Home » EVALUATION OF THE RELATIONSHIP BETWEEN MARGINAL COST AND FINANCIAL PERFORMANCE OF BREWERY FIRMS IN NIGERIA..

EVALUATION OF THE RELATIONSHIP BETWEEN MARGINAL COST AND FINANCIAL PERFORMANCE OF BREWERY FIRMS IN NIGERIA..

CHAPTER ONE

INTRODUCTION

1.1      Background of The Study

Marginal costing is formally defined as the accounting system in which variable cost are changed to units and fixed cost of the period are written off in full against the aggregate contribution. Its special value is in decision making. The term marginal cost is sometimes refers as the marginal cost per unit and sometimes to the total marginal cost of the department or batch or operation. The meaning is usually clear from the context. The marginal cost of a product “is its variable cost” this is normally taken to be direct materials, direct expenses and the variable part of overheads.

        Walter (2002) sees marginal costing not as a system of cost ascertainment on the same lines as job, operating or process costing, but is rather a technique to deal with the effect on profits of changes in volume or type of output. He went further to explain that “fixed” in relation of time and in fact they tend to vary in relation to the length of the period covered.

Recently the common concern to every participant in a market economy is the magnitude at which price of goods are multiplied in recent time in Nigeria. This is in addition to the multiplier effects associated with the process of transacting business in Nigeria for instance as customers complain bitterly of exorbitant prices likewise Brewery firms remain worried about how profitability returns in the face of ever-increasing competition. Even low buying power of customer, low-capacity utilization and international market that are characterized by differentiated products. As a result, customers shift from one product to another in search of value that rarely comes despites their reaches to purchase. They are all confronted with higher price low quality adulteration and at times temporary scarcity in place of value for money objectives they pursue. The management of different companies also seeks for cover everywhere to justify low profitability return while trying to checkmate competition and its resultant effect on financial performance caused by product proliferation and limitations.

The reality of modern business management in a free enterprise economic system is the level of competition among all the enterprise, where only the filter enterprises survive.  The motive for maximization of profit in business and quest for Wealth Creation being in vogue, management continues to remain under increasing obligation to improve its share of the market, its assets, its credit worthiness and its overall potential.

These in turn require an improvement in the quality of decision. Therefore in order to respond effectively to the challenges of time, management requires good factors in business decisions.

This research work is a real attempt to investigate into the marginal cost and financial performance of brewery firms in Nigeria.

1.2      Statement of the Problem

The problem with calculating the contribution of various products made by a company is that it may not be clear whether the contribution earned by each product in enough to cover fixed cost whereas by charging fixed overhead to a product we can decide whether it is profitable or not.

This research is primarily carried out by marginal cost elements available to some Brewery firms in Nigeria more also it goes ahead to relate the financial performance of these Brewery firms to direct material direct labor and overhead respectively. Hence the research aims at evaluating financial performance of brewery firms using the marginal cost element as a yard stick.