EFFECT OF COST ACCOUNTING TECHNIQUES ON FINANCIAL PERFORMANCE OF MANUFACTURING INDUSTRIES IN NORTH RIFT ECONOMIC BLOCK, KENYA

Abstract

Current manufacturing industries are struggling with challenges like low productivity rate and high cost of production which leads to low profitability. This study intended to evaluate the effect of cost accounting techniques on financial performance of manufacturing industries in North Rift Economic Block, Kenya. Specific objectives were to examine the effect of marginal, standard, activity based and target costing on financial performance of manufacturing industries. The current study was guided by Theory of constraints, Resource based view theory and Contribution Theory. The study adopted explanatory research design and stratified random sampling techniques for data collection from a sample size of 220 from 48 manufacturing industries. Similarly, self-administered questionnaire with closed ended questions. Cronbach’s alpha and factor analysis were applied to test for reliability and construct validity respectfully. Multiple linear regression model was applied in establishing the effect of independent variables on the dependent variable. The study findings established that marginal Costing (β = 0.424, P >0.000), Standard Costing (β = 0.216, P >0.000), Activity Based Costing (β = 0.187, P > 0.000), Target Costing (β = 0.146, P > 0.008) with Average R2 = 0.662 have positive significant effect on financial performance of Manufacturing Industries. The study further revealed that ABC is the most influential variable in prediction of outcome of financial performance of manufacturing Industries. The Study concluded that Cost Accounting is an essential practice in any manufacturing Industries and cannot be excluded from basic activities in manufacturing Industries. This study recommends that further study on this area should be done on service industries and application of non- financial performance measurements to establish whether the study would yield same results.