Evaluation of activity based cost analysis as a tool on financial performance in selected public sugar firms in Kenya
Wasike, Edward Wanyonyi
Onsiro, Martin Ronald
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Globally, businesses have continued to focus on cost reduction and effectiveness in operations. Organizations have to be transparent when incurring costs. Stakeholders in general need detailed insights about costs and financial performance of organizations to which they are associated. However, this is limited by absence of adequate knowhow, good systems and necessary data. There has been a lot of concern over rising operational costs across the globe and more so particularly in Kenya due to high energy costs, staff costs and borrowing costs among others. Mumias Sugar Company Limited made a total loss of Kshs 10.3 billion from 2013 to 2015 as per the published annual financial statements. The financial performance of Nzoia Sugar Company Limited was also affected by interest on borrowed loans, aged machinery and high input costs of materials, fuel, fertilizer and lubricants. The purpose of the study was to evaluate Activity Based Cost Analysis as a tool on financial performance of the selected public sugar firms. The problem for the research was the apparent high operational costs that were being exhibited uncontrollably and which resulted in losses and therefore poor financial performance of the selected public sugar companies in Kenya. The researcher aimed at filling the gap of showing whether if Activity Based Cost Analysis as a tool was well followed, then the financial performance of the selected sugar firms would have been better. A mixed methodology was used because the data collected was both discrete and continuous which required the employment of both descriptive and inferential techniques. Descriptive research design was used because it covers both the quantitative and qualitative data in the research and also assisted the researcher to collect relevant data at minimal cost, time and effort. This was a census whose target population was top management, accounting staff, internal audit staff, procurement staff, and sales revenue staff. Data was analyzed using SPSS. The null hypothesis had to be accepted, that is there was no significant relationship that existed between application of ABC Analysis as a tool and financial performance. On an overall basis, the researcher concludes that upon evaluation, Activity Based Cost analysis was lowly applied in the selected public sugar firms since it faced a myriad of challenges and therefore could not significantly influence Financial Performance. Direct players and other stakeholders should take keen interest in both accounting and non-accounting tools that would enhance financial performance of firms.