Modern Management Accounting Techniques Reduce Tea Factory Costs

EFFECTS OF MODERN MANAGEMENT ACCOUNTING TECHNIQUES IN
COST REDUCTION OF TEA FACTORIES IN NYAMIRA COUNTY, KENYA
JUSTIN MAGARA ATINDA
B010-0113/2011
A Research Project Submitted To The School Of Business, Management And
Economics In Partial Fulfillment Of The Requirements For The Award Of The
Degree Of Bachelor Of Commerce (Accounting Option)
DEDAN KIMATHI UNIVERSITY OF TECHNOLOGY
FEBRUARY, 2015

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DECLARATION
I hereby declare that this is my original work and to the best of my knowledge it has not
been presented for the award of degree in any other University or Institution of Higher
Learning.
Signature ………………………… Date……………………………...
Atinda Justin Magara
B010-0113/2011
This research project has been submitted for examination with my approval as University
Supervisor.
Signature ………………………. Date………………………………
Dr. Riro G. K.
Dedan Kimathi University of Technology.

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DEDICATION
I dedicate this research project to my mother Agnes Kwamboka, siblings Annette, Wycliffe
and Festus for their support and encouragement throughout this undergraduate program.
God bless you abundantly.

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ACKNOWLEDGEMENT
I would like to thank God for giving me strength and good health throughout my
undergraduate program. I also acknowledge my supervisor, Dr. Riro G.K. for his helpful
suggestions, and relentless support that helped me remain focused in my work. I would like
to express my gratitude to the school of business, management and economics of Dedan
Kimathi University of Technology for allowing me to conduct this research and providing
assistance whenever requested. I also wish to express gratitude to my family, friends and
all the people who assisted me in one way or another to make this exercise a success.

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TABLE OF CONTENTS
DECLARATION ..................................................................................................................i
DEDICATION.....................................................................................................................ii
ACKNOWLEDGEMENT ..................................................................................................iii
LIST OF FIGURES ...........................................................................................................vii
LIST OF TABLES............................................................................................................ viii
ABBREVIATIONS AND ACRONYMS. ..........................................................................ix
ABSTRACT.........................................................................................................................x
CHAPTER ONE ................................................................................................................. 1
INTRODUCTION .............................................................................................................. 1
Background of the study................................................................................................. 1
1.2 Statement of the problem.......................................................................................... 3
1.3 Purpose of the study.................................................................................................. 3
1.4 Objectives of the study.............................................................................................. 3
1.4.1 General objective ............................................................................................... 3
1.4.2 Specific objectives ............................................................................................. 4
1.5 Research questions.................................................................................................... 4
1.6 Significance of the study........................................................................................... 4
1.7 Delimitations of the study......................................................................................... 5
1.8 Limitations of the study ............................................................................................ 5
1.9 Assumptions of the study.......................................................................................... 5
1.10 Definitions of significant terms .............................................................................. 5
1.11 Chapter summary.................................................................................................... 6
CHAPTER TWO ................................................................................................................ 7
LITERATURE REVIEW ................................................................................................... 7
2.1 Introduction............................................................................................................... 7
2.2 Theoretical Orientations............................................................................................ 7
2.2.1 Contingency Theory........................................................................................... 7
2.2.2 Theory of Constraints ........................................................................................ 8
2.3 Empirical Review...................................................................................................... 9
2.3.1 Just In Time (JIT)............................................................................................. 11
2.3.2 Activity Based Costing .................................................................................... 12

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2.3.3 Kaizen Costing................................................................................................. 14
2.4 Cost Reduction........................................................................................................ 15
2.5 Conceptual Framework........................................................................................... 17
2.6 Research Gap .......................................................................................................... 18
CHAPTER THREE .......................................................................................................... 19
RESEARCH METHODOLOGY...................................................................................... 19
3.1 Introduction............................................................................................................. 19
3.2 Research Design...................................................................................................... 19
3.3 Target population. ................................................................................................... 19
3.4 Data Collection ....................................................................................................... 20
3.4.1 Data collection procedure ................................................................................ 20
3.4.2 Data Collection Instrument .............................................................................. 20
3.4.2 Validity and Reliability of Research Instrument ............................................. 21
3.4.3 Pilot Testing..................................................................................................... 21
3.5 Data Analysis .......................................................................................................... 21
3.6 Ethical Issues........................................................................................................... 22
3.7 Chapter Summary ................................................................................................... 22
CHAPTER FOUR............................................................................................................. 23
DATA PRESENTATION, ANALYSIS AND INTERPRETATION .............................. 23
4.1 Introduction............................................................................................................. 23
4.2 Response rate .......................................................................................................... 23
4.3 Demographic information....................................................................................... 23
4.3.1 Gender.............................................................................................................. 23
4.3.2 Age bracket ...................................................................................................... 24
4.3.3 Education level................................................................................................. 25
4.4 Analyses of modern management accounting techniques and extent of application
....................................................................................................................................... 26
4.4.1 Application of JIT ............................................................................................ 26
4.4.2 Application of ABC ......................................................................................... 26
4.4.3 Application of KC............................................................................................ 27
4.4.4 Frequency of application of JIT....................................................................... 28
4.4.5 Frequency of application of ABC .................................................................... 28
4.4.6 Frequency of application of KC....................................................................... 29

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4.5 MMAT in cost reduction ........................................................................................ 29
4.5.1 Application of MMAT has led to reduction of ordering costs......................... 29
4.5.2 Application of MMAT has led to reduction of holding costs .......................... 30
4.5.3 Application of MMAT has led to reduction of total costs ............................... 31
4.5.4 Relationship between MMAT and cost reduction ........................................... 31
4.5.5 Application of Just in Time (JIT) has led to cost reduction............................. 32
4.5.6 Application of Activity based costing has led to cost reduction...................... 33
4.5.7 Application of Kaizen costing has led to cost reduction.................................. 34
4.6 Analyses of the challenges facing adoption of techniques ..................................... 34
4.6.1 Technology....................................................................................................... 34
4.6.2 Organizational culture...................................................................................... 35
4.6.3 Employee skills ................................................................................................ 36
4.7 Regression Analysis................................................................................................ 37
CHAPTER FIVE .............................................................................................................. 40
SUMMARY OF FINDINGS, CONCLUSIONS AND RECCOMENDATION .............. 40
5.1 Introduction............................................................................................................. 40
5.2 Summary of findings............................................................................................... 40
5.2.1 Just in time ....................................................................................................... 41
5.2.2 Activity based costing...................................................................................... 41
5.2.3 Kaizen costing.................................................................................................. 41
5.3 Effects of MMAT in cost reduction........................................................................ 41
5.4 Summary of inferential statistics ............................................................................ 42
5.4 Conclusions............................................................................................................. 42
5.5 Recommendations of the study............................................................................... 43
5.6 Suggestion for further research............................................................................... 43
References......................................................................................................................... 44
APPENDICES
APPENDIX I: LETTER OF TRANSMITTAL
APPENDIX II: QUESTIONNAIRE

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LIST OF FIGURES
Figure 1: Conceptual Framework ......................................................................................17

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LIST OF TABLES
Table 1: population size .....................................................Error! Bookmark not defined.
Table 2: Response rate ...................................................................................................... 23
Table 3: Gender distribution of respondents..................................................................... 24
Table 4: Age distribution of respondents.......................................................................... 24
Table 5: Education level ................................................................................................... 25
Table 6: Application of JIT............................................................................................... 26
Table 7: Application of ABC ............................................................................................ 26
Table 8: Application of KC............................................................................................... 27
Table 9: Frequency of application .................................................................................... 28
Table 10: Frequency of application of ABC ..................................................................... 28
Table 11: Frequency of application of KC........................................................................ 29
Table 12: Application of MMAT and reduction of ordering costs ................................... 30
Table 13: Application of MMAT and reduction of holding costs .................................... 30
Table 14: Application of MMAT and reduction of total costs ......................................... 31
Table 15: Relationship between MMAT and cost reduction ............................................ 32
Table 16: Application of Just in time has led to cost reduction........................................ 32
Table 17: Application of Activity Based Costing has led to cost reduction..................... 33
Table 18: Application of Kaizen Costing has led to cost reduction ................................. 34
Table 19: Technology ....................................................................................................... 35
Table 20: Organizational Culture...................................................................................... 36
Table 21: Employee Skills ................................................................................................ 36
Table 22: Regression analysis........................................................................................... 37
Table 23: ANOVA analysis .............................................................................................. 37
Table 24: Regression coefficients..................................................................................... 38

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ABBREVIATIONS AND ACRONYMS.
ABC Activity Based Costing
ANOVA Analysis of Variance
JIT Just In Time
KC Kaizen costing
KTDA Kenya Tea Development Agency
MMAT Modern Management Accounting Techniques
SPSS Statistical Package for Social Scientist

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ABSTRACT
This study sought to investigate the effects of modern management accounting techniques
in cost reduction of tea factories in Nyamira County. The objectives of the study were to;
examine the effects of just in time in cost reduction of tea factories in Nyamira County;
determine the effects of activity based costing in cost reduction of tea factories in Nyamira
County; assess the effects of kaizen costing in cost reduction of tea factories in Nyamira
County. To achieve its objectives the study used a descriptive survey research design. The
population of the study was 18 respondents from 6 tea factories consisting of 6 factory
accountants, 6 factory auditors and 6 financial controllers of tea factories in Nyamira
County. The study employed a census to select the respondents. To collect the data a closed
ended questionnaire was distributed. The collected data was analyzed using Statistical
Package for Social Scientist, ANOVA and t-test and presented in form of tables. A
regression model was generated to establish the relationship between the independent
variables (JIT, ABC and KC) and dependent variable (cost reduction of tea factories in
Nyamira County). The findings of the study included: the overall findings of the research
revealed that there is a close relationship between MMAT and cost reduction.
KEY WORDS: JIT, ABC, Kaizen Costing, MMAT, cost reduction Multiple Linear
Regression analysis, ANOVA and T-test.

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CHAPTER ONE
INTRODUCTION
Backgroundof the study
Management accounting is of great significance to various organizations as it plays a
critical part in helping managers make sound decisions (Epstein & Lee, 2011). The
interactive use of management accounting information by upper-level managers allows
management accounting systems to become a communication platform for strategic
decisions, which helps managers to develop a shared interpretation of strategic issues. The
origin of today’s management accounting might be followed back to the industrial
revolution of the nineteenth century (Johnson & Kaplan, 1987). Management accounting
has been adopted by various organizations globally ranging from profit seeking to non-
profit seeking ones. Application of modern management accounting techniques by
industries is thus very crucial, and its effect on cost reduction should be established.
In the contemporary world, managers of various organizations are still earnestly fighting
to reduce costs and maximize profits. Most business enterprises aim at curtailing costs as
this will enhance their sustainable survival and growth in a competitive market
environment (Kulkarni & Mahajan, 2008). The close relationship between costs and profits
makes managers adopt various management accounting techniques in order to counter high
costs of production and operation. The unfavorable competition in the market creates
volatile environment for business operation and eventually locking other business
organizations out of the market. For various organization to remain competitive in the
industry, they to apply appropriate managerial techniques which aim at cost reduction
(Arora, 2009). Therefore, effective management accounting techniques facilitate cost
reduction and in consequence enhance profitability of business organizations especially
processing and manufacturing industries.
The theoretical basis of for this study is derived from the contingency theory which was
created in mid-1960 by Fred Fiedler. The theory holds that there is no single relevant

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standard bookkeeping practice that can adequately be connected to all associations. Every
association will have it administration bookkeeping practices that best suits its conditions
(Collier & Agyei-Ampomah, 2006). It goes further to take a gander at certain powerful
elements that will help administration to choose a proper administration bookkeeping
practice. Such factors can either be technological changes and the infrastructure of an
organization. This study was modeled on the postulates of contingency theory because tea
factories, like other organizations, needs to apply appropriate modern managerial
techniques that suit their situation (Chastain, 1981).
The aspect of cost reduction is not only a problem in manufacturing and processing
industries but also in private and public institutions (Martin, 2005). Diverse systems and
strategies could be utilized to ascertain and control costs. The methods of ascertaining costs
differ from business to business relying on the way of the business (R.J.Reddy, 2004).
Therefore, the techniques employed depend on the costs the organization has ascertained.
Today most industries are unable to keep up with the intolerable volatile environment in
which they are operating in. This is as a result of escalating costs that are unbridled. Indeed
most infant industries have closed down severally, and others have shifted to neighboring
countries where the costs of production are relatively bearable.
Industrial revolution in Africa was faced with many challenges as most African countries
lagged behind and still lag behind in matters of technology. Management accounting
techniques were not effectively applied. Instead, techniques of controlling quality were the
first to be adopted in the wood industry than in processing industries (International Labour
Organization, 1991). Poor adoption of cost control techniques hindered the profitability of
these industries since profitability is highly dependent on the cost of production.
Management accounting is a branch of accounting which manages displaying and giving
bookkeeping data to the management in such a precise route thus, to the point that it can
perform its managerial capacities of planning, controlling and decision-making in an
effective and efficient manner (Debarshi, 2011). According to J. Batty, management
accounting is a term used to portray the bookkeeping techniques, framework and strategies
which, coupled with extraordinary learning and capacity, support administration in its
errand of expanding benefits or minimizing misfortunes. This study will be guided by the

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latter definition because it best relates with profit seeking organizations of which tea
factories form part.
Organizations aim at maximizing revenue and minimizing costs (Chapman, Hopwood, &
Shields, 2011). Advancement of technology necessitates appropriate adjustments by
entities in order to adapt up to this change. Therefore, there is much interest to understand
contemporary management accounting techniques and their effect on cost reduction of
institutions.
1.2 Statement of the problem
Organizations should apply appropriate modern management accounting techniques for
them to remain competitive. Techniques such as just in time (JIT), activity based costing
(ABC) and Kaizen Costing should be embraced as they help managers control costs.
However, managers cannot use these techniques unless they fully understand their
implications on costs. Numerous researchers have attempted to think of studies dealing
with adoption of modern management accounting techniques by organizations. Such
studies have dealt with the impact of these techniques on profitability. Scanty studies have
been undertaken particularly focusing on the effect of modern accounting management
techniques on cost reduction of tea factories. This leaves a gap that will be addressed by
this study.
1.3 Purpose of the study
The purpose of this research is to focus the effect of modern management accounting
techniques on cost reduction of tea factories in Nyamira County. Statistical analysis tools
will be used to identify the interaction of variables and give out the relevant explanations
on the variables. In this study, variables identified include; just in time (JIT), activity based
costing (ABC), and kaizen costing.
1.4 Objectives of the study
1.4.1 General objective
To explore the effects of modern management accounting techniques in cost reduction of
tea factories in Nyamira County.

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1.4.2 Specific objectives
i. To examine the effects of just in time in cost reduction of tea factories in Nyamira
County.
ii. To determine the effects of activity based costing in cost reduction of tea factories
in Nyamira County.
iii. To assess the effects of kaizen costing in cost reduction of tea factories in Nyamira
County.
1.5 Researchquestions
i. What effects does just in time have in cost reduction of tea factories in Nyamira
County?
ii. How does activity based costing affect in cost reduction of tea factories in Nyamira
County?
iii. What effects does kaizen costing have in cost reduction of tea factories in Nyamira
County?
1.6 Significance ofthe study
This study will contribute valuable knowledge to the field of management accounting in
general as it seeks to determine the effect of modern management accounting techniques
on cost reduction of processing firms. The discoveries of this exploration are required to
be helpful materials for future researchers and other users of management accounting
techniques. The suggestions and recommendations will guide other researchers who intend
to conduct studies related to this field. What's more, the study will give helpful data to top
management of tea factories to enable them formulate sound policies about managerial
accounting that will assist in cost control. Managers will consider recommendations
provided by this study when coming up with new policies.
This research will help the management of various organizations to determine whether or
not there is a relationship between application of modern management accounting
techniques and cost reduction. The ideas raised in this study can help managers to know
the extent that modern management accounting techniques should be adopted in order to

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increase efficiency in operations. The study also reveals the challenges faced when
adopting these techniques and suggests possible ways of overcoming them.
1.7 Delimitations of the study
Survey instruments used multiple choice items so as to ensure that data collected was
manageable. Open ended response items were excluded. The study was also restricted to
tea factories within Nyamira County in order to assure accuracy and manageability. The
results represented all the other tea factories in Kenya. All steps involved in the research
process were finished inside the stipulated time of four months.
1.8 Limitations of the study
Time and resources were limiting factors. Since tea factories are widespread throughout
the research area, it will took time to move from one factory to the other. Some participants
were unwilling to give out some information useful for the research since accounting
information and policies in use by organizations is very sensitive data.
1.9 Assumptions of the study
The researcher assumes that the respondents provided accurate and truthful information in
response to the questionnaire and interview questions. The researcher further assumes that
through the proposed methodology, research design and research tools, reliable knowledge
was be acquired to determine the influence modern management accounting techniques
have on cost reduction.
1.10 Definitions of significant terms
Technique : a tool used by top management in making of key decisions in an
organization.
Tea factory : an entity where green tea leaves are processed through various stages
until a final tea beverage is produced.
Cost reduction : minimization of expenses of an organization.

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1.11 Chaptersummary
This chapter dealt with background information of the topic, statement of the problem,
purpose of the study, objectives, research questions, significance of the study. It also deals
with delimitations and limitations of the study, assumptions and definition of significant
terms.

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CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
This chapter provides a broad review of literature encompassing concepts of modern
management accounting techniques. It does so by reviewing theoretical and conceptual
framework related to the three objectives of this study. This chapter is also based on the
examining of secondary as well as tertiary data collected from textbooks, journals,
magazines and internet websites. The literature will help identify the knowledge gap from
which conceptual model will be developed.
2.2 TheoreticalOrientations
This study is built upon a number of theories. These theories include: Contingency Theory
and Theory of Constraints.
2.2.1 Contingency Theory
This theory expresses that there is no single for the most part appropriate standard
bookkeeping practice that can successfully be connected to all associations. It is based on
the notion that there is no all-around fitting bookkeeping framework which applies just as
to all associations in all circumstances (Wickramasinghe & Alawattage, 2012). Rather, it
is suggested that specific gimmicks of a fitting bookkeeping framework will rely on the
particular circumstances in which an association ends up. Thus, a contingency theory must
identify specific aspects of an accounting system which are connected with certain
characterized circumstances and exhibit a fitting matching (Abdel, 2011).
Contingency theory was established by Otley in 1980. In his work, Otley explained that
each organization has its own management accounting practices that best suits its
conditions. The hypothesis goes further to take a gander at certain powerful elements that
will aid administration to choose a proper administration bookkeeping practice. Such
factors may include technological changes and infrastructure of the organization.
Administration bookkeeping practices contrast in associations as an aftereffect of the

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uniqueness in their operations nature (Sharma, 2009). Technology has an exceptionally
critical impact in the decision of an administration bookkeeping practice in the firm. For
example, adoption of modern management accounting techniques is profoundly subject to
the level of technology applicable in a firm (Coombs, Hobbs, & Jenkins, 2005).
Firms compete on different fonts, for example, quality, price, reliability on delivery, and
customer service. These pose a challenge to management accountants to innovate and adapt
new methods of management accounting in order to be more relevant on optimal
competition fronts. Failure by management accountants to be more adaptive to new
effective techniques shall result in other professionals filling the gap and thus in the long-
term rendering the management accounting functionless. The method of management
accounting adopted should be the most effective to provide the required information for
both internal and external environs in a firm. The reason for administration bookkeeping
is to give administration the essential key data as fast and correctly as could be allowed so
as to empower fitting move to be made in a timelier way.
2.2.2 Theory of Constraints
This theory reflects that a chain is only as strong as its weakest link. The proponent of this
theory is Dr Eli Goldratt, and it was published in his book “The Goal” in 1984. According
to Goldratt (1984) authoritative execution is managed via requirements. These are
confinements that keep an association from amplifying its execution and arriving at its
objectives. Stipulations can include individuals, supplies, data, gear, or even arrangements,
and might be inside or outer to the organization (Thomas B. McMullen, 1998).
The theory says that each framework, regardless of how well it performs, has no less than
one stipulation that constrains its execution – this is the system's "weakest link." The theory
also says that the framework can have a stand out requirement at once and that different
territories of shortcoming are "non-obligations" until they turn into the weakest connection
(Levinson, 2007).
You utilize the hypothesis by distinguishing your requirement furthermore changing the
way that you work so you can overcome it. The hypothesis was initially utilized effectively
within assembling, yet you can utilize it as a part of an assortment of circumstances. It's

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most helpful with exceptionally paramount or often utilized techniques inside your
association.
This theory views a manageable system as being constrained in accomplishing a greater
amount of its objective by number of constraints. The execution of the association is
dictated by constraints that are the limiting factors that block an organization from
achieving its goals. Goldratt argued that every system, whichever best it works, has at least
one limiting factor that limits its performance. This emphasizes that the theory of
constraints is in the light of the preface that the rate of objective accomplishment by an
objective turned framework is restricted by no less than one obligation. It is, therefore, the
management responsibility to make decisions on how to minimize the constraints and
achieve the goals through adopting control techniques (Dettmer, 1997).
Under this theory, the organization can be measured and controlled by variations on three
measures .i.e. throughput, operational expenses and inventory. Throughput is the rate at
which the framework produces cash through deals. Stock is all the cash that the framework
has put resources into buying things that expect to offer. Operational cost is all the cash the
framework uses to transform into throughput.
The theory of constraints applies all through areas of manufacturing and processing
industries, as such for every organization that manufactures and processes it should have
to comprise of multiple activities one of which acts as a limiting factor. Any industry is
majorly concerned with cost reduction and profit maximization.
This theory is important to the study because it aims to determine cost reduction that acts
as constraints to any organization towards profit maximization. The study will, therefore,
be modeled on the elements of the theory of constraints because processing and
manufacturing industries just like any other business organization aims to maximize profits
while minimizing costs.
2.3 Empirical Review
This section analyses the empirical literature related to the three main variables that are
found in the objective clause of the study. There exist different scholars who have carried
out research related to this topic of study and as will be seen later on, the field of using

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management accounting techniques has always transcended time limits thus proving to be
useful to many industries throughout the world.
Kreitner (2002) defines management as the process of working with, through others to
achieve organizational objectives in a changing environment. The American accounting
association (2000) defines accounting as the process of identifying, measuring and
communicating economic information to permit informed judgments and decisions by
users of the information.
Chartered institute of management accountants (2009) defines management accounting as
the practical science of value creation within organizations in both the private and public
sectors. It combines accounting, finance and management with the leading edge techniques
needed to drive successful businesses. Management accountants operate in financial and
non-financial roles throughout organizations and carry out all their training and experience
requirements within business itself, proving them with a unique insight into how their
organizations operate. Management accounting is the process of preparing management
reports and accounts that provide accurate and timely financial and statistical information
required by managers to make day to day and short term decisions.
Dennis Caplan (2004) defines management accounting as the process of measuring and
reporting information about economic activity within organizations, for use by managers
in planning, performance evaluation and operational control. Planning: for example
deciding what products to make, and where and when to make them. Determining the
materials, labor, and other resources that are needed to achieve desired output. In not-for-
profit organizations, deciding which programs to fund. Performance evaluation: Evaluating
profitability of individual products and product lines.
Determining the relative contribution of different managers and different parts of the
organization, in not-for-profit organizations, evaluating the effectiveness of managers,
departments and programs. Operational control: For example, knowing how much work in
process is on the factory floor, and at what stages of completion, to assist the line manager
in identifying bottlenecks and maintaining smooth flow of production.

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2.3.1 Just In Time (JIT)
This is a Japanese administration reasoning connected in assembling which includes having
the right things of the right quality and amount in the opportune spot and at the perfect time
(T.C. Cheng, 1996). According to Investopedia article, JIT is a stock methodology
organizations utilize to expand the effectiveness and diminishing waste by getting products
just as they are required in the generation process, in this manner decreasing stock
expenses.
JIT purchasing involves procurement of correct quality materials with frequent deliveries
in small quantities. It emphasizes supplier evaluation based on product quality, delivery,
performance and price. Materials are frequently delivered in smaller quantities, and the
quality of materials is very critical because defective materials cause interruptions in
production. Therefore, the quality of materials is considered in order to avoid a scenario of
bringing manufacturing process into an unplanned halt (Kaynak, 2013).
It is one of modern systems implemented by modern organizations worldwide to manage
costs under a variety of challenges and limitations. Just in time stock frameworks depend
on compelling correspondences and coordination with suppliers to convey generation
necessities "without a moment to spare" to embed them into the creation process. This
framework decreases the requirement for putting away generation supplies, yet expands
the dependence on suppliers, quality control and a lapse free requesting methodology. Cost
investment funds might be a repercussion of a JIT framework; however, it relies on upon
supplier necessities and the general business. In general, a JIT framework offers a quality-
centered stock and assembling methodology (Garrett, 2011).
Past studies reveal that just in time has been applied with varying degree in various
organizations. For instance, it has been adopted in manufacturing industries in order to
assist in monitoring costs. The usage of just in time is aimed at cutting down production
costs and thus increase the profit margin.
Just in time is a new management accounting technique and has not been put into much
practice by various firms. Literature available reveal that this technique is used mostly in
the developed countries since it requires the availability of advanced technology. However,
scanty studies have been conducted on the extent to which just in time has been applied
especially by the processing firms and in particular tea factories in Kenya. Most

12
organizations wish to apply this technique in order to assist them reduce costs. However,
literature available indicate that they end up failings in its adoption. Little research has been
led on the difficulties faced in implementation of just in time and therefore this study is
meant to fill the knowledge gap.
2.3.2 Activity Based Costing
ABC is a costing system that recognizes exercises in an association and relegates the
expense of every movement with assets to all items and administrations as per the real
utilization by each. This model allocates more backhanded expenses compared to
conventional costing (Edmonds, Tsay, & Olds, 2009). Activity based costing is a technique
best suited for enhancing an expense framework. ABC is utilized to distinguish the expense
of an item or administration inside the action (Reeve, Warren, & Duchac, 2012).
ABC can also be defined as an overhead allotment strategy that uses different overhead
rates to track circuitous expenses by the exercises that expend those expenses (Hilton,
2009). ABC is seen to be a better technique for costing an item or administration
built with respect to the use of assets obliged to deliver the item or administration.
Chartered institute of management accountants (CIMA) defines ABC as a methodology to
the costing and observing of exercises that includes following assets utilization and costing
last yields. Assets are appointed to exercises, and exercises to cost items focused around
utilization gauges. The recent use cost drivers to append movement expenses to yields.
Activity-based costing was clarified in 1987 by Robert S. Kaplan and W. Bruns as a section
in their book Accounting and management: A field study perspective. They at first centered
on assembling industry where expanding innovation and profit upgrades have diminished
the relative extent of the immediate expenses of work and materials. Have expanded
relative extent of roundabout expenses. Case in point expanded mechanization has
diminished work, which is an immediate expense, yet has expanded deterioration, which
is roundabout expense
Activity-based costing (ABC) created to give more exact methods for allotting the
expenses of aberrant and help assets to exercises, business forms, items, administrations,
and clients. Action based costing is a strategy for relegating expenses that computes a more

13
correct item cost by recognizing the greater part of an association's significant working
exercises (Weygandt, Kieso, & Kimmel, 2005). The objective of ABC is not to apportion
regular expenses to items however to allot and afterward value all the assets utilized for
exercises that backing the creation and conveyance of items and administrations to clients.
For this is the reason, ABC is paramount to movement based administration. Since its
presentation as a reasonable expense assignment system, associations in the United States
and all through the world have embraced ABC (Garrison, Noreen, & Brewer, 2008).
Activity-based costing was explained in 1999 by Peter Drucker in the book Management
Challenges of the 21st century. He expresses that customary expense bookkeeping
concentrates on what it expenses to do something, for instance, to cut a screw string; ABC
also records the expense of not doing, for example, the expense of holding up for the
required part. Activity based costing records the expenses that customary expense
bookkeeping does not do. The Overhead expenses allocated to every movement contain an
action expense pool.
Approach of ABC concentrates on expense designation in operational administration. ABC
serves to isolate altered expense, variable expense and overhead cost. The part of expenses
serves to distinguish cost drivers if attained. Immediate work and materials are simple to
follow specifically to items; however, it is harder to straight forwardly designate
roundabout expenses to items. Where items use basic assets in an unexpected way, a
weighting is required in the expense designation process. The expense driver is an element
that makes or drives the expense of action. For example, the cost of action of bank
employees could be credited to every item by measuring the quantity of each one kind of
transactions (expense driver) takes at the counter and afterward by measuring the quantity
of each one sort of transaction. For the action of running apparatus movement (Hansen,
Mowen, Elias, & Senkow, 1995).
Past studies reveal that the adoption of activity based costing is faced with a number of
challenges including technical know-how of the accounting staff. Other challenges include
the absence of an acceptable business reason; absence of senior administration
responsibility; utilization of outside specialists who don't comprehend the association; and

14
imperviousness to change. These issues need to be painstakingly weighed up before
presenting ABC.
The study sought to establish any other challenges faced in adoption of activity based
costing. It likewise sought to build whether there exists a relationship. The extent to which
activity based costing is used will also be established in this study.
2.3.3 Kaizen Costing
This is a costing technique which ensures continuous improvement applied to cost
reduction in the manufacturing stage of a product’s life. It reduces the cost of producing
existing products by discovering approaches to building the effectiveness of the production
process used in their manufacture. In many firms with very short-lived products, the life of
production processes is longer than the life of products. Therefore, greater savings can be
achieved by focusing on the production processes in the manufacturing phase of a product’s
life than on the product itself. Kaizen costing focuses on where managers perceive the
greatest opportunity for cost reduction. For kaizen costing to be powerful, work groups are
furnished with itemized expense data on a consistent premise (Bragg, 2010).
The system might be characterized as a concentrate on getting little; incremental expense
decreases (as opposed to huge progressions at longer interims) amid the creation period of
the item's life cycle. Kaizen costing is focused around the conviction that nothing is ever
flawless, so upgrades and decreases in the variable expenses are constantly conceivable.
Like its huge sibling Total Quality Management (TQM), it gets to be a piece of the society,
including all parts of the organization. Everybody is swayed to offer thoughts that, however
little, could prompt a decrease in variable expenses, which could thusly prompt a
diminishment in the offering cost and, assuredly, a development in deals (Roman L. Weil,
2005).
On the other hand, the cost could be kept up and the ensuing expand in benefits could be
utilized to remunerate the shareholders or be reinvested in different ventures. It's not
difficult to perceive how Kaizen costing is adjusted nearly to incline producing, whose
principle point is to slice squander through constant change. This is attained by recognizing

15
the best assets and most productive methods to expel waste from generation (Kaplan,
1998).
2.4 CostReduction
Cost refers to the aspect of cutting down costs of production and operation. It means leading
a few developments in the method for working in another style, so overabundance expenses
of creation and operation could be dispensed with. Cost lessening projects are steered
towards particular deliberations to diminish costs by enhancing techniques, work plans and
items. Cost decrease might be made in diverse zones and phases of creation, putting away,
and dispersion processes by applying more developed and exploratory procedures of
operation. Thus, an expense decrease program needs an innovative work action
(Jawaharlal, 2002).
Cost reduction projects may oblige a mass measure of innovative work plan, however once
another strategy is presented, it gives focal points for a long period. The point of expense
decrease is to see whether there is any plausibility of realizing a sparing in the expenses
acquired on materials, labour and overheads (Khan & Jain, 2006). Cost reduction is
conceivable through different enhancements. For example, getting more yields from the
same inputs and offices; utilizing a lesser amount of inputs to acquire the same yield. In
addition, streamlining the techniques for appropriation; enhancing the area and format of
plant, distribution center and different assets (Horngren, Sundem, Stratton, Burgstahler, &
Schatzerberg, 2011).
Cost reduction may be defined as a true and lasting diminishment on the expense of
products made, processed or services rendered without impairing their quality and
sustainability for the intended use. A cost reduction program should be all pervasive
because cost reduction is attainable in almost all the areas of business activities. There can
hardly be any area of operation that can hardly be improved. Cost reduction covers a wide
range of areas like product design, plant layout, production methods, material substitution,
tool design, and reduction in wastes and innovation in marketing (Bhattachrtta, 2004).
Cost reduction may be defined as an endeavor to cut expenses down. It implies true and
lasting decrease in the unit expense of products made or administrations rendered without

16
debilitating their suitability for the intended use. The objective of expense decrease might
be attained either by reducing cost per unit or increasing productivity. The steps to cost
reduction include disposal of waste, enhancing operations, expanding gainfulness, hunt
down less expensive materials, and improved standards of quality and finding other means
to reduce costs (Weygandt, Kieso, & Kimmel, Managerial Accounting, 2002).
Cost reduction has to be accomplished utilizing inner variables inside the association.
Lessening of expenses because of outer elements, for example, decrease in assessments,
government subsidies, and awards, don't go under the idea of expense diminishment. Cost
reduction plan is a coordinated set contingent actions to achieve the dual objective of
reducing overall costs without a corresponding loss of efficiency (Venkatasivakumar,
2011).
There are various regions of expense lessening and they include product improvement,
production methods and layout, marketing and administrative areas. Product improvement
and the level of efficiency determine the costs incurred. Important factors in product
improvement include: quality of the product; unnecessary weight, materials, machine and
labour operations; wastes and losses to be eliminated; proper design of the product. There
are many vital activities relating to production and production planning where a cost
reduction program may be applied. Such activities include; material control, labour control,
production layout, system analysis, time and motion study, work measurements,
standardization of methods, designing of tools, equipment and machinery, modernization
of plant and equipment and use of incentive schemes (Tyagi, 2003).
In marketing, cost reduction areas may include; channels of distribution, sales promotion
schemes, marketing research plan, territorial responsibilities, methods of remunerating
salesmen, advertising methods, after sale service costs, packaging methods, material
handling and transport management (Hilton, Managerial Accounting, 1999).
Administrative areas are also critical. Administrative functions include; personnel,
purchase and general administration. The goal of cost reduction requires efficiency
administration, effective purchasing procedure and a fair personnel policy and schemes.
Some of the important areas are investment planning, cash discount policy, mechanized

17
system of accounting, labour welfare measure and availability of servicing facilities
(Lucey, 2003).
As regards to the concept of cost reduction, costs mostly aimed at are variable costs.
However, fixed costs can also be countered by careful selection of an accounting technique
which will eliminate some of the fixed costs. For example, adoption of JIT will cut down
rent, which is usually classified as a fixed cost.
2.5 ConceptualFramework
Independent variables Dependent variable
Figure 1: Conceptual Framework
Source: Researcher, 2014
The aim of this study will be to find out the effect of modern management accounting
techniques on cost reduction of tea factories in Nyamira County. The researcher will
emphasize on the extent to which modern management accounting techniques are applied
and the challenges faced in adoption of these techniques. The researcher will also seek to
determine whether modern management accounting techniques assist in cost reduction
Just in time
Activity based costing
Kaizen costing
Cost reduction

18
2.6 ResearchGap
There is limited empirical work explaining the effect of modern management accounting
techniques on cost reduction of tea factories in Kenya. Prior studies conducted on modern
management accounting techniques emphasized much on developed countries and only a
few of developing countries in Africa excluding Kenya. A large portion of these studies
managed the effect of management accounting techniques in enhancing profitability. As
such, the effect of modern management accounting techniques on cost reduction has not
been sufficiently researched.
Most studies have largely focused on the manufacturing industries' profitability without
much emphasis on processing industries sub-sector. Research shows that a number of
studies have been conducted to determine impacts of modern management accounting
techniques among SMEs. These studies were conducted in other countries therefore
findings from these studies cannot be attributed to Kenyan industries and especially
processing industries.
Although more research has been conducted on modern management accounting
techniques and their adoption, none of these studies has dealt with the effect of these
techniques on cost reduction of tea factories in Kenya. Studies have been conducted extent
of application of management accounting techniques by manufacturing industries, but
extent of use modern management accounting techniques by tea factories in Kenya have
not been covered.
Studies conducted have emphasized much on particular techniques and how they enhance
profitability. In any case, none of these studies has concentrated on the challenges faced in
adoption of modern management accounting techniques by tea factories in Kenya. This
leaves a gap that will be covered by under this study. More research has dwelt on the impact
of management accounting techniques on enhancing profitability of SMEs. Nonetheless,
little research has been led on the relationship between modern management accounting
techniques and cost reduction.

19
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction
This chapter describes how the research process was carried out in gathering information
as well as how data was collected and analyzed. It emphasized on the research design used,
target population, and sample size and sampling techniques as well as research procedures
and tools used in data collection and analysis.
3.2 ResearchDesign
The researcher employed a survey research design. He obtained a list of management
executives from tea factories in Nyamira County. Each listed person was assigned a
random number and the researcher then used random sampling to identify individuals who
were to be given questionnaires.
3.3 Targetpopulation.
A population refers to any set of persons or objects that possess at least one common
characteristic (Mugenda & Mugenda, 2003). The target population included management
executives in tea factories in Nyamira County.
In this research, the target population was small and therefore the researcher conducted a
census. Conducting a census increased the validity of this study as well as catered for the
non-response rate. The study population in this research included respondents who are
mostly engaged in using management accounting techniques. The target population
comprised of management executives of tea factories in Nyamira County as shown in Table
1.

20
Table 1: population size
Tea factories Population size
Nyansiongo 3
Kebirigo 3
Gianchore 3
Tombe 3
Sanganyi 3
Nyankoba 3
Total 18
3.4 Data Collection
3.4.1 Data collection procedure
The researcher sought a permit to carry out research from the chairman, department of
accounting and finance, Dedan Kimathi University on the effects of modern management
accounting techniques in cost reduction of tea factories in Nyamira County. The data was
collected by use of questionnaires which were delivered through hand to the targeted
respondents. The questions were structured in a way to incorporate the objectives of the
study. The questionnaire had adequate guiding instructions that enabled them to respond
to the questionnaire without much guidance.
3.4.2 Data Collection Instrument
Questionnaires were used as they are easy to administer and give the respondent enough
time to arrive at a well thought out response. In addition, they are free from the researcher’s
bias. The use of structured questionnaires aided the respondents to arrive at specific
responses. Drop and pick method was used where the respondents were either busy or not
available. The main intention of using the questionnaires is because most of the
respondents are literate and could easily be contacted.

21
3.4.2 Validity and Reliability of Research Instrument
Validity refers to the questionnaire’s ability to measure that which is intended to be
measured. On the other hand, content validity may refer to the extent to which the questions
in the questionnaire provide adequate coverage of the subject matter. Reliability of the
research instrument used enhanced the quality of research. Reliability and internal
constituency analysis employed indicated the degree to which modern management
accounting techniques facilitate cost reduction. The reliability of the tools used in the study
was enhanced through ensuring that all the respondents remain anonymous. Questions
were prepared in such a way that the respondents were able to provide required responses
with ease.
3.4.3 Pilot Testing
The researcher conducted a pre-testing in order to determine the effectiveness of the
research instruments. The respondents were required to fill the questionnaires and their
responses were used to refine the questionnaires. Such responses aided in developing a
precise sample questionnaire that was easy to understand. Pilot-testing was carried out at
Kiamokama and Nyamache located in Kisii County.
3.5 Data Analysis
Data analysis refers to the process of observing data patterns, asking questions of those
patterns, constructing suppositions and then reject or fail to reject the conjectures. The
distributed questionnaires were collected and analyzed to ensure all questions were
answered before data analysis. The researcher employed Statistical Package for Social
Scientist (SPSS) for multiple regressions in an attempt to determine whether the stated
independent variables predict the given dependent variable. This brought out descriptive
statistics so as to present findings. Information processed using descriptive and inferential
statistics was presented using tables since they are easy to interpret. ANOVA and t-test
were also used.

22
Regression model
The regression model used is in form of;
Y=α+β1X1+β2X2+β3X3+ε
Y= total costs
α= autonomous factors
X1= just in time
X2= activity based costing
X3= kaizen costing
β1, β2, β3= correlation coefficients of independent variables
ε= error term
3.6 Ethical Issues
A covering letter accompanied the questionnaire requesting cooperation from all those who
will receive them. In addition, a letter from the university and a statement of confidentiality
indicating that the study will be purely for academic purposes was provided. It was also
clarified that the participation will be voluntary and the respondent is at liberty withdraw
at any time during the research period. All ethical practices were observed.
3.7 Chapter Summary
This chapter discusses the methodology used in this research: Descriptive research
technique was be employed to collect data as it is most suitable for this type of research
since it seeks to describe a real world phenomenon than developing a normative model.
Six tea factories were targeted.

23
CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND INTERPRETATION
4.1 Introduction
This chapter covers the presentation of the findings of the study. It contains interpretation
of the data which was gathered from the respondents. The questionnaires were thoroughly
examined to determine any omission and ensure they were properly filled for analysis.
Findings obtained were analyzed using descriptive statistics and were presented in form of
tables.
4.2 Response rate
Table 2: Response rate
Rate Frequency Percentage
Responded 15 83%
Did not respond 3 17%
Total 18 100
Source: Resource data, 2014
A total of 18 questionnaires were administered to the tea factories in Nyamira County.
Only 15 were dully filled and returned. The response rate was therefore 83% which was
above the 70% threshold recommended by Mugenda and Mugenda (2003).
4.3 Demographic information
This section presents the demographic information of respondents such as gender, age and
level of education.
4.3.1 Gender
The researcher sought to establish the proportion of male to female respondents.

24
Table 3: Gender distribution of respondents
Gender Frequency Percentage %
Male 11 73
Female 4 27
Total 15 100
The table shows that 73% of the respondents were male while female were represented by
27%. The study reveals that of the human resources, men were more compared to women.
This could be because some positions in the organization were traditionally meant for men
and thus a few women develop interest in them. It also indicates that tea factories have not
yet attained the third gender rule in the labour market and other areas of representation as
provided in the current Kenyan constitution.
4.3.2 Age bracket
Research sought to establish the age of respondents. In order to establish the age group
that had accepted to take part in the study, respondents were asked to state their
age to determine its influence on application of MMAT.
Table 4: Age distribution of respondents
Age bracket in years Respondents Percentage (%)
25 years and below 1 6.67
26-35 2 13.33
36-45 7 46.67
46-55 3 20.00
56 years and above 2 13.33
Total 15 100%

25
The researcher was interested in the age composition of the selected respondents where the
findings revealed that 6.67% of the respondents were 25 years and below, 13.33% between
26 and 35 years, and 46.67% between 36 and 45 years, 20.00% between 46 and 55 years
and 13.33% of the respondents were 56 years or more. It is evident from Table 4.3.2 that
majority of the respondents belong to the age group between 36-45 years. This is because
of the fact that most business would employ individuals with much experience and thus
sidelining fresh graduates from Campus. This could also be the possible reason of having
only one respondent who is in the age bracket of 25 years and below. This implies that they
have encountered with the management accounting techniques before hence speed and
timely financial reporting (Wood, 1999).
4.3.3 Education level
Table 5: Education level
Qualification Frequency Percentage (%)
PhD 2 13.33
Masters 3 20.00
First Degree 5 33.33
Diploma 4 26.67
Certificate 1 6.67
Total 15 100
It can be elucidated from the table above that 13.33% of the respondents were PhD holders,
20.00% were Masters Holders, 33.33% were first degree holders, 26.67% were diploma
holders and 6.67% were certificate holders. This indicates that the majority of the
respondents were first degree holders while the least were certificate holders. The most
likely reason for this trend is because most of the first degree holders are acquainted with
the necessary skills and competences to enable them perform their duties appropriately.
They are capable of making sound decisions on key issues such as to what techniques can
apply effectively to particular situations.

26
4.4 Analyses of modern management accounting techniques and extent
of application
4.4.1 Application of JIT
Table 6: Application of JIT
Just In Time (JIT) Frequency Percentage (%)
Application 2 13.33
Non-application 13 86.67
Total 15 100
The table above indicates that 13.33% of respondents use just in time technique as a cost
reduction tool while 86.67% do not apply it. The possible reason for this small application
is because most supplies are purchased and stored before they are put into use. In addition,
JIT requires advanced technology and perfect relationship between the supplier and the
buyer. Tea factories have not yet embraced these factors.
4.4.2 Application of ABC
Table 7: Application of ABC
Activity Based Costing
(ABC)
Frequency Percentage (%)
Application 12 80
Non-application 3 20
Total 15 100
The findings revealed that tea factories use Activity Based Costing 80% while non-
application of this technique is 20%. High adoption of ABC technique is because of its
effectiveness and efficiency in usage. Once the cost centers and cost drivers have been

27
identified, then the costs incurred are charged under appropriate categories. Therefore, the
technique is easier to apply once the relevant personnel have mastered its application.
4.4.3 Application of KC
Table 8: Application of KC
Kaizen Costing (KC) Frequency Percentage (%)
Application 9 60
Non-application 6 40
Total 15 100
It is evident from the table above that Kaizen Costing technique is averagely applied. 60%
of the respondents indicated that they use KC as a cost reduction tool while 40% indicated
that they do not apply Kaizen costing technique. Application of Kaizen Costing as a cost
reduction technique is also dependent on the level of technology being used by tea
factories. Those tea factories that have embraced adoption of advanced technology are the
ones who have been able to apply Kaizen Costing thus leading to its moderate adoption.
Of the three cost reduction techniques, activity based costing is the leading with 80%
application, followed by kaizen costing with 60% application. The least applied technique
is just in time cost reduction technique with application of only 13.33%. Therefore, most
tea factories in Nyamira County embrace the use of activity based costing technique in cost
reduction.

28
4.4.4 Frequency of application of JIT
Table 9: Frequency of application
Rate Frequency Percentage (%)
Very frequently 0 0
Moderately 2 100
Rarely 0 0
Total 2 100
The analysis indicated that JIT is moderately applied by tea factories in Nyamira County
with the percentage of 100%. This is due to the fact that a few tea factories apply it. In
addition, those tea factories that use this techniques also apply other techniques like ABC
thus JIT is not their major cost reduction technique.
4.4.5 Frequency of application of ABC
Table 10: Frequency of application of ABC
Very frequently 9 75.00
Moderately 2 16.67
Rarely 1 8.33
Total 12 100
As illustrated in the above table, 75% of the respondents indicated that ABC is very
frequently applied, 16.67% moderately used while 8.33% said that ABC is rarely applied.
ABC technique is very frequently used because of its numerous benefits. It best applies to
most tea factories and it is relatively easier to use.

29
4.4.6 Frequency of application of KC
Table 11: Frequency of application of KC
Very frequently 1 11.11
Moderately 5 55.56
Rarely 3 33.33
Total 9 100
The table above demonstrates that 11.11% apply Kaizen costing very frequently, 55.56%
apply it moderately and 33.33% rarely apply it. This is possibly so because KC is not used
as the main cost reduction technique and that it is applied only to some costs and not all.
In addition, KC is only applied by those tea factories that have adopted advanced
technology.
4.5 MMAT in costreduction
4.5.1 Application of MMAT has led to reduction of ordering costs
The study sought to establish whether application of modern management accounting
techniques has led to reduction of ordering costs and the findings presented in the table
below;

30
Table 12: Application of MMAT and reduction of ordering costs
Strongly Agree 3 20.00
Agree 9 60.00
Neutral 1 6.67
Disagree 2 13.33
Strongly Disagree 0 0.00
Total 15 100
The findings revealed that 20% of the respondents strongly agree that application of
modern management accounting techniques has led to reduction of ordering costs. 60%
agree, 6.67% are undecided, 13.33% disagree while none of them strongly disagreed. This
shows that application of modern management accounting techniques by tea factories assist
in reduction of ordering costs.
4.5.2 Application of MMAT has led to reduction of holding costs
techniques has led to reduction of holding costs.
Table 13: Application of MMAT and reduction of holding costs
Agree 7 46.67
Neutral 2 13.33
Disagree 3 20.00
Total 15 100

31
The analysis shows that 13.33% strongly agree that application of modern management
accounting techniques has led to reduction of holding costs. 46.67% of the respondents
agree, 13.33% were neutral, 20% disagree and 6.67% strongly disagree. This shows that
the use of modern management accounting techniques by tea factories aid in cutting down
holding costs.
4.5.3 Application of MMAT has led to reduction of total costs
techniques has led to reduction of total costs
Table 14: Application of MMAT and reduction of total costs
Frequency Percentage (%)
Yes 10 66.67
No 5 33.33
Total 15 100
The findings revealed that 66.67% agreed that application of modern management
accounting techniques leads to reduction of total costs. 33.33% of the respondents indicated
that application of contemporary managerial techniques do not assist to reduce total costs.
Therefore, application of modern management accounting techniques aids in cutting down
costs in an organization.
4.5.4 Relationship between MMAT and cost reduction
The study sought to establish whether a relationship exists between application of modern
management accounting techniques and cost reduction. The findings are represented in the
table.

32
Table 15: Relationship between MMAT and cost reduction
Agree 7 46.67
Neutral 1 6.67
Disagree 2 13.33
Total 15 100
The findings revealed that 26.67% strongly agreed that there is a relationship between
modern management accounting techniques and cost reduction. 46.67% agreed, 6.67%
were neutral, 13.33% disagreed and 6.67% strongly disagreed. This shows that a
relationship exists between modern management accounting techniques and cost reduction.
4.5.5 Application of Just in Time (JIT) has led to cost reduction
The study sought to establish whether application of just in time has led to cost reduction.
The findings were as illustrated in the table below;
Table 16: Application of Just in time has led to cost reduction
Agree 5 33.33
Neutral 1 6.67
Disagree 3 20.00
Total 15 100

33
The table above indicates that 33.33% of the respondents strongly agreed that application
of just in time has led to cost reduction. 33.33% agreed, 6.67% were neutral, 20.00%
disagreed and 6.67% strongly disagreed. Therefore, application of JIT has led to cost
reduction.
4.5.6 Application of Activity based costing has led to cost reduction
The study sought to establish whether application of activity based costing has led to cost
reduction and the findings were demonstrated in the table below;
Table 17: Application of Activity Based Costing has led to cost reduction
Agree 5 33.33
Neutral 4 26.67
Disagree 0 0.00
Total 15 100
From the above table, 40% of the respondents strongly agreed that application of activity
based costing has led to cost reduction. 33.33% agreed, 26.67% neutral, 0.00% disagreed
and 0.00% strongly disagreed. It is therefore evident from the study that application of
ABC has led to cost reduction.

34
4.5.7 Application of Kaizen costing has led to cost reduction
Table 18: Application of Kaizen Costing has led to cost reduction
Agree 4 26.67
Neutral 5 33.33
Disagree 0 0.00
Total 15 100
The analysis indicated that 40% strongly agreed that application of kaizen costing has led
to cost reduction. 26.67% agreed, 33.33% were neutral, 0.00% disagreed and 0.00%
strongly disagreed. Therefore, application of KC has led to cost reduction.
4.6 Analyses of the challenges facing adoptionof techniques
4.6.1 Technology
The study sought to establish whether technology affects the adoption of modern
management techniques. The findings were as illustrated in the table below.

35
Table 19: Technology
Agree 6 40.00
Neutral 1 6.67
Disagree 2 13.33
Total 15 100
Table 4.6.1 indicates that 33.33% strongly agreed that technology affects adoption of
modern management accounting techniques. 40% agreed, 6.67% were neutral, 13.33%
disagreed and 6.67% strongly disagreed. This is possibly due the fact that most modern
management accounting techniques are dependent on the latest technology. Therefore,
availability of advanced technology is a key factor in determining which technique to adopt
as various techniques require different levels of technology.
4.6.2 Organizational culture
The study sought to establish whether organizational culture affects the adoption of modern

36
Table 20: Organizational Culture
Agree 8 53.33
Neutral 2 13.33
Disagree 1 6.67
Total 15 100
The analysis revealed that 20% strongly agreed that organizational culture affects adoption
of techniques, 53.33% agreed, 13.33% were neutral, 6.67% disagreed and 6.67% strongly
disagreed. The major reason for this observation is because employees’ attitudes towards
various MMAT techniques vary and therefore the technique adopted is the one which has
the greatest organizational support.
4.6.3 Employee skills
The study sought to establish whether employee skills affects the adoption of modern
Table 21: Employee Skills
Agree 7 46.67
Neutral 2 13.33
Disagree 2 13.33
Total 15 100

37
The analysis revealed that 26.67% strongly agreed that employee affects adoption of
techniques, 46.67% agreed, 13.33% were neutral, 13.33% disagreed and 0% strongly
disagreed. It can therefore be concluded that the technique adopted is the one which
employees have technical skills necessary for its application.
4.7 RegressionAnalysis
Multiple linear regression analysis was used to explain just in time, activity based costing
and kaizen costing as the major cost control techniques as applied by tea factories in
Nyamira County.
Table 22: Regression analysis
Model Summary
Model R R Square Adjusted R Square Std. Error of the
Estimate
1 .910a .828 .781 .228
a. Predictors: (Constant), Kaizen costing, Activity based costing, Just in time
The model shows that when the three techniques are combined they account for 82.80%
of tea factories cost reduction. The three variables are highly correlated at 91.00%.
Table 23: ANOVA analysis
ANOVA
Model Sum of Squares Df Mean Square F Sig.
1
Regression 2.761 3 .920 17.674 .000b
Residual .573 11 .052
Total 3.333 14
a. Dependent Variable: Cost reduction

38
b. Predictors: (Constant), Kaizen costing, Activity based costing, Just in time
The table above presents the analysis of variance (ANOVA) that provides the F-test which
indicates whether the model is statistically significant. Generally, an F value of above 4.00 is
significant. With a significant level of less than 0.05 the equation is significant. In this case
the value is 0.000 and thus the model is statistically significant.
For the model to be valid the condition p≤ α≤0.05 must hold. Where p is the significant F
change in the model summary and α is the significance level in the ANOVA table. In this case
p=0.000 and α=0.000 which fulfills the condition. This also proves that F-test value in the
ANOVA table is valid.
Table 24: Regression coefficients
Coefficients
Model Unstandardized
Coefficients
Standardized
Coefficients
t Sig.
B Std. Error Beta
1
(Constant) 4.099 .427 9.589 .000
Just in time .274 .063 .754 4.363 .001
Activity based
costing
-.329 .074 -.562 -4.441 .001
Kaizen costing -.592 .095 -1.073 -6.243 .000
a. Dependent Variable: Cost reduction
According to the results above, kaizen costing is the most important cost reduction
technique. Kaizen costing in the table above has a β value of -0.592. Therefore, an increase
of one unit of kaizen costing causes a decrease in total costs by 0.592 units. Activity based
costing is the second important technique that has a β of -0.329. An increase in one unit of
activity based costing causes a decrease in total costs by 0.329. Just in time is the least
important as it has a β value of 0.274. Therefore, an increase in one unit of just in time
causes an increase in total costs by 0.274.

39
From the table above the general model equation is as follows;
Y= 4.099 + 0.274X1 - 0.329X2 - 0.592X3
Where;
Y= total costs (dependent variable)
α = constant
X1 = just in time
X2 = activity based costing
X3 = kaizen costing.
This means that even without the three techniques under the study, total costs will be 4.099.
An inverse relationship subsists between activity based costing and total costs and kaizen
costing and total costs. There is a positive relationship between just in time and total costs.
Kaizen costing exhibits the strongest relationship of change by -0.592 followed by activity
based costing by -0.329. There is a weak positive relationship between just in time
technique and total costs.
A t value of above 2.12 which represents the 95% confidence level is significant. From the
table above, all the three variables have a t value of above 2 and are therefore significant.

40
CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSIONS AND
RECCOMENDATION
5.1 Introduction
This chapter gives the summary of major findings, conclusions and recommendations of
the study. The study aimed at examining the effects of modern management accounting
techniques in cost reduction of tea factories in Nyamira County. The study was guided by
the following objectives: to examine the effects of just in time in cost reduction of tea
factories in Nyamira County; to determine the effects of activity based costing in cost
reduction of tea factories in Nyamira County; to assess the effects of Kaizen Costing in
cost reduction of tea factories in Nyamira County.
5.2 Summary of findings
The research was organized to examine the effects of application of modern management
accounting techniques in Nyamira County. Performance of any organization is dependent
on how it manages its costs. Therefore, cost control is critical to firms and thus entities
need to employ appropriate managerial accounting techniques which will aid in cutting
down costs. In addition, businesses operate in a competitive environment and they strive
for the same customers. This necessitate firms to employ those techniques which best suits
their form of business.
The research showed that 13.33% of the respondents apply just in time technique as a cost
control tool while 86.67% do not apply it. The findings revealed that tea factories use
Activity Based Costing 80% while non-application of this technique is 20%. The analysis
also revealed that 60% of the respondents indicated that they apply kaizen costing while
40% represents those that do not apply it.
Of the three cost reduction techniques, activity based costing is the leading with 80%
application, followed by kaizen costing with 60% application. The least applied technique
is just in time cost reduction technique with application of only 13.33%. Therefore, most

41
tea factories in Nyamira County embrace the use of activity based costing technique in cost
reduction.
5.2.1 Just in time
The analysis indicated that JIT is moderately applied by tea factories in Nyamira County
with the percentage of 100%. The extent of application of JIT is fair as those tea factories
that put it to use do it moderately.
5.2.2 Activity based costing
75% of the respondents indicated that ABC is very frequently applied, 16.67% moderately
used while 8.33% said that ABC is rarely applied.
5.2.3 Kaizen costing
The study revealed that 11.11% apply Kaizen costing very frequently, 55.56% apply it
moderately and 33.33% rarely apply it.
5.3 Effects of MMAT in costreduction
The findings indicated that 33.33% of the respondents strongly agreed that application of
just in time has led to cost reduction. 33.33% agreed, 6.67% were neutral, 20.00%
disagreed and 6.67% strongly disagreed. 40% of the respondents strongly agreed that
application of activity based costing has led to cost reduction. 33.33% agreed, 26.67%
neutral, 0.00% disagreed and 0.00% strongly disagreed. The analysis further indicated that
40% strongly agreed that application of kaizen costing has led to cost reduction. 26.67%
agreed, 33.33% were neutral, 0.00% disagreed and 0.00% strongly disagreed.
The findings revealed that 20% of the respondents strongly agree that application of
modern management accounting techniques has led to reduction of ordering costs. 60%
agreed, 6.67% were undecided, 13.33% disagree while none of them strongly disagreed.
This shows that application of modern management accounting techniques by tea factories
assist in reduction of ordering costs.
The analysis showed that 13.33% strongly agreed that application of modern management
accounting techniques has led to reduction of holding costs. 46.67% of the respondents
agreed, 13.33% were neutral, 20% disagree and 6.67% strongly disagreed. This shows that

42
the use of modern management accounting techniques by tea factories aid in cutting down
holding costs.
The findings revealed that 26.67% strongly agreed that there is a relationship between
modern management accounting techniques and cost reduction. 46.67% agreed, 6.67%
were neutral, 13.33% disagreed and 6.67% strongly disagreed. This shows that a
relationship exists between modern management accounting techniques and cost reduction.
The findings indicated that 33.33% strongly agreed that technology affects adoption of
modern management accounting techniques. 40% agreed, 6.67% were neutral, 13.33%
disagreed and 6.67% strongly disagreed.
The analysis revealed that 20% strongly agreed that organizational culture affects adoption
of techniques, 53.33% agreed, 13.33% were neutral, 6.67% disagreed and 6.67% strongly
disagreed.
The findings revealed that 26.67% strongly agreed that employee affects adoption of
techniques, 46.67% agreed, 13.33% were neutral, 13.33% disagreed and 0% strongly
disagreed.
5.4 Summary of inferential statistics
Just in time has a p-value of 0.01 which is below 0.05 and is therefore statistically
significant. Activity based costing has a p-value of 0.01 which is less than 0.05 and is also
statistically significant. Kaizen costing has a p-value of 0.00 which is less than 0.05. It is
thus statistically significant.
5.4 Conclusions
The primary purpose of this study is to examine the effects of application of modern
management accounting techniques by tea factories in Nyamira County. This research was
empirically evaluated using data from 6 tea factories located in Nyamira County. Several
important findings were drawn from the research.
The findings can help the top management as well as business policy makers to identify
important considerations in application of modern management accounting techniques. It
will also help tea factories management and government in identifying factors that hinder

43
adoption of contemporary management accounting techniques so as to device strategy of
overcoming them.
5.5 Recommendations ofthe study
The study finds a particularly strong relationship between modern management accounting
techniques and cost reduction. This means that application of modern management
accounting techniques aids to cut down both production costs and operating costs. It is
interesting to also note that findings confirm that technology is pertinent to application of
MMAT. Most of these managerial accounting techniques require high staff expertise for
them to be appropriately put to use. Organizational culture also affects application or non-
application of modern managerial techniques.
The study recommends enhancement and creation of awareness on the importance of
applying appropriate techniques in cost reduction. This will help create a supportive
organizational culture and will thus allow a conducive environment for applying the
techniques. In addition, this study recommends acquisition of skills and expertise and
technical know-how which will enable the staff apply the techniques as required.
Like other empirical studies, this study is not without its limitations. This study was
conducted in Nyamira County and included tea factories based in the county. The study
can be strengthened by extending the population to cover other counties as well in Kenya.
5.6 Suggestionforfurther research
The research intention was to determine the effects of application of modern management
accounting techniques by tea factories in Nyamira County. From the information gathered
just in time, activity based costing and kaizen costing were identified as some management
accounting techniques. These are not exhaustive management accounting techniques and
therefore I recommend further research study on other management accounting techniques
and categorizing them into traditional and modern management accounting techniques.

44
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APPENDICES
APPENDIXI: LETTER OF TRANSMITTAL
I am a 4th year student at Dedan Kimathi University of Technology pursuing Bachelor of
Commerce. I am carrying out a research on effects of modern management techniques on
cost reduction of tea factories in Nyamira County.
I would highly appreciate your willingness to cooperate in this study because the success
of this study depends upon your cooperation. In no way will your responses be used to
identify you, the respondent. The survey is completely anonymous and the information
obtained will be used only for the purposes of this study.
I request for your cooperation in filling the questionnaire as soon as you possibly can.
Your honest cooperation and assistance will be highly appreciated.
Thanks in advance.
Yours faithfully,
JUSTIN ATINDA

APPENDIXII: QUESTIONNAIRE
The information is needed purely for academic purpose and will therefore be treated with
utmost confidentiality.
Instructions
Please answer the questions to the best of your knowledge.
Please put a tick [√] where appropriate.
Section A: Background Information
1. Gender (Tick).
Male [ ]
Female [ ]
2. Indicate your age bracket
A. 25 years and below [ ]
B. 26-35 years [ ]
C. 36-45 years [ ]
D. 46-55 years [ ]
E. 56 years and above [ ]
3. What is your level of qualification?
A. PhD [ ]
B. Masters [ ]
C. First Degree [ ]
D. Diploma [ ]
E. Certificate [ ]

Section B: Modern Management Accounting Techniques
4. Are the following modern management accounting techniques applied in
your organization:
Yes No
A. Just in time (JIT) [ ] [ ]
B. Activity based costing (ABC) [ ] [ ]
C. Kaizen Costing (KC) [ ] [ ]
5. If yes, for how frequently are they applied?
Just in time (JIT)
A. Very frequently [ ]
B. Moderately [ ]
C. Rarely [ ]
Activity based costing (ABC)
B. Moderately [ ]
C. Rarely [ ]
Kaizen costing
B. Moderately [ ]
C. Rarely [ ]

Section C: Cost Reduction
6. Kindly indicate the extent to which you agree with the statements below.
KEY: SD= Strongly Disagree D= Disagree N= Neutral A= Agree SA=
Strongly Agree
SD D N A SA
Application of modern management
accounting techniques have led to
reduction of ordering costs
Holding costs have reduced due to
application of modern management
accounting techniques
7. Application of modern management accounting techniques has led to
reduction of total costs.
A. Yes [ ]
B. No [ ]
8. Is there a relationship between modern management accounting
techniques and cost reduction?
A. Strongly Agree [ ]
B. Agree [ ]
C. Neutral [ ]
D. Disagree [ ]
E. Strongly Disagree [ ]
9. Application of just in time (JIT) has led to cost reduction. Tick
appropriately.
B. Agree [ ]
C. Neutral [ ]
D. Disagree [ ]

10. Application of activity based costing (ABC) has led to cost reduction. Tick
appropriately.
B. Agree [ ]
C. Neutral [ ]
D. Disagree [ ]
11. Application of kaizen costing (KC) has led cost reduction. Tick
appropriately.
B. Agree [ ]
C. Neutral [ ]
D. Disagree [ ]
Section D: Challenges Facing Adoption of Techniques
12. Do you agree that technology affects adoption of modern management
accounting techniques?
A. Strongly agree [ ]
B. Agree [ ]
C. Neutral [ ]
D. Disagree [ ]

13. Do you agree that organizational culture affects adoption of modern
management accounting techniques?
B. Agree [ ]
C. Neutral [ ]
D. Disagree [ ]
14. Do you agree that employee skills affects adoption of modern
management accounting techniques?
B. Agree [ ]
C. Neutral [ ]
D. Disagree [ ]

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