Activity-Based Costing as a Tool for Cost Management in Daura Local Government Area
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Chapter One: Introduction
Background of the Study
Effective cost management is crucial for businesses aiming to optimize profitability and maintain competitiveness in dynamic economic environments. Activity-Based Costing (ABC) has emerged as a powerful tool for achieving cost efficiency. Unlike traditional costing methods, ABC allocates costs to activities based on their actual consumption of resources, offering a more accurate picture of cost drivers and enhancing decision-making (Horngren et al., 2012). By identifying high-cost activities and streamlining processes, ABC enables businesses to improve resource allocation and reduce unnecessary expenses.
In Daura Local Government Area (LGA), businesses face challenges such as rising operational costs, limited access to resources, and competitive pressures. These issues highlight the need for advanced cost management techniques like ABC to improve efficiency and ensure long-term sustainability. Drury (2018) emphasizes that ABC provides detailed insights into the cost structure of products and services, helping businesses develop competitive pricing strategies and achieve better financial performance.
Despite its potential benefits, the adoption of ABC in Daura LGA remains limited due to factors such as lack of awareness, inadequate technical expertise, and resistance to change. Many businesses still rely on traditional costing methods, which may not accurately reflect the complexities of modern operations. This study explores the role of ABC as a tool for cost management in Daura LGA, examining its adoption, benefits, and barriers to implementation.
Statement of the Problem
Businesses in Daura LGA struggle with managing costs effectively due to reliance on outdated costing methods. Traditional approaches often fail to capture the true cost drivers, leading to inefficiencies and suboptimal decision-making. Activity-Based Costing, despite its advantages, is underutilized in the region due to barriers such as lack of knowledge, limited resources, and resistance to change. This study investigates the role of ABC in cost management, focusing on its adoption and the challenges businesses face in implementing this advanced costing technique.
Aim and Objectives of the Study
The aim of this study is to assess the role of Activity-Based Costing as a tool for cost management in businesses within Daura Local Government Area.
The objectives are:
1. To examine the extent of ABC adoption in businesses in Daura LGA.
2. To evaluate the impact of ABC on cost management and operational efficiency.
3. To identify the challenges hindering the adoption of ABC in Daura LGA.
Research Questions
1. To what extent is Activity-Based Costing adopted by businesses in Daura LGA?
2. How does ABC impact cost management and operational efficiency?
3. What challenges hinder the adoption of ABC in businesses in Daura LGA?
Research Hypotheses
1. Activity-Based Costing is not widely adopted by businesses in Daura LGA.
2. ABC has a significant positive impact on cost management and operational efficiency.
3. Barriers such as lack of expertise and resistance to change significantly hinder the adoption of ABC.
Significance of the Study
This study provides insights into the role of ABC in enhancing cost management practices in Daura LGA. It offers practical recommendations for business owners to adopt ABC effectively and contributes to academic research by highlighting the benefits and barriers associated with its implementation. The findings also inform policymakers on the need for programs that support advanced cost management practices in the region (Bhimani et al., 2019).
Scope and Limitation of the Study
The study focuses on businesses in Daura Local Government Area, exploring their adoption of Activity-Based Costing and its impact on cost management. The scope is limited to businesses across diverse sectors, and the study may face challenges such as limited availability of accurate data and resistance to sharing cost-related information.
Definition of Terms
• Activity-Based Costing (ABC): A costing method that assigns costs to activities based on their actual use of resources, providing detailed insights into cost drivers.
• Cost Management: The process of planning and controlling business expenses to improve profitability.
• Operational Efficiency: The ability of a business to deliver products or services in the most cost-effective manner without compromising quality.
• Daura Local Government Area: A region in Katsina State, Nigeria, known for its diverse economic activities.
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