Activity Based Costing and Financial Performance of Manufacturing and Allied Companies Listed on Nairobi Securities Exchange, Kenya
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Date
2023
Authors
Arithi, Vandrose
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Activity-based costing is vital in cost information analysis for financial decision making
hence has a link to the net returns of a firm. However, Kenya’s manufacturing companies
are experiencing undesirable financial performance as demonstrated by inadequate profits
and slow growth in overall net returns. It is against this challenge that the researcher
examined the effect of activity-based costing on financial performance of manufacturing
companies listed on the Nairobi Securities Exchange. The specific objectives of the study
included; to determine the effect of resource management, cost activities determination,
cost driver selection and cost objects on financial performance of listed manufacturing
companies. The study was anchored on theories comprising positive accounting theory,
theory of constraints, and profit maximization theory. Survey research design was
employed. The study’s target population comprised all the eight manufacturing companies
listed on the Nairobi Securities Exchange while the unit of analysis was the managers.
Census technique was employed and structured questionnaire was used in collection of
data. Data analysis was done through descriptive and inferential statistical methods via aid
of Statistical Packages for Social Sciences (SPSS) version 24. Descriptive findings
established that activity based costing parameters; resource management, cost activities
determination, cost driver selection and cost objects determination affected the financial
performance of listed on the Nairobi Securities Exchange. Correlation analysis results
revealed that all the variables had a significant relationship with financial performance.
Therefore, activity-based costing affected financial performance. Regression analysis
results indicated that the coefficient of determination was 0.723 thus activity-based costing
accounted for 72.3% variation in financial performance. The study concluded that
appropriate management of resources enables manufacturing firms to plan, schedule,
forecast and optimize costs and returns. Use of activity-based costing is a great way of
managing the resources of manufacturing companies and promoting financial
performance. It is also concluded that cost driver selection has a great relevance on the
management of costs and enhancement of the Returns on Assets (ROA) for listed
manufacturing companies. The study recommends that a comprehensive implementation
guidelines and principles for adopting activity-based costing should be developed.
Manufacturing companies should intensify the utilization of activity-based costing in the
management of resources. It is also recommended that cost driver selection as part of
activity-based costing should be integrated into the financial plans of listed manufacturing
companies. This integration will lead to cost minimization and optimization of returns.
Description
A Research Project Submitted to the School of Business,
Economics and Tourism in Partial Fulfillment of the
Requirements for the
Award of Degree of Master of Business
Administration (Finance Option) of
Kenyatta University
Keywords
Nairobi Securities Exchange, Kenya