Abstract

This study examines the effect of cost accounting on the performance of small and medium-sized enterprises (SMEs) in Bamenda, Cameroon. SMEs play a pivotal role in economic development, contributing to employment creation, wealth generation, and poverty reduction. However, their performance is often hindered by poor financial management practices, including inadequate cost accounting systems.

The research focuses on three key cost elements—material cost, labour cost, and overhead cost—to determine their impact on SME performance. A descriptive research design was employed, utilizing a structured questionnaire to collect primary data from 100 SMEs in Bamenda. The data were analyzed using descriptive statistics and regression analysis to assess the relationships between cost accounting practices and SME performance. The findings reveal that material cost has the strongest positive effect on performance (coefficient = 0.652, p = 0.011), followed by labour cost (coefficient = 0.617, p = 0.012) and overhead cost (coefficient = 0.552, p = 0.019). While a majority of SMEs recognize the importance of cost accounting, significant gaps exist in its systematic application, particularly in overhead cost management and labour cost analysis.

The study underscores the critical role of cost accounting in enhancing SME performance by minimizing expenses, improving efficiency, and reducing fraud. However, the underutilization of cost accounting tools highlights the need for targeted interventions, such as training programs and policy support, to foster better cost management practices.

The findings contribute to the existing literature by providing empirical evidence on the relationship between cost accounting and SME performance in a developing economy context. Recommendations include the adoption of structured cost accounting systems, regular review of overhead expenses, and government initiatives to support SMEs in implementing modern accounting tools.

CHAPTER ONE

INTRODUCTION

1.1       Background of the study

The business environment in Cameroon has become intensively dynamic and unpredictable in the recent decades and correspondingly managing companies has become so demanding. The SMEs sector has been recognized worldwide for its role the economic advancement through various ways like: employment creation, wealth generation, and poverty reduction (kitae, Gakure, & Munyao) (2012). In the current global economy, SMEs are progressively been regarded as powerful engines for economic empowerment and development for most economies in the world (Islam, Khan, Obaidullah, Alam) (2011). Muraguri in (2010) argues that SMEs have been known to contribute greatly in the economic growth in both the developed and developing countries.

Amoako (2013) point out that accounting users in SMEs is on the increase and the quality of accounting information utilize within the SMEs has a positive relationship with an entity’s performance as well as survival. For a business to successfully manage it finances, and effective cost accounting is of vital requirement. Therefore, a poor accounting system or the absence of cost accounting system maybe the reason for a company’s lack of success and profits.

Cost accounting is therefore the process of collecting, analyzing, summarizing and evaluating various alternatives courses of action. It goal is to advise the management on the most appropriate course of action based on the cost efficiency and capability. Cost accounting also referred to as management accounting, it is use by managers to collect data in an effort to improve performance.

All businesses whether service, manufacturing, trading requires cost accounting to track their activities. The limitation of financial accounting has make the managers to realize the importance of cost accounting.

The general role of the cost accounting can be seen in the following ways;

cost accounting helps the period of trade depression and trade

competition- in period of trade depression, the organization cannot afford to have losses which passed unchecked. The management must know the area where economies maybe sought, waste eliminated and efficiency increased. The organization has to wage a war not only for it survival but also continue growth. The management should know the actual cost for their products before embarking on any scheme of price fixation

cost accounting helps in making Estimates-Adequate costing records provide a reliable basis for making estimates and quoting tenders.

Cost accounting eliminates wastages – as it is possible to know the cost of a product at every stage, it becomes possible to check the forms of waste, such as time and expenses etc, are in the of machine equipment and material.

Cost accounting makes comparison possible –proper maintenance of costing records provides various costing data for comparisons which in turn help the management in the future line of action.

Cost accounting provides data for periodical profit and loss account- adequate costing records provides the management with such data as many as necessary for preparation of profit and loss accounts and balance sheet as such intervals as many be desired by the management.

Cost accounting helps in determining and enhancing efficiency-losses due to wastage of materials idle time of workers, poor supervision, etc will be disclosed if the various operations involve in the process of production are studied carefully Efficiency can be measured, cost controlled, and various steps can be taken to increase efficiency

Cost accounting helps in inventory control –cost accounting furnishes control which management requires in respect of stock of material, work-in-progress and finish good.

Investors, banks and other lending money institution have a stake in the success of the business concern and are, therefore benefited immensely by the installation of the efficient system of costing. They can base the judgment about the profitability and future prospects of the enterprise of the cost records.

Employees have a vital interest in their employer’s enterprise in which they are employed. They are benefited by a number of ways by the installations of an efficient system of costing. They are benefited through continues employment and higher remuneration by the way of incentives, bonus plans etc. they key issues affecting the SMEs can be grouped into four, that’s unfriendly business environment, poor funding, low management skill and lack of access to technology. Given the importance of SMEs in an economy; it becomes quite plausible to look at factors affecting or hindering their performance which is a major determinant of their survival and growth. For SMEs business to experience growth, cost accounting must be put in place and use appropriately. All business in general are more focus with the final result (profit or loss) rather than focusing on the element of cost which if well monitored and controlled will increase the probability of the business call for careful consideration in the design of accounting systems. They may lack the sophistication to apply the detailed accounting processes yet the value of accounting systems to these business is quite profound.

1.2       statement of the problem

The private sector which in the past in Cameroon was not so important is now being recognized as an engine to economic growth in the country. In most developing countries the private sector is mainly represented by the small and medium size enterprises (SMEs) and this is also the case in Cameroon. Thus in Cameroon SMEs in the stimulating and alleviating poverty. It is widely knowledge that SMEs are an effective instrument for employment creation, income generation and economic growth, even in the developed countries like USA and Europe; SMEs significantly and highly contributed to the GDP.

Despite the effort of the government in order to improve the SMEs in Cameroon, the country still have a rigid business environment that hinders the growth of local small enterprises and entry opportunity for foreign investors. According to Maduekwe (2015) SMEs are perceived to be failing partly due to the lack of an ineffective use of management accounting practices such as budget, performance management tools and pricing tools. Ahmad (2012) argues that one of the reasons for business failure is poor management ability which includes accounting problem-solving.

The growth of large businesses with skillful professional accountants that can manage and coordinate the resource of the entity courses the researcher to know how cost accounting can be of great importance in the growth of small and medium size enterprises.

In Cameroon, SMEs cover the entire range of economic activity within all sector and share a number of common problems that hinders them from effective performance as a result of low market access to credit, poor information flow, discrimination legislation, poor access to land, weak linkages among different sectors, weak operating capabilities in terms of skills, lack of knowledge and attitudes, lack of infrastructural facilities among others. Another problems of SMEs failure is poor management ability which includes accounting problem-solving. The availability of infrastructural facilities is grossly inadequate in the area of access roads, electricity, water supply etc. and multiplicity of policies and regulatory measures such as removal of fuel subsidy, taxes, several charges on loans.

1.3 Main Question

What is the effect of cost accounting on the performance of small and medium sized enterprises in Cameroon.

1.3.1 Specific questions

1. What is the effect of material cost on the performance of SMEs in Cameroon?
2. What is the effect of labour cost on the performance of SMEs in Cameroon?
3. What is the effect of overhead cost on the performance of SMEs in Cameroon?

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