Effect of Cost Accounting Techniques on Financial Performance of Small and Medium Enterprises in Kigali, Rwanda

Abstract

The global economy’s highly advanced period has an impact on the increasingly harsh economic competition that happens. Cost accounting, with its marginal costing technique, assists management in profit planning. Despite the cost accounting processes put in place for a majority of manufacturing organizations, commercial success is slow and insignificant. As a result of poor performance, several industrial enterprises have even gone bankrupt. The general objective of this study was to examine the effect of cost accounting techniques on financial performance of small and medium enterprises in Kigali, Rwanda. The study used descriptive research design. The target population consisted of 393 small and medium enterprises operating in the industry sector in Kigali City. A sample size of 393 was. Descriptive and inferential statistics was used to analyze the data. Results of the study were that there was a statistical significant effect of cost accounting techniques (absorption costs, marginal costs, budgetary control costing) on financial performance of SMEs as evidenced by findings strong positive correlation coefficients additionally multiple linear regressions measured how much variability in the dependent variable (that is, Financial Performance of SMEs in Kigali City) the predictors (absorption costing, marginal costing, and budgetary control) accounted for. This implied that use of cost accounting technique explained about 88.2% of the variation of financial performance of SMEs in Kigali City.It was therefore concluded that continual use of cost accounting techniques (absorption costing, marginal costing and budgetary control) helps in decision making, to achieve high standard of accounting procedure, leads to cost effective procurement, save cost, increase profit margin, increase business growth and among others. The study therefore recommends that SME’s owners are encouraged continual use of cost accounting techniques. The SMEs owners also have to provide special training to the employees on cost accounting and accounting to enhance the employees’ performance. Government of Rwanda should also encourage SMEs to work professionally so that even those which left behind of keeping accounting records they can adapt them.