The International Institute for Science, Technology and Education (IISTE)
Abstract
This Article examines the challenges of Product cost management in relation to Activity – Based Costing (ABC) by manufacturing companies in a developing country like Nigeria. This study is distinct and peculiar to Nigerian environment and examines the challenges of product cost management as it affects ABC/ Traditional costing system and considers whether it merits adoption in a developing country like Nigeria despite its little statistical difference. In order to effectively determine the effect of these challenges, questionnaire was issued to 58 sampled companies in the South East of Nigeria and Test of Hypotheses was done based on production cost data collected from the companies using Student’s t-test and Multivariate Analysis of variance (MANOVA). Findings: there is no statistically significant difference in cost reduction attained by ABC over Traditional costing, though ABC tended to have higher effect. Profits realized in Industrial and brewery sectors of the Manufacturing companies surveyed were higher in ABC than in Traditional costing. Recommendations: ABC should be applied by manufacturing companies in Nigeria since any little difference in cost – savings can influence managers’ decisions. ABC should be adopted because it provides more accurate cost information to management which ordinarily is not visible in Traditional costing system. The challenges of the initial high cost of implementation of ABC should not deter these companies from adoption of ABC since its long run benefits surpasses its costs. Since product costs are lower in ABC, its adoption will help manufacturing companies’ products in developing countries to compete favourably in the international market especially in this era of International financial reporting standards. Keywords: Activity-Based Costing, Traditional Costing, Effectiveness, Competition,Cost Reduction, Product, Cost, Management, Overhead, Decision – Making