Effect of Management Accounting Practices on Financial Performance of Manufacturing Companies in Rwanda

Abstract

Management accounting offers the best opportunity for firms to compete in the market in order to offer the best quality products and services at affordable prices to consumers. However, it is believed that there is an increase of problems of ineffective management accounting practices, products delayed, distorted, or too highly aggregated information that can easily undermine the efforts of companies with excellent research and development, production, and marketing activities. Rwanda is not exceptional, some industries are winding up due to ignoring management accounting practices in financial performance process, lack of better knowledge about management accounting and many industries are in trouble which leads to slow and negative growth of a number of industries’ product hence poor financial performance. This study aimed at assessing the effects of management accounting practice on financial performance of Sulfo Rwanda and establishing the relationship between management accounting practices and financial performance. Both descriptive and correlative research designs were used whereby correlation and regression analyses were adopted to measure the magnitude independent variable was related to dependent variable. Purposive sampling technique was embraced by which the study focused on the departments whose day to day activities involved the study variables. Thus, 13 staff of Sulfo Rwanda working in production and finance departments were chosen. The findings revealed that among all accounting management practices of information for decision making was the most common and this was supported by 88% of the respondents. Concerning performance of Sulfo, ROE increased from 7.99% to 11.98% during three years due to improved accounting management. Correlation analysis discovered that the p value (0.002) was so less than alpha (5%) which is an indication that there is strong and positive relationship between accounting management practices and performance of manufacturing companies. Besides, from the regression analysis, it was revealed that holding cost analysis, budgeting, information for decision making and strategic analysis to a constant zero, financial performance of Sulfo would be 0.252, a signal of strong connection between the research variables. Based on results, it was recommended that there should be an awareness among firms on the importance of information for decision making practices; firms need not only to integrate ROE and ROA but also EPS. Finally, professionalism should be practiced in a bid to better management accounting.