Effect of Standard Costing on Financial Performance of Manufacturing Industries in the North Rift Economic Block, Kenya

Abstract

The aim of this study was to examine the effect of standard costing on financial performance. The study adopted explanatory research design and stratified sampling technique for data collection on a questionnaire with closed-ended questions. The sample size for the study was 220 consisting of 63 auditors and 157 accountants from 48 manufacturing industries. Cronbach’s alpha and factor analysis were used to test for the reliability and construct validity of the research instrument respectively while the hypothesis was tested using regression analysis. The result of the study revealed that standard costing (β = 0.216, P>0.000) with R²= 0.662 had a positive significant effect on the financial performance of manufacturing industries. The study concluded that there is a significant correlation between standard costing and financial performance and that one unit change in standard costing would cause one unit change in financial performance. Likewise, the study recommended proper costing records and the application of standard costing by manufacturing firms to help them in financial performance assessment and gain control over costs. Further research studies should consider targeting operation managers and financial managers. The scope of the study was limited to manufacturing industries hence future studies should focus on service industries to establish whether the study would yield the same results.