ABSTRACT

In modern industries where we have advanced state of competition and

rivalry, management makes use of predicted costs that is in a meaninful
manner. Since fixed costs are substantial proportion of costs in modern
industry, business organizations face hard times due to the continual draw
down on profits that arises as a result of the arbitrary allocation costs to
cost centers. This study evaluated and appraised the effectiveness and
efficiency of marginal costing application as a tool to decision making in
manufacturing company with the Anambra Motor Manufacturing Company
Emene as the case study. In the investigation of the above, data were
collected through the administration of questionnaires to some staff of the
company. The percentage analysis method was utilized in the analysis of
the responses that were elicited from respondents. Some staff o the
company were equally interviewed on the subject matter. The researcher
found out that the company employ marginal costing because of its
simplicity in operation and that the under and over absorption of overhead
is almost entire avoided. It was equally ascertained that the technique of
marginal costing shows meaningful and more realistic profit position of the
company as the technique writes of fixed costs in the period that they are
incurred. From the findings of the study it is recommended to the
management that the company’s budgetory control technique should be
supported with the standard costing in control of material and labour costs.
 CHAPTER ONE
INTRODUCTION

1.1 BACKGROUND OF THE STUDY

One pronounced reality of the modern business management in the

advanced state of competition and rivalry whereby only the fittest

enterprise survive, 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 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 it credit

worthiness in the entire economy. These in turn requie an improvement in

the quality of decisions. Therefore in order to respond effectively to the

challenges of the times, Management reuire good decision analysis leads to

this research work.

This research work is principally concerned with investigating into the

principles and the application of marginal costing technique at Anambra

Motor Manufacturing Company, Emene. The study will principally

examined.

- The criterion for analysis costs into fixed and variable components

- How these costs are control and

- How prices are determined employing the principle.

- How decision making is aided under the principle.

An appraisal was necessary in order to determine efficiency and

effectiveness of this management accounting technique. In carrying out

this research work, data was got from questionnaire in formation and

analysis of same, employing the percentage method to analyse the

responses elucidated from the respondents. Also, personal observation

method was used coupled with relevant information from libraries.

1.2 STATEMENT OF PROBLEMS

 Fixed costs are substantial and increasing proportion of costs in

modern industry. Business organizations are therefore facing hard times as

a result of the continual draw down in profits arising from the arbitrary

allocation of costs to products and cost centres.

This arbitrariness in the allocation of cost has given rise to high cost

of production, high cost of products and low turnover rate in the light of

this the future of business organizations in Nigeria is bleak.

The pertinent issue therefore, is diametrically linged in planning and

controlling costs through an efficient cost planning and reduction method.

This study will therefore try to ferret answers to the following questions.

- Can marginal costing reduce the arbitrary allocation of production

cost?

- With this technique of marginal costing, can production not be

increased without increasing the amount of fixed cost.

- When management is faced with decision about two alternatives is

marginal costing a useful tool to select or choose the alternative that

better?

1.3 OBJECTIVES OF THE STUDY

 The technique of marginal costing is the one that differentiates costs

clearly into fixed and variable elements. Bearing this in mind the objectives

of this study inter-alia, includes:

- Evaluating the marginal costing technique in order to ascertain

effectiveness and equally its efficiency.

- Any efficiency in the application of the technique

- To determine the criterion for cost, control and analysis

- To generally examine how product decisions are made by

management under the technique.

1.4 HYPOTHESES OF STUDY

In order to get a classical analysis of the study, the following

hypotheses are hereby proposed for this research work.

Hi: The principles of marginal costing aid prudent management decision

making

Ho: The principles of marginal costing do not aid prudent management

decision making

Hi: The statements that are prepared employing the principles of

marginal costing are easier to understand by management.

Ho: The statements that are prepared employing the principles of

marginal costing are not easier to understand by management.

1.5 SCOPE AND LIMITATIONS OF THE STUDY

The study is limited to the survey of how the technique or marginal

costing in generally operated at the Anambra Motor Manufacturing

company, Emene otherwise known as (ANAMMCO) and how effective and

efficient the technique is to the company. However, this very investigation

should not be taken as being diametrically exhaustive. It is just a drop in

the ocean because the information that was available to the researcher

was very much limited. Due to the limited nature of the information that is

available, this research can not be considered as an end itself, rather as a

means to an end. Data that were required to have a profound evaluation of

the subject.

The constraint stemmed from the obvious fact that since (ANAMMCO)

very risky in divulging all the information that were required.

In carrying out a research of this magnitude, adequate time is

needed to do enough justice to the study, however, the time allocated to

the study was insufficient to facilitate thorough investigation on the study

and subject matter.

1.6 SIGNIFICANCE OF THE STUDY

One established fact is that any technique of costing that a profit

oriented business organization decided to adopt must be related to

profitability in view of the above fact, any effort that is therefore geared

towards establishing how the technique helps in the realization of the profit

of the organization will be worthwhile.

Since this have a reciprocal effect, any suggestion towards the

improvement of the costing technique should at least, have a modicum of

bearing one the improvement of profit. If productivity is to be enhanced

considerably and the satisfactory of profit guaranteed, therefore a

knowledge of cost behaviour and equally the analysis is completely

necessary. The researcher believes that based on the findings of this very

study and the proffered suggestions that the management of the

ANAMBRA MOTOR MANUFACTURING COMPNAY in particularly, if it

attaches strong importance to the suggestions that they will go a long way
toward enhancing their profit position. The manufacturing industries will

equally benefit from the findings of the study.

It is equally hoped that future researcher of this subject matter will

find this work of gatuam importance towards carrying out their respective

research works.

1.7 DEFINITION OF TERMS

Manufacturing industry: A manufacturing industry is one that acquires

raw materials and intermediate goods and transforms them to

finished goods through and industrial process. This very

definition of manufacturing industry can equally be viewed as

one that it’s primary or cardinal aim is the transformation of

materials into other goods through the employment of labour

and factory facilities.

Marginal cost: marginal cost is the amount of any given volume of output

by which aggregate cost are changed if volume of output is

increased or decreased by one unit. The marginal cost of a

product is alternatively known as its variable cost which

 includes direct materials, direct labour, direct expenses and

equally the variable parts of the overheads.

Fixed cost: Fixed cost are cost which remain fixed over a given range of a

productive activity and also for a given time period. They are

therefore period costs since they relate to a given time period

and they are equally capacity costs because they relate to a

particular range of productive activity. Fixed costs are generally

fixed in total as they decrease unit –wise as output is

increased.

Contribution margin: Contribution margin is simply the difference

between sales and the marginal or variable cost of a product.