APPLICATION OF MARGINAL COSTING TECHNIQUES IN MANAGEMENT DECISION MAKING IN NESTLE FOOD PLC


APPLICATION OF MARGINAL COSTING TECHNIQUES IN MANAGEMENT DECISION MAKING IN NESTLE FOOD PLC

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APPLICATION OF MARGINAL COSTING TECHNIQUES IN MANAGEMENT DECISION MAKING IN NESTLE FOOD PLC
APPLICATION OF MARGINAL COSTING TECHNIQUES IN MANAGEMENT DECISION MAKING IN NESTLE FOOD PLC

ABSTRACT

This research work was undertaken to assess the concept and application of marginal costing techniques in management decision making reference to Nestle Food Plc. This work was intended to achieve the following objectives: Showing the importance of marginal costing as a tool for planning and short term decision making and to ascertaining the format to be used on presenting marginal costing information by management accountants to the management. Relevant data were collected from both primary and secondary sources. Questionnaire was the main primary data collected instrument employed while data from various relevant publications constituted the sources of secondary data. Upon the analysis of data the (SPSS) along with percentage mean item was used to analyze the questionnaires while ANOVA was used to test the hypothesis. The study established that the marginal costing technique is the key aspects of the Accountant’s job. The management Accountant ascertain whether the technique contributes to high quality decision making which will help him in reporting on magical casting techniques to Nigerian Nestle Food Plc, and the extent to which reliance can be placed on the technique. The overall objective of any organization is to maximize profit and hence increase in wealth of its shareholders. Based on the finding and conclusion arrived, it recommend that practicing management accountant should identify relevant cost and provide information to management on the effect of costs and revenues of charges in volume of output in the short run and Fixed cost should not be absorbed into product cost along with variable cost rather they should be treat as period cost which are simply charged to profit with fixed selling and administrative cost during that period by the management.


CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

One of the most important things in life of a business is decision making. Decision making is an all pervasive activity taking place at every level in the organization, covering both the short and long term. It is concerned with the future and involves a choice between alternatives. The decision making of a business is centered upon the information possessed by the decision maker. 
However, plans are activated by decisions which require some of financial or qualitative analysis in order to make a rational choice. It is because of this that the practicing management Accountant is heavily engaged in producing relevant information for decision making purpose. The overall objective of a business enterprise is to make profit and as such, the decision on which method of reporting profit to be used at any given time is a very crucial management decision.

In traditional costing, there is a very crucial and two basic method of reporting profits. The emphasis in this research will, however, be on the importance of marginal costing techniques in the decision making process. These are:

a.           Absorption costing/ full costing

b.           Marginal costing period costing/direct costing

The practice of charging all costs both variable and fixed to operations, products or processes is termed as absorption costing. 

The practice of charging all direct costs to operations, processes or products and leaving all indirect costs to be written off against profits in the period in which they arise is termed as direct costing. The technique differs from marginal costing because some fixed costs can be considered as direct costs in appropriate circumstances.

According to Browning, 2OOO) Marginal costing is a technique of costing in which allocation of expenditure to production is restricted to those expenses which arise as a result of production, e.g., materials, labor, direct expenses and variable overheads. Fixed overheads are excluded in cases where production varies because it may give misleading results. The technique is useful in manufacturing industries with varying levels of output. The features which distinguish marginal costing from absorption costing are as follows.

a.   In absorption costing, items of stock are coasted to include a ‘fair share’ of fixed production overhead, whereas in marginal costing, stocks are valued at variable production cost only. The value of closing stock will be higher in absorption costing than in marginal costing.

b.  As a consequence of carrying forward an element of fixed production overheads in closing stock values, the cost of sales used to determine profit in absorption costing will:

i.            Include some fixed production overhead costs incurred in a previous period but carried forward into opening stock values of the current period;

ii.          Exclude some fixed production overhead costs incurred in the current period by including them in closing stock values. 
In contrast marginal costing charges the actual fixed costs of a period in full into the profit and loss account of the period. (Marginal costing is therefore sometimes known as period costing.)

c.   In absorption costing, ‘actual’ fully absorbed unit costs are reduced by producing in greater quantities, whereas in marginal costing, unit variable costs are unaffected by the volume of production (that is, provided that variable costs per unit remain unaltered at the changed level of production activity). Profit per unit in any period can be affected by the actual volume of production in absorption costing; this is not the case in marginal costing.

d.  In marginal costing, the identification of variable costs and of contribution enables management to use cost information more easily for decision-making purposes (such as in budget decision making). It is easy to decide by how much 
contribution (and therefore profit) will be affected by changes in sales volume. (Profit would be unaffected by changes in production volume).

1.2 PURPOSE OF STUDY

The purpose of this research work is to evaluate and critically examine marginal costing technique as an important tool for making managerial decisions. The objectives will include;

i.            Showing the importance of marginal costing as a tool for planning and short term decision making.

ii.          Ascertaining the format to be used on presenting marginal costing information by management Accountants to the management.

iii.        Evaluating the extent to which marginal costing can be used for pricing method.

iv.         Examining whether marginal costing has helped the management to achieve high profitability level.

APPLICATION OF MARGINAL COSTING TECHNIQUES IN MANAGEMENT DECISION MAKING IN NESTLE FOOD PLC

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This research work was undertaken to assess the concept and application of marginal costing techniques in management decision making reference to Nestle Food Plc. This work was intended to achieve the following objectives: Showing the importance of marginal costing as a tool for planning and short term decision making and to ascertaining the format to be used on presenting marginal costing information by management accountants to the management. Relevant data were collected from both primary and secondary sources. Questionnaire was the main primary data collected instrument employed while data from various relevant publications constituted the sources of secondary data. Upon the analysis of data the (SPSS) along with percentage mean item was used to analyze the questionnaires while ANOVA was used to test the hypothesis. The study established that the marginal costing technique is the key aspects of the Accountant’s job... accounting project topics

APPLICATION OF MARGINAL COSTING TECHNIQUES IN MANAGEMENT DECISION MAKING IN NESTLE FOOD PLC

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