Applicability of Activity Based Costing by Manufacturing Firms in Zaria Local Government Area of Kaduna State, Nigeria

Kabiru Isa Dandago¹, and  EL-Maude, Jibreel Gambo²

¹Visiting Professor, School of Accountancy, College of Business, Universiti Utara Malaysia, 06010 UUM Sintok, Kedah Darul Aman, Malaysia Kabiru@uum.edu.my,  kidandago@gmail.com,      +60143032297

²Department of Accountancy, Modibo Adama University of Technology, Yola, Adamawa State, Nigeria ielmaude@gmail.com, +2347035971890, +2347055711070

Accepted 10 June 2014

Abstract

The thrust of this study is to examine the level of application of Activity Based Costing (ABC) in the manufacturing companies in Zaria local Government Area of Kaduna state, Nigeria. As business environment is fast changing, accountants, managers, entrepreneurs and other stakeholders are to invent new ideas and strategies capable of drastically eliminating unnecessary expenses which invariably enhance the performance of their firms, increase their profitability and ensure their going concern status. Five manufacturing companies were conveniently sampled and copies of questionnaire were administered to the twenty five (25) randomly selected staff of these companies. Correlation co-efficient and T-test were used in testing the formulated hypothesis. The study reveals that none of the companies was applying ABC in apportioning its overhead cost to cost centers and cost units; they go by the traditional method of costing which was still obtainable in the sampled companies and as a result most of them are at the verge of collapsing, because they are not operating at full capacity. The study recommends that there is the need for general awareness campaign on the benefits of ABC and how it is being practically applied in advanced countries with a view to resuscitating and enhancing the financial performance of ailing companies in the country.

Key Words: Activity Based Costing; Traditional Costing; Cost Drivers; Indirect Costs; Manufacturing Firms; Local Government Area