Target Costing Application and its Impact on Financial Performance of Manufacturing Companies in the North Rift Economic Block, Kenya

Abstract

This study aimed at establishing target costing application impact on financial performance of manufacturing Companies in the North rift economic block. Explanatory research design was adopted with stratified random sampling technique utilized in collecting data by use of questionnaire, comprising of closed ended questions on a 5-point Likert scale. Study sample size was 220 (53 auditors and 167 accountants) from 48 manufacturing industries. Internal consistency of the variables and construct validity was tested and checked by use of Cronbach alpha and factor analysis respectively. Regression analysis was applied in testing hypothesis whose result indicated that target costing (β =0.146, P= 0.008) has a statistical significant effect on financial performance of manufacturing companies in the North Rift Economic Block. This study concluded that target costing influences financial performance positively by enhancing competitiveness on cost. Seemingly, it boosts profitability through cost reduction and target price determination in line with desired profit. Likewise, the study recommends application of target costing by manufacturing companies to help them navigate through current economic constraints. Consequently, this process would assist in cost management, realization of target production volume, setting up of target price and finally actualization of target profit.