Impact of Activity-Based Costing on Manufacturing Firms in Sabon Gari LGA
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Background of the Study
Activity-Based Costing (ABC) is an advanced costing method that assigns overhead costs to specific activities, providing a more accurate picture of cost drivers in a business. In Sabon Gari LGA, manufacturing firms face significant challenges in controlling costs and optimizing pricing strategies. ABC can help these firms better understand the cost behavior and allocate resources efficiently. By applying ABC, firms can identify high-cost activities, streamline operations, and improve profitability. This study explores the impact of ABC on manufacturing firms in Sabon Gari LGA, aiming to assess its role in enhancing financial management and competitiveness.
Statement of the Problem
Manufacturing firms in Sabon Gari LGA often struggle with managing overhead costs due to the lack of precise cost allocation methods. Traditional costing methods may lead to cost distortions, hindering the firms' ability to set competitive prices and control costs effectively. Despite the potential benefits of ABC, many firms in the region have not adopted this costing method. This study seeks to evaluate the impact of Activity-Based Costing on manufacturing firms in Sabon Gari LGA, focusing on its ability to improve cost control and profitability.
Aim and Objectives of the Study
Aim: To assess the impact of Activity-Based Costing on the financial performance of manufacturing firms in Sabon Gari LGA.
Objectives:
- To examine the current costing methods used by manufacturing firms in Sabon Gari LGA.
- To evaluate the effectiveness of Activity-Based Costing in improving cost management in manufacturing firms in Sabon Gari LGA.
- To assess the relationship between ABC implementation and the profitability of manufacturing firms in Sabon Gari LGA.
Research Questions
- What costing methods are currently used by manufacturing firms in Sabon Gari LGA?
- How effective is Activity-Based Costing in improving cost management in manufacturing firms in Sabon Gari LGA?
- What is the relationship between Activity-Based Costing and profitability in manufacturing firms in Sabon Gari LGA?
Research Hypothesis
- H₀: Activity-Based Costing does not significantly improve cost management in manufacturing firms in Sabon Gari LGA.
- H₀: There is no significant relationship between the implementation of Activity-Based Costing and profitability in manufacturing firms in Sabon Gari LGA.
- H₀: Activity-Based Costing does not significantly contribute to improving financial performance in manufacturing firms in Sabon Gari LGA.
Significance of the Study
This study will highlight the importance of Activity-Based Costing in improving cost management and profitability, offering practical insights for manufacturing firms in Sabon Gari LGA to enhance their financial performance.
Scope and Limitation of the Study
The study will focus on manufacturing firms in Sabon Gari LGA that have adopted or are in the process of adopting Activity-Based Costing. Limitations include access to detailed financial records and potential resistance from firms to share internal data.
Definition of Terms
- Activity-Based Costing (ABC): A costing method that assigns overhead costs to activities based on their use of resources, providing a more accurate cost allocation.
- Manufacturing Firms: Companies engaged in the production of goods through the use of raw materials, labor, and capital.
- Profitability: The ability of a firm to generate profits relative to its revenue, costs, and investments.
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