A Survey of Costing Practices of SMEs in the Informal Sector: Koforidua, Ghana

Abstract

Cost determination is critical and unique to products produced or services rendered by all businesses regardless of the sector domain. Costing is therefore significant in the determination of profit, growth and survival of businesses. Hence the need for a good cost accounting system also called product costing system in an enterprise. This study seeks to explore cost accounting practices used by SMEs in the informal sector, Ghana. The specific objectives are to examine the product costing method used by the SMEs, documentation and the cost accumulation in ascertaining the cost of a product or service. A sample of 300 businesses was used for the study using convenient sampling technique. A structured questionnaire was distributed to 300 SME operators in sewing, carpentry, printing press, hairdressing, mechanics, welders, glaze fabrication, electronic repairers, fridge repairers and goldsmith within the New Juaben Municipality, Koforidua. The results suggest that the most widely used product costing method is job costing. Contrary to job costing conventions, the study indicates that most SMEs in the informal sector of the New Juaben Municipality use customers' face (71.6%) followed by name (68.8%) in place of the conventional job card in documenting and costing customer orders. A strong correlation was also established between educational level and documentation. The higher the educational level of respondents, the more seriousness is attached to documentation.