Influence of Activity-Based Costing on Financial Performance of Soft Drink Manufacturing Firms in Nairobi County, Kenya
Abstract
Soft drink companies face persistent challenges such as high operational costs, inaccurate product costing, and inefficiencies in resource allocation, which undermine profitability and competitiveness. Traditional costing systems often fail to accurately allocate overhead costs, resulting in misguided pricing strategies and resource mismanagement. While Activity Based Costing (ABC) was widely studied in developed economies, its application and influence on financial performance in Kenyan soft drink manufacturing firms remains underexplored. The main objective of this study was to establish the influence of ABC on the financial performance of these firms, focusing on factors such as resource management, activity identification, cost driver selection, and cost object determination. The study was grounded on three theories: resource-based view theory, signalling theory, and the balanced scorecard. A correlational research design was used, with a sample of 128 managers selected through stratified random sampling from 68 soft drink manufacturing companies in Nairobi County. Multiple regression analysis examines relationships between the study variables, and correlation analysis is used to determine associations. The study revealed that effective resource management, including allocation, aggregation, and scheduling, significantly improves the financial performance of soft drink manufacturing firms by reducing costs and maximising profits. Activity identification within ABC systems enhances cost visibility and control, but further strengthening is needed. Proper cost driver selection, particularly in labour and machine-hours management, minimises production costs and enhances efficiency. Cost object determination, supported by strong financial planning systems and cost apportionment, ensures operational efficiency and improves overall financial outcomes. The study recommends strengthening resource management, improving activity identification systems, optimising cost driver management, and enhancing financial planning and cost object determination to achieve better cost control, operational efficiency, and profitability.
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