Effect of Standard Costing on Financial Performance of Manufacturing Industries in the North Rift Economic Block, Kenya

Abstract

The aim of this study was to examine the effect of standard costing on financial performance. The study adopted explanatory research design and stratified sampling technique for data collection on a questionnaire with closed ended questions. The sample size for the study was 220 consisting of 63 auditors and 157 accountants from 48 manufacturing industries. Cronbach’s alpha and factor analysis were used to test for reliability and constructs validity of research instrument respectively while hypothesis was tested by use of regression analysis. The result of the study revealed that standard costing (β = 0.216, P>0.000) with R2= 0.662 had positive significant effect on financial performance of manufacturing industries. The study concluded that there is significant correlation between standard costing and financial performance and that one unit change in standard costing would cause one unit change on financial performance. Likewise, the study recommended need for proper costing records and application of standard costing by manufacturing firms to help them in financial performance assessment and gain control over costs. Further research study should consider targeting the operation managers and financial managers. The scope of the study was limited to manufacturing industries hence future study should focus on service industries to establish whether the study would yield the same results.