ASSESSMENT OF COST MANAGEMENT PRACTICES OF FLORICULTURE COMPANIES: A CASE OF MARANQUE PLANTS PLC

Abstract

Agribusiness companies in Ethiopia are constantly facing rising production and operating costs. Subsequently, these companies are being challenged and forced to adopt effective cost control and cost reduction strategies. This study is conducted to assess cost management practices of floriculture companies in Ethiopia with a case study of Maranque Plants PLC. The research attempted to provide answers to key questions on cost performance, cost structure, financial efficiency, cost constraints, cost management practice, and techniques of cost reduction and control. The study employed a case study method and a descriptive research approach. Both primary and secondary data are used. The company’s cost structure shows that direct costs of operation constituted about 58% of the total operating costs. While, the remaining 42% is composed of indirect costs. Over the study period, indirect costs more than tripled with an annual average growth rate of 218 %. In addition, results of key operating efficiency ratios indicated that the company is not in a good track. For instance, the operating expense ratio stood more than 80% throughout the study period. This result is above the maximum threshold level and implies that the company is vulnerable to withstand market fluctuations or financial downturns. Furthermore, the company follows traditional costing techniques. Annual budget is formulated with limited participation of important business units. Some of the major constraints of cost management practices in the company are found to be absence of procurement policy, failure to consistently follow appropriate manpower plans and materials requirement plans, lack of proper tracking and monitoring of costs with budgetary targets on periodic basis. The study concluded that absence of effective cost control measures has severely constrained the company’s financial performance. Eventually, the study identified actionable recommendations to enhance the cost management practice in the company. These include designing a procurement policy, setting up rigorous internal control system, employee involvement in the budget formulation and monitoring process, and introducing companywide continuous cost reduction programs.