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THE EFFECT
OF COST ACCOUNTING TECHNIQUES ON PERFORMANCE OF SMES
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The business
environment has become intensively dynamic and increasingly unpredictable in
recent decades and,correspondingly, managing company has become more demanding.
Cost Accounting is a task of collecting, analyzing, summarizing and evaluating
various alternative courses of action. Its goal is to advise the management on
the most appropriate course of action based on the cost efficiency and
capability. The SMEs sector has been recognized worldwide for its role in
economic advancement through ways various like; wealth generation, employment
creation, and poverty reduction (Kithae, Gakure, & Munyao, 2012). Small and
medium scale enterprises are a fundamental part of the economic fabric in most
developing countries, and they play a very important role in furthering growth,
innovation and prosperity (Dalberg, 2011).
Small and Medium Enterprises are critical to
the development of any economy has they possess great potentials for employment
generation, improvement of local technology, output diversification,
development of indigenous entrepreneurship and forward integration with large
scale industries.
Cost
accounting is a task of collecting, analyzing, summarizing and evaluating
various alternative courses of action. Its goal is to advise the management on
the most appropriate course of action based on the cost efficiency and
capability. Cost accounting provides the detailed cost information that
management needs to control current operations and plan for the future.
In Nigeria
there has been gross under-development of SMEs sub-sector and this has
undermined its contribution to economic growth and development. The key issue
affecting the SMEs can be group into four: unfriendly business environment,
poor funding, low management skill and lack of access to technology (FSS 2020
SME Sector Report, 2007). Small and medium enterprises (SMEs) play an important
role in the development of a nation’s economy. The reasons for this are the
fact that SMEs provide benefits such as job creations, knowledge spillover,
economic multipliers, innovations driver and cluster development in an economy
(Chinaemerem & Anthony, 2012). Given the importance of SMEs in an economy,
it becomes quite plausible to look at factors affecting their financial
performance which is a major determinant of their survival and growth.
An accounting system is an orderly, efficient
scheme for providing accurate financial information and controls. Regulatory
requirements and internal administration policies are key considerations in the
design of an effective accounting system. Thus accounting systems show the
books, records, voucher, and files and related supporting data resulting from
the application of the accounting process. It involves the design of documents
and transactions flow through an organization. The uniqueness of small and
medium scale businesses call for careful consideration in the design of
accounting systems.Small and medium scale enterprises are a vast majority of
businesses found in variety of primary and intermediate production of the
economy. These establishments have tremendous impact on the state and well
being of the nation in employment generation, as sources of national outputs
and revenues, providing feedstock for large corporations They may lack the
sophistication to apply the detailed accounting processes, yet the value of
accounting systems to these businesses is quite profound.
1.2 Statement of the Problem
Most of the
existing research literature on accounting in Port Harcourt SMEs tends to be
more biased toward the arm of cost accounting techniques in performance of
SMEs, more so only remote exists in regard of the adoption of cost accounting
techniques by SMEs in Port Harcourt [(Wairegi, 2011),(Makau, Wawire, &
Ofafa, 2013), (Waweru, 2012), (Mugambi, 2010) (Aduda, Mogutu, & Githinji,
2012) , lack of technical skills are as much obstacles to developing a small
business as is the inability to access credit (Mbogo, 2011). In Nigeria, SMEs
cover the entire range of economic activity within all sectors and share a
number of common problems that hinder them from effective performance in Port
Harcourt, include low market access to credit, poor information flow,
discriminatory legislation, poor access to land, weak linkages among different
sectors, weak operating capabilities in terms of skills, lack of knowledge and
attitudes, lack of infrastructural facilities among others.
Another
problems of SMEs failure is poor management ability which includes accounting
problem-solving.Small and medium enterprise experiences difficulties in raising
equity capital from the finance houses or individuals. Even when the finance
house agrees to provide equity capital, the conditions are always dreadful. All
these result to inadequate capital available to the sector and thus lead to
poor financing.
Another
problems facing SMES is Lack of competent management which is the consequence
of inability of owners to employ the services of experts; Use of obsolete
equipment and methods of production because of owner’s inability to access new
technology; Excessive competition which resulted from sales which is a
consequence of poor finance to cope with increased competition in the industry;
The high cost of available raw materials affects the prices of good food. This
only has adverse affect on the turnover of the enterprise but also on the
profitability; The availability of infrastructural facilities is grossly
inadequate in the areas of access roads, electricity, water supply, etc. and
Multiplicity of policies and regulatory measures such as removal of fuel
subsidy, taxes, several charges on loans.
The place of
sound accounting and internal control systems in any business, irrespective of
its scale, cannot be overemphasized. A vast majority of small-scale businesses
cannot afford the complexity of a detailed accounting system even if they would
have. Hence, the existence of single entries in their books and in some cases
incomplete records (Wood, 1979; Onaolapo, et al., 2011). Audits of small and
medium scale enterprises have proven to be among the most worrisome for
professional accountants because of the inadequacy of the internal controls.
This study thus sought to assess the determining factors and the adoption
levels of modern accounting techniques by SMEs in Port Harcourt.
1.3 Purpose
of the Study
The purpose
of these study is to examine the effect of cost accounting techniques on
performance of SMEs in selected SMEs
firms in Port Harcourt. Specific objectives include, to:
i. To investigate the types of accounting
records being kept and maintained by SMEs.
ii) To evaluate factors hindering Cost
accounting Techniques in SMEs in Port Harcourt.
iii. To investigate the extent to which
accountinginformation is being used in measuring financialperformance by SMEs.
1.4 Research Questions
i. What are the types of accounting records
being kept and maintained by SMEs?
ii) What are the factors hindering Cost
accounting Techniques and SMEs in Port Harcourt.
iii. How does accounting information being used
in measuring financial performance by SMEs in Port Harcourt?
1.5 Research Hypotheses
HO1. There is no significant relationship between
types of accounting records being kept and maintained by SMEs.
HO2 There is no significant relationship between
the factors hindering Cost accounting Techniques and SMEs in Port Harcourt.
HO3 There is no significant relationship between
accounting information being used in measuring financial performance by SMEs in
Port Harcourt.
1.6 Significance of study
The effect
of Cost Accounting Techniques and
performance Small and Medium Enterprise development has been an area of intense
research both in practice and academia. This work is to prove helpful to
existing and potential entrepreneur of SMEs since this study lends assistance
in strategic effect of sources of finance in the performance of a business in
order to plan ahead. The research work could also serve as a source of future
reference to future researchers who may find it helpful in carrying out a
research work of similar nature or related topic.
This
empirical investigation of SMEs is therefore a significant contribution to
existing literature. Furthermore, the study would provides evidence on the extent to which
Rivers state Small and Medium Enterprise are accounting accommodating in
readiness for gaining strategic competitive advantages in their businesses.
The study
would also provides uniqueness of small and medium scale businesses call for
careful consideration in the design of accounting systems. Small and medium
scale enterprises are a vast majority of
businesses found in variety of primary and intermediate production of the
economy.
1.7 Scope of the Study
The general
scope of this study covers Cost Accounting Techniques and performance Small and
Medium Enterprise. The geographical scope is Rivers State of Nigeria. The study
will be limited to selected SMEs in Port Harcourt.
1.8 Definition of Terms
Accounting:
The bookkeeping methods involved in making a financial record of business
transactions and in the preparation of statements concerning the assets,
liabilities, and operating results of a business.
SME:small
and medium enterprises) are businesses whose personnel numbers fall below
certain limits.
Cost
accounting: Is ‘the process of accounting for cost from the point at which
expenditure is incurred or committed to establishment of its ultimate
relationship with cost centres and cost units.
Technique: a
way of doing something by using special knowledge or skill
Accounting
records are all of the documentation and books involved in the preparation of
financial statements or records relevant to audits and financial reviews.
Financial
performance: Measuring the results of a firm's policies and policies and
operations in monetary terms.
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