Challenges of Implementing Activity-Based Costing in Manufacturing Firms in Bida Local Government Area
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Background of the Study
Activity-Based Costing (ABC) is a cost accounting method that allocates overhead costs based on the activities that drive these costs. This method provides a more accurate cost allocation than traditional costing methods, enabling firms to make better pricing and production decisions. In manufacturing industries, especially those in Bida Local Government Area (LGA), implementing ABC can help identify inefficiencies, optimize resource allocation, and improve decision-making (Horngren et al., 2012).
Despite its advantages, the implementation of ABC in manufacturing firms is often met with challenges. Bida LGA’s manufacturing firms, which range from small enterprises to mid-sized operations, struggle with issues such as inadequate financial data, lack of skilled personnel, and the complexity of the ABC system. According to Drury (2018), while ABC has the potential to improve cost transparency, it requires significant investment in time and resources, which many small firms in Bida LGA may lack. This study aims to explore the challenges faced by manufacturing firms in implementing ABC in the region.
Statement of the Problem
Manufacturing firms in Bida LGA face significant challenges when attempting to implement Activity-Based Costing due to factors such as lack of expertise, inadequate resources, and resistance to change. These challenges hinder the effective adoption of ABC, limiting the potential benefits of accurate cost allocation and efficient resource utilization. This study investigates the obstacles that manufacturing firms in Bida LGA encounter when implementing ABC.
Aim and Objectives of the Study
The aim of this study is to identify the challenges faced by manufacturing firms in Bida LGA when implementing Activity-Based Costing.
The objectives are:
1. To examine the challenges faced by manufacturing firms in Bida LGA in implementing ABC.
2. To assess the factors contributing to the difficulties in adopting ABC in these firms.
3. To propose solutions to overcome the challenges of implementing ABC in manufacturing firms in Bida LGA.
Research Questions
1. What challenges do manufacturing firms in Bida LGA face in implementing Activity-Based Costing?
2. What factors contribute to the difficulties in adopting ABC in manufacturing firms?
3. How can manufacturing firms overcome the challenges of implementing ABC?
Research Hypotheses
1. Manufacturing firms in Bida LGA face significant challenges in implementing ABC due to lack of expertise.
2. The adoption of ABC in manufacturing firms is hindered by resource constraints and financial limitations.
3. Resistance to change is a major barrier to the effective implementation of ABC in manufacturing firms in Bida LGA.
Significance of the Study
The findings of this study will assist manufacturing firms in Bida LGA by identifying the barriers to implementing ABC and providing actionable solutions to overcome these challenges. Additionally, the study will contribute to the existing literature on cost accounting and ABC implementation in developing regions.
Scope and Limitation of the Study
This study focuses on manufacturing firms in Bida LGA and examines the challenges they face in implementing Activity-Based Costing. Limitations include the potential difficulty in accessing internal financial data from firms and the reliance on self-reported information.
Definition of Terms
• Activity-Based Costing (ABC): A costing method that assigns overhead costs to products based on the activities that generate those costs.
• Manufacturing Firms: Businesses involved in the production of goods, especially those that rely on large-scale production and complex processes.
• Bida Local Government Area: A region in Niger State, Nigeria, with manufacturing firms facing challenges in adopting cost accounting practices.
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