Published 2024-01-01
Abstract
This study examines absorption costing and firm performance in Nigerian manufacturing companies from
2013 to 2023. It focuses on three key areas: the allocation of overhead costs, taxation, and break-even
analysis, and their effects on return on assets (ROA). The research method employs a secondary data
approach via an ex post facto research design. Data for the study were collected through the audited
financial reports of the selected firms, covering a period of 10 years from 2013 to 2023. The population for
this study consists of 179 existing listed manufacturing firms on the Nigerian Exchange Group (NGX) as of
May 30, 2022. These firms were chosen for their prominence in recent years and their continuous operation
between 2013 and 2023. A simple random sampling technique was used to select a sample of 20 listed
manufacturing firms from the population. This selection ensures a representative and statistically robust
sample of firms from an industry that significantly impacts the Nigerian economy. The selected firms met
the criteria of possessing all relevant data related to the study variables and maintaining continuous
operations during the study period. Additionally, they had submitted up-to-date financial statements to the
NGX. The results indicate a positive relationship between the allocation of overhead costs and firm size
with ROA, suggesting that better overhead cost management and larger firm size contribute to higher
profitability. In contrast, increased taxation and leverage have a negative impact on ROA, indicating that
higher tax burdens and debt levels may hinder profitability. Although the correlations among variables
were moderate, potential interactions and moderate multicollinearity issues were noted. This study
provides valuable insights into the role of absorption costing in the financial performance of Nigerian
manufacturing firms