of marginal costing per unit of a product.

4) Purchasing procedures.

5) Store routine, store control and issue of material.

6) Ascertain actual cost per unit.

Marginal costing and its application.

This is a well-known concept of economic theory. It may be described as the change in total cost which arises as a result of an increase and or decrease by one unit in volume of output. Marginal cost is an amount at any given volume of output by which aggregate costs are changed if the volume of output is increased or decreased by one unit.

Marginal cost is synonymous with variable costs, prime costs plus variable overheads in the short run but, in a way, would also include fixed cost in the planning production activities over a long period of time involving an increase in the productive capacity of business. Theoretically marginal cost and differential cost are the same. If there is no change in fixed cost then both of these costs will be same. Thus marginal cost does not include fixed cost at all whereas differential cost may include an element of fixed cost as well if fixed cost changes due to a decision.

Marginal costing is a very important technique of decision making. It is a comparatively new area in the field of accounting but it is gradually gaining more and more acceptance. It is the method of matching cost with revenue to determine periodic income. It is the ascertainment of marginal cost and of the effect on profit of changes in volume or type of output by differentiating fixed costs and variable cost. In this context it should be noted that it is not a system of costing like process or job costing but it is simply an approach to the presentation of accounting information meaningful to management. In this all cost are segregated into fixed and variable components. Only the variable costs are regarded as product cost and are used to value inventory and cost of goods sold. The fixed costs are treated as period cost and are charged directly to profit and loss account. Thus no part of fixed manufacturing cost is deferred to the next period as inventory. While preparing a profit and loss.