Finding out any inherent deficiencies in its application. However, the decision making capability of managers are often restricted by their personal and political issues abound in all organisations. Also the personal observation method were used together with relevant information from libraries. Assume, a hotel accommodation 400 guests during a particular week and incurred a total costs of N20,000 the average costs per guest would be N50. Bearing this in mind, the objectives of this study among other things include 1. Contribution:Contribution is the different between sales value an the variable cost of those sales expressed either in absolute terms or as a contribution per unit.
This knowledge about the changes in behavior of costs can yield wonderful results for the shoemaker in decision- making. Semi variable costs are also divided in the individual components of fixed cost and variable cost. There is no meaning in the exclusion of fixed costs from the valuation of finished goods since the fixed costs are incurred for the purpose of manufacture of products. Both techniques can be used to advantage in particular situations. It is possible to use the two methods together; for instance, absorption costing may be used in the records and accounts while marginal costing is for management and pricing decision. In carrying out this research work, data was got from questionnaire.
To Examine how product decisions are made by management under this technique makes. While many such tools exist, for the purposes of this paper, I will concentrate on one specific tool. Marginal costing technique of cost accounting tends to separate cost into variables and fixed components. The study is limited to these organizations because it is difficult to undertake a study of all the manufacturing companies that adopts marginal costing technique in Nigeria. The calculation of variable overheads does not include all the variable overheads. Information and analysis of the data, using the percentage method to analyze the response elicited from respondents. If the data is presented on the basis of absorption costing basis, the management may not be able to comprehend the results.
The basic assumptions made by marginal costing are following: - Total variable cost is directly proportion to the level of activity. Suppose current sale is Rs. In practice however, marginal cost is taken to mean the total of all the cost, which vary with variation in output that is the variable cost. It helps to facilitate cost control and it brings out clear and simple terms which shows exact relationship between cost, selling price and volume. The cost unit table used in any given situation is that which is most relevant to the purpose of the cost ascertainment exercise. Since fixed cost relates to a period of time, and do not change with increase or decrease in sales volume, it is misleading to charge units of sales with a share of fixed costs. Owler and Brown in their own contribution on the subject, see marginal costing as not being a system of costing rather as a special technique of cost accounting concerned particularly with the effects fixed overhead has on the running of a business enterprises.
Increasing returns to scale are said to exist if additional units can be produced for less than the previous unit, that is, average cost is falling. Marginal Cost: Marginal cost is the amount at any given volume of output by which aggregate cost are changed of the volume of output is increased or decrease by one unit. It is the differences between sales and the marginal cost of sales. This however agrees with the earlier definitions. Why Use Decision- Making Tools? But on the other side, company wants to maintain his current profit.
After this, manager see which product is giving high contribution margin. It helps to facilitate cost control and it brings out clear and simple terms which shows exact relationship between cost, selling price and volume. One example, we can see free video on YouTube. Therefore these problems are briefly considered as: i. Further, it results in the understatement of the value of stock, which is neither the cost nor the market price. Solution: Product Z gives the lowest contribution per kg.
Since high-quality decision- making plays such a significant role in our personal and professional lives, it's extremely important to identify tools and techniques that can aide us in the process. The marginal cost of a product is alternatively known as its variable cost, which includes direct material, direct labour and direct experiences and the variable part of overheads. Therefore this study investigates the effectiveness and efficiency of marginal costing as an essential tool of decision making. In practice, a major technical difficulty arises in drawing a sharp line of demarcation between fixed and variable costs. Marginal costing can therefore be defined as an accounting technique used by management in planning controlling, and in decision-making, which based its analysis of cost, volume and profit relationship on a determination of marginal cost variable cost0 by a process of differentiation between fixed cost and variable costs.
This analysis can help an owner understand whether an activity is profitable and thus make a decision based on that information. In carrying out this research work, data was got from questionnaire. Marginal costing is very helpful in managerial decision making. The study will critically examine the following: - The condition for analyzing cost into fixed and variable components. The site covers an area measuring over 300,000 square meters generously leased by the state government. Marginal analysis allows business owners to measure the additional benefits of one production activity versus its costs.
A competitive market is one which a good can be bought and sold at the same price. Determine sales volume to get 15% return. Other variables include the quantity of a goods you produce or the quantity of another cost added to the equation, such as shipping costs. There was no variable marketing cost. One must choose a process that suits him or her in helping to come to a well-formed and desirable result. It is the researchers belief that those recommendation would help achieve the desired objectives. When the contribution per unit is expressed as the different between the selling price and its marginal cost.
In spite of its advantages, due to its inherent weakness of not ensuring the coverage of fixed costs, marginal pricing has not been adopted extensively. Also tell shut down point of the business, if he would spend Rs 50,000 even if business has to be closed. Over the years, I admit that I have not used these processes as defined in my readings for this class, but I have made the decision to use some of the examples in the future. Data were collected from questionnaire and other information gathered were presented on tables, analyzed and conclusion drawn from percentage variations. Do you let others make the decisions? Decision Making Tool Introduction Decision- making is whereby an individual makes a choice from among several available options. I recommend ProjectClue for any project research work.