Effect of Costing Models on Financial Performance Of Cement Manufacturing Industry in Kenya

Abstract

In East Africa, particularly in Kenya, the cement industry holds a prominent position both in production and consumption. Kenya boasts approximately eight cement companies, three of which are publicly traded on the Nairobi Securities Exchange (NSE): East Africa Portland Cement Limited, ARM Cement Limited, and Bamburi Cement. The rest of the businesses are privately held and include Mombasa Cement, Savannah Cement, and National Cement. The real estate industry's increasing dynamics of supply and demand have made the competitive scene within the cement manufacturing sector more intense. As a result, in order to maintain or grow their market share, businesses are concentrating more and more on assessing their financial positions. Unlike in the past when Kenyan cement manufacturers were able to make good profits now they are struggling to make a profit due to the low demand for building materials and the high levels of importation of cheaper cement from Asian countries. The purpose of this study is to establish the impact of various costing techniques on the financial planning of the manufacturing sector in Kenya. The specific research question of the study is therefore; what is the comparative effect of Activity-Based Costing (ABC), standard costing, and target costing and marginal costing on the financial performance of the Kenya’s cement manufacturing industry? The study employs both quantitative and qualitative research methods to ensure the credibility of the findings. The target population is comprised of 100 middle-level management personnel. The method of data collection is survey interviews, and the data collected is of a quantitative nature, analyzed using descriptive statistic and presented in the form of percentage, Mean Standard Deviation and frequency using SPSS. The research thus concludes that there is a positive correlation between financial performance and the various costing techniques namely, the activity based costing, the target costing and the marginal costing while the standard costing has little or no impact on the performance. Notably, ABC, target costing, and marginal costing are found to positively impact performance. In conclusion, standard cost accounting proves valuable for managers seeking precise budget planning. ABC is particularly beneficial for cement manufacturing firms, as it facilitates cost reduction, thereby contributing to increased profits and overall organizational performance. Further research is recommended across manufacturing firms in different regions and sectors to generalize these findings. Additionally, exploring the frequency of adoption of management accounting practices in diverse industries would enrich future studies.