Application of marginal costing technique in a manufacturing company

Thesis Overview

<p> </p><p><strong>1.0 INTRODUCTION TO THE STUDY</strong></p><p>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.</p><p>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.</p><p>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.</p><p>Marginal costing techniques (MCT) will be ascertained in Nestle Nigeria Plc as related to:</p><p>1) Various methods of valuing material issues.</p><p>2) Labour remuneration.</p><p>3) Determination of marginal costing per unit of a product.</p><p>4) Purchasing procedures.</p><p>5) Store routine, store control and issue of material.</p><p>6) Ascertain actual cost per unit.</p><p>Marginal costing and its application.</p><p>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.</p><p>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.</p><p>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.</p> <br><p></p>