This study focused on the
Marginal Costing and Organizational Performance in Nigeria Breweries Plc.
Marginal costing techniques is an important
tool for making managerial decisions to ascertain the most appropriate
technique to be used in presenting costing information by management
accountants to the organization stakeholders and evaluating the extent to which
marginal costing affect the setting of pricing method. Relevant data
were collected from both primary and secondary sources. Questionnaire was the
main source of data collected, instrument employed, while data from various
relevant publications constituted the sources of secondary data such as the questionnaires administered were
sixty (60), chi-square was used to analyze the data. Two hypothesis were
tested: 259>9.488 which shows that marginal costing techniques is the best
techniques for short term decision making while the second hypothesis tested
gave 248.6 > 9.488 which indicates that strict adherence to marginal costing
technique enhance the profitability in manufacturing company. Based on the findings the study
established that the marginal costing technique is one of the key aspects of
the management accountant responsibilities. The management accountant ascertain
whether the technique contributes to high quality decision making which help in
reporting on marginal costing techniques to Nigerian Breweries Plc, and the
extent to which reliance can be placed on the technique. The overall objective
of any organization is to maximize profit and maximization the wealth of its
shareholders. Based on the findings and conclusion arrived at in this study,
its recommends that the practicing of marginal costing techniques identify
relevant cost and provide information to management on effect of cost and
revenue of charges in volume of output in the short run and to absorbed into
product cost along with variable cost.
TABLE OF CONTENTS
Title Page i
Table of Contents vi
CHAPTER ONE: INTRODUCTION
Background of the Study 1
Purpose of Study 4
Research Questions 4
Statement of Hypothesis 5
Significance of Study 6
Organization of the Study 7
Limitation and Scope of Study 7
Definition of Terms 8
CHAPTER TWO: LITERATURE REVIEW
Application of Marginal Costing – Make or Buy Decision 22
Cost Behaviour 24
The Treatment of Fixed Costs 28
Marginal Costing Techniques Versus Absorption
Application of Marginal Costing Techniques 33
Decision Making with Limiting Factors And
Benefits of Marginal Costing 36
Problems of Marginal Costing 37
Current Literature Based on Each Relevant Variable,
and Theory 38
Basic Concept of Cost Accountancy 40
Cost Accounting 47
Contribution Margin 56
Historical Background of Nestle Nigeria Plc 58
CHAPTER THREE: RESEARCH METHODOLOGY
Research Design 63
Re-Statement of Research Questions 64
Re-Statement of Research Hypotheses 64
Population of the Study 65
Sample and Sampling Technique 65
Research Instruments 66
Methods of Data Collection 67
Analytical Tools 67
Reliability of Instrument 68
Validity of Instrument 68
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
Analysis and Interpretation of Data 69
Testing of Hypotheses and Interpretation 83
Discussion of Tested Hypotheses 85
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION
Suggestion for Further Studies 89
OF THE STUDY
To measure the marginal cost of public funds accurately, there
is need to take account of the full response in the private sector to an
increase in tax rates: the tax induced shifts in the allocation of time between
labour, do-it-yourself activities and leisure, the allocation of purchasing
power among goods and between consumption and investment, and tax-payers’
incentives to tax avoidance and tax evasion. Simplifications are required if
the marginal cost of public funds is to be measured at all.
Marginal cost of funds is an indicator of the required
benefit-cost ratio for public projects, programs and activities, where
“benefit” refers to the sum of all benefits to whosoever they may accrue and “cost”
refers to the required public expenditure, excluding deadweight loss or excess
burden of taxation to the tax payer.
There are two principal methods of measuring the marginal
cost of public funds. Browning (2000). The first is to estimate the extra
deadweight loss from identifiable distortions in the tax system. Campbell (1972
and 1975) computed the additional deadweight loss per dollar of additional tax
revenue associated with the\imputed excise taxes on all goods consumed, the
assumption being that all such taxes would be increased slightly but
proportionately when extra revenue is required. Soon after, Browning (1976)
estimated the additional deadweight loss dollar of additional tax revenue
associated with the labour-leisure choice when leisure is exempted from the base
of the income tax. The other method, exemplified by Feldstein (1995), is to
estimate the elasticity of tax base to tax rate from observation actual changes
in peoples’ reported taxable income in response to legislated changes in tax
Notwithstanding the accuracy of the measurements, the
matter is of the greatest importance because appropriate rates of taxation and
the appropriate role of the government in the economy depend critically on what
the marginal cost of public funds turns out to be. An estimate of the marginal
cost of public funds is especially important for assessing the claim that
public expenditure is on the wrong side of the Laffer curve, implying as it
does that extra revenue could be acquired by lowering, rather than raising, tax
rates. Campbell and Browning estimate the marginal cost of public funds at
about 1.25, a level high enough to block some government expenditure but not to
drive the economy to the wrong side of the Laffer curve. Feldstein, on the
other hand, produces an estimate so high that, if it is right, the United
States government could increase tax revenue by lowering tax rates. For a
critique of Feldstein’s / method, see Goolsbee (2002). For a discussion of some
recent estimates see Ballard and Fullerton (1992).
The problems for this study are;
Budgeted margin of safety in terms of sales value in a manufacturing
marginal costing values closing stock using variable cost of production.
to emphasize the behavioural classification of marginal costing on absorption
menace of marginal costing technique, decision making technique and absorption
costing is still a major concern on recording purposes and in preparing
financial reports in manufacturing organizations
1.3 OBJECTIVES OF STUDY
The objective of this research work is to examine critically
impact of marginal costing technique as an important tool for making managerial
decisions. Other specific include;
highlight the relationship between marginal costing and absorption for short
term decision making.
ii. To ascertain the most appropriate technique
to used in presenting adopted costing information by management accountants to
the organization stakeholders.
iii. Evaluating the extent to which marginal
costing affect the setting of pricing method.
whether marginal costing aids management to in achieving high profitability
Ascertain relevant costs to be incorporated in marginal costing computation
1.4 RELEVANT RESEARCH QUESTIONS
effective is marginal costing techniques in enhancing short term decision
what extent does costing information enhances stakeholders understanding?
strict adherence to marginal costing technique enhance profitability of
marginal costing techniques serves as a tool for planning short term decisions?
1.5 STATEMENT OF HYPOTHESIS
The following hypotheses are considered as the basis for
the questions set for this study.
costing technique is not the best technique for short term decision making
costing technique is the best techniques for short term decision making
Ho: Strict adherence to marginal costing
technique does not enhance profitability
adherence to marginal costing technique enhance profitability
1.6. SIGNIFICANCE OF STUDY
The study is expected to be tremendously help students
and managers of manufacturing production sector of the economy. At the end of
the study, it would be clearly understood and appreciated that marginal costing
is a useful technique if adopted to meet the diverse conditions which apply in
a real life environment.
The accounting terms and management, after this research
work will now see to the fact a marginal costing technique is necessary. It
will help to reduce the work done by management and make job less complex and
This study will also be used to enhance short term decision
making from the bondage of financial troubles woes. At the end of the study
would be appreciated, how and why marginal costing can be an important and
necessary aid to decision making.
In conclusion, the research study will be useful to Auditors,
management of companies, research institutions, professional dies and general
OF THE TERMS
MARGINAL COSTING: This is a decision making technique used to
determine the effect of cost on changes in the volume of time and output in a
multi product firm especially in the short run. It treats direct costs and
variable factory over head as product cot while treating all the fixed
overheads as period cost.
ORGANIZATION: is a social group which
distributes tasks for a collective goal.
ABORPTION COSTING: This is technique which absorbs fixed overhead
into period cost through the use of a pre-determine overhead absorption rate
which is Get annually after budgeted overhead are allocated to cost centres.
MANUFACTURING: The term may refer to a range of human
activity, from handicraft to high tech,
but is most commonly applied to industrial production, in which raw materials are
transformed into finished goods on a large scale.
MANAGEMENT ACCOUNTING: This is define as the application of
professional knowledge and skill in the preparation of accounting information
in order to as management in formulation of policies and in planning and
COST: This is the resource sacrificed or foregone to achieve a specific
objective. It is usually measured as the monetary amount that must be paid to
acquire goods and services.
DIRECT COSTS: Are related to the particular cost object
arid can be traced to it in an economically feasible way.
INDIRECT COSTS: Can be described as the cost incurred for a
period which certain output and turnover limits, tend to be unaffected by
fluctuations in the levels of activity.
VARIABLES COSTS: Items of which tends to vary in direct
proportion to changes in the volume of output of the cost center to which they
OVERHEADS: Refer to any cost which is not directly attributable to
a cost unit. In other overhead is the
total of indirect material cost, indirect labour cost and indirect expenses.
BREAK EVEN ANALYSIS: This is the term given to the study of
interrelationship among costs. Volume and profits at variables levels of
activity. At break even point, neither profit nor loss is made.
CONTRIBUTION: This is the difference between the sales and
v costs of product in a given period of time.