Influence of Strategic Cost Accounting Practices on Production Efficiency of Manufacturing Firms in Nairobi City, Kenya

Abstract

Strategic cost and management accounting literature show that strategic cost accounting practices are important in driving firm production efficiency. Previous studies do not investigate the link between these practices and performance. Therefore, the extent of adoption of the strategic cost accounting practices has not been studied. Given that the manufacturing sector has a great potential on promoting economic growth, the effect of strategic budgeting, strategic analysis and strategic information for decision making on production efficiency has not been assessed. Therefore, the purpose of this study was to analyze the influence of strategic cost accounting practices on production efficiency of manufacturing firms in Nairobi, Kenya. Specific objectives of the study were to: establish extent of adoption of strategic cost accounting by the manufacturing firms; evaluate the effect of strategic budgeting on production efficiency; establish the relationship between strategic analysis and production efficiency; establish the effect of strategic information for decision making on production efficiency of manufacturing firms in Nairobi City, Kenya. The study was anchored on Universalistic theory. The study adopted a correlational research design. The target population was all the 455 companies in Nairobi. Proportionate sampling method was applied to yield the sample size of 46 manufacturing firms. Primary and secondary data was obtained using semi-structured questionnaire and desk review respectively. Reliability and validity tests were done using test-retest method and expert reviewers respectively. Data analysis was done using both descriptive statistics such as mean and standard deviation and inferential statistics namely Pearson's correlation and multiple regression analyses. The findings of the study were that strategic budgeting was the most prevalent cost accounting (Mean = 3.8696, Std.dev = 1.37612) meaning that it was highly practiced ; Strategic budgeting was a negative insignificant predictor of production efficiency (~ = -.094 (p = .087) implying that use of strategic budgeting reduces production efficiency; strategic information for decision making negatively significantly influences production efficiency (~ = -.121 (p = .009) meaning that use of strategic information decreases production efficiency and strategic analysis insignificantly positively (~ = .005 (.922) influences production efficiency meaning that it increases production efficiency. The study concludes that strategic budgeting is the most prevalent practice; strategic budgeting negatively influences production; strategic information for decision making leads to decrease on production efficiency and strategic analysis leads to increase in production efficiency among manufacturing firms. The research findings may be significant to manufacturing industry policy makers in designing appropriate cost accounting strategies that maximizes the firm's performance. In addition, the research will provide new empirical evidence on the strategic cost accounting practices and performance of manufacturing firms and form a basis for future research in the area.