ABSTRACT

The objective of this research was to determine the effect of cost management on the financial performance of commercial enterprises in Buea municipality. The specific objectives were to investigate the effect of inventory cost management on the financial performance of commercial enterprises in Buea municipality, to determine the effect of labour cost management on the financial performance of commercial enterprises in Buea municipality, and to determine the effect of overhead cost management on the financial performance of commercial enterprises in Buea municipality. Data used for this research were primary data, collected with the use of Likert Scale questionnaires. Simple random sampling was used to select fifty (50) commercial enterprises, from which the data were obtained. Data collected were analysed using SPSS to perform correlation and regression analysis. A total of 82% of the respondents affirmed that effective inventory cost management, effective labour cost management and overhead cost management impacts the financial performance of commercial enterprises in Buea municipality positively. 78% of the respondents further affirmed that effective management of all the above costs combined, has a positive effect on the financial performance of commercial enterprises in the Buea municipality. It is concluded that cost management can be a helpful tool to help commercial enterprises increase their Return on Assets. Based on the results, it is recommended that commercial companies should review and adjust their inventory, labour and overhead costs frequently, which will enable them to optimise their financial performance.

Key words: Cost Management, Inventory Cost Management, Labour Cost Management, Overhead Cost Management, Financial Performance.

CHAPTER ONE

INTRODUCTION

1.1. Background to the Study

In the pursuit of organisational attainment of financial and non-financial goal, the objective of goal maximisation and cost minimization cannot be cancelled away in the entire organisational operations in the organisation (James & Luke, 2014). Profit maximisation which is the attainment of monetary benefit of a company within one financial calendar year. The nemesis of profit maximisation is cost minimization because in the pursuit of profit, cost will be continuous and must be managed unless it will lead to loss attainment which leads to the end of the perpetual succession of an organisation. This implies the essentiality of cost management in an organisation (James &Luke, 2014).Cost management refers to cost cutting and it’s commonly approached that firm managers use to respond to the decreasing sustainable profitability (Anderson, 2007). The most important managerial tools are cost management strategies (Zengin & Ada, 2010), and cost management strategies are considered as critical factors to increase revenue for the success of commercial companies (Kumar & Shafabi, 2011). Cost management supports decision making and improves competitive advantage that results in a better resource allocation (Ellram & Stanley, 2008). In addition, cost management may be an integral feature of overall businesses’ management effectiveness and facilitate accurately estimated cost before process starting and can help to forecast cost occurrence in the future. Cost management effectiveness helps to finish the task with the spending of limited allocated resources and makes valuable to firms such as working capital invested reduction, lower cost per unit, and better quality of the process and product (Groth & Kinney, 1994).

Limited resource and apparent continuous competition influence firms to better managing cost of production by implementing standard costing, budget system, monitoring cost information, and focusing on value added activities by eliminating non-value added activities through supplier coordination, and emphasising on cost structure by analysing cost and finding the way to reduce costs in the stage of pre-production (Caroline, 2014). Firms with cost management strategy implementation are able to know when the amount of cost will incur in the future if they have current and future cost information. Thus, managers can make better decisions which will positively improve the financial performance of an organisation (Caroline, 2014). The process of tracking the various costs involved in the sales process will give the organisation the opportunity to know effectively and in the long run will determine the financial performance from the external to the internal benefit of the organisation. Based on this preposition this study intends to investigate the effect of cost management and financial performance of commercial enterprises in Buea municipality.

1.2. Statement of the Problem

Various researches carried out bring about mixed findings on the relationship between cost management strategies and the financial performance. Some argue that cost management is an efficient way of improving financial performance of a firm while others argue that cost management is old fashioned and based on past information hence it can’t on its own greatly impact on financial performance of a company. In order to survive and make profit in a global competitive environment, commercial companies have started to question their traditional and cost management systems with the aim of adaptation to global competition and supplying quick-changing demands and expectations of consumers. Traditional cost management and cost plus pricing strategies have also lost their influence in this new competitive environment. Because most of the costs are determined in the projection and development phase, traditional cost management approaches which consider only the costs in the production phase and disregard the other costs in the production life cycle have lost their importance. Conclusively, based on the inconclusive disposition of researchers this study intends to fill the missing gap between cost management and financial performance of commercial enterprises in Buea municipality.

1.3. Research Questions

1. What is the effect of inventory cost management on the financial performance of commercial enterprises in Buea municipality?
2. What is the effect of labour cost management on the financial performance of commercial enterprises in Buea municipality?
3. What is the effect of overhead cost management on the financial performance of commercial enterprises in Buea municipality?

1.4. Research Objectives

The main objective of this research is to determine the effect of cost management on the financial performance of commercial enterprises in Buea municipality.

Specific Research Objectives

1. To investigate the effect of inventory cost management on the financial performance of commercial enterprises in Buea municipality.
2. To determine the effect of labour cost management on the financial performance of commercial enterprises in Buea municipality.
3. To determine the effect of overhead cost management on the financial performance of commercial enterprises in Buea municipality.

1.5. Research Hypotheses

H₀: Cost management does not have an effect on the financial performance of commercial enterprises in Buea municipality.

H₁: Cost management has a significant effect on the financial performance of commercial enterprises in Buea municipality.