An Evaluation of Marginal Costing in Pricing Decisions: A Study of Eko Hotels & Suites
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Background of the Study
Marginal costing, a critical tool in managerial accounting, plays a significant role in pricing decisions by focusing on variable costs associated with producing additional units of output (Drury, 2024). In the hospitality industry, particularly in luxury establishments like Eko Hotels & Suites, pricing strategies are vital for maintaining competitiveness and profitability. The fluctuating nature of customer demand, influenced by factors such as seasonality and economic conditions, underscores the need for effective marginal costing techniques.
Marginal costing helps businesses determine the minimum price at which a product or service can be offered without incurring losses (Horngren et al., 2023). By isolating variable costs, managers can make informed pricing decisions that align with market trends and organizational objectives. Despite its importance, many hospitality firms in Nigeria struggle with integrating marginal costing into their pricing frameworks due to insufficient expertise and inadequate financial systems.
This study investigates the application of marginal costing in pricing decisions at Eko Hotels & Suites, highlighting its impact on profitability and competitiveness.
Statement of the Problem
Effective pricing decisions are critical for the success of hospitality businesses. However, many Nigerian hotels, including Eko Hotels & Suites, face challenges such as inaccurate cost allocation, reliance on traditional pricing methods, and limited use of marginal costing techniques (Okafor & Oladipo, 2025). These challenges can lead to suboptimal pricing strategies, reduced profitability, and loss of market share.
The inability to adapt pricing strategies to changes in variable costs and customer demand further exacerbates the problem. Additionally, there is limited research on the practical application of marginal costing in Nigeria’s hospitality sector, creating a gap in knowledge that this study seeks to address.
Objectives of the Study
- To evaluate the role of marginal costing in pricing decisions at Eko Hotels & Suites.
- To analyze the impact of marginal costing on the hotel’s profitability.
- To identify challenges associated with implementing marginal costing techniques in the hospitality sector.
Research Questions
- How is marginal costing applied in pricing decisions at Eko Hotels & Suites?
- What impact does marginal costing have on the profitability of the hotel?
- What challenges exist in implementing marginal costing techniques in the hospitality industry?
Research Hypotheses
- Marginal costing significantly influences pricing decisions at Eko Hotels & Suites.
- The application of marginal costing improves the profitability of the hotel.
- Challenges in implementing marginal costing techniques affect their effectiveness in pricing decisions.
Scope and Limitations of the Study
The study focuses on Eko Hotels & Suites and examines the use of marginal costing in pricing decisions. Limitations include potential reluctance from staff to disclose financial practices and the dynamic nature of the hospitality industry, which may affect generalizability.
Definitions of Terms
- Marginal Costing: An accounting technique that considers only variable costs for decision-making purposes.
- Pricing Decisions: The process of determining the appropriate price for goods or services to achieve organizational goals.
- Profitability: The ability of a business to generate profit from its operations.
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