ACTIVITY-BASED COSTING AND PROFITABILITY OF MANUFACTURING FIRMS IN BAUCHI LGA
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Background of the Study
Manufacturing firms in Bauchi LGA face increasing competition, fluctuating costs, and the need to optimize their cost structures to maintain profitability. Activity-Based Costing (ABC) is a method that allocates overhead costs to products or services based on the activities that drive these costs. This method provides more accurate cost information compared to traditional costing methods, helping firms identify inefficiencies, optimize resource allocation, and enhance profitability. This study will examine the use of Activity-Based Costing in manufacturing firms in Bauchi LGA, exploring its impact on cost control, pricing strategies, and overall profitability.
Statement of the Problem
Many manufacturing firms in Bauchi LGA continue to use traditional costing methods that may not accurately reflect the true cost of production, leading to inefficient cost management and reduced profitability. Despite the potential benefits of Activity-Based Costing, its adoption in the region remains low. This study will explore how ABC can be applied to improve cost management and profitability in manufacturing firms.
Aim and Objectives of the Study
Aim: To evaluate the impact of Activity-Based Costing on the profitability of manufacturing firms in Bauchi LGA.
Objectives:
- To assess the adoption and implementation of Activity-Based Costing in manufacturing firms in Bauchi LGA.
- To evaluate the effect of Activity-Based Costing on cost control and pricing strategies.
- To determine the relationship between Activity-Based Costing and profitability in manufacturing firms.
Research Questions
- How widely is Activity-Based Costing applied in manufacturing firms in Bauchi LGA?
- What impact does Activity-Based Costing have on cost control and pricing decisions in manufacturing firms?
- How does Activity-Based Costing influence the profitability of manufacturing firms in Bauchi LGA?
Research Hypothesis
- H₀: Activity-Based Costing does not significantly impact the profitability of manufacturing firms in Bauchi LGA.
- H₀: There is no significant relationship between the adoption of Activity-Based Costing and effective cost control.
- H₀: Activity-Based Costing does not significantly influence the pricing strategies of manufacturing firms.
Significance of the Study
This study will provide valuable insights into the application of Activity-Based Costing in manufacturing firms, contributing to more accurate cost allocation, improved pricing strategies, and enhanced profitability in Bauchi LGA.
Scope and Limitation of the Study
The study will focus on manufacturing firms in Bauchi LGA that have implemented Activity-Based Costing. Limitations include the potential reluctance of firms to disclose financial data and challenges in obtaining detailed cost allocation information.
Definition of Terms
- Activity-Based Costing (ABC): A costing method that assigns overhead costs based on the activities that generate those costs, providing more accurate cost allocation.
- Manufacturing Firms: Businesses engaged in the production of goods through industrial processes.
- Profitability: The ability of a company to generate income relative to its expenses, leading to a profit.
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