Effect of Standard Costing on Profitability of Manufacturing Companies: Study of Edo State Nigeria

Abstract

The study investigated the effect of standard costing on profitability of selected manufacturing companies in Edo state Nigeria. This was achieved through a review of the effect of standard costing system on cost reduction, normal loss and gross profit from production. Extant literatures were reviewed, and three hypotheses developed and tested. The population of the study consisted of selected manufacturing firms in Benin City. In order to generate the necessary data for this study, primary method of data collection was adopted and applied through the administration of a questionnaire designed in a 5-point Likert scale. The formulated hypotheses were tested using Z-Test statistics at 5% alpha level. Findings generated in this study revealed that there is significant positive effect of standard costing on cost reduction. It was further observed that the more a firm practices standard costing, the more its profit increases. Based on the above findings, we recommend that manufacturing firms should adopt and consistently apply standard costing in their accounting system so as to ensure the efficient use of resources for effective control of costs and enhancement of profitability.

Keywords: standard costing, cost reduction, and profitability.

DOI: 10.7176/JRDM/53-03

Publication date:March 31^st 2019