Abstract:
The tea sub-sector plays an important role in the economy of the country through employment to
many Kenyans both directly and indirectly and contributes over 26 percent of the total foreign
exchange earnings. Globally, Kenya is an important player in the tea industry as it sells the tea
produced locally to the world market through Kenya tea development agency (KTDA) managed
factories. Nevertheless, KTDA factories have had many problems ranging from the high
manufacturing costs and other operating costs together with the declining global tea prices due to
oversupply of tea to the world market and this results to low returns to the farmers. To curb the
ever-increasing huge costs the tea factories, need to adopt a tight budgeting process to ensure an
optimal allocation of resources for good performance and hence better returns to the farmers.
Therefore, the purpose of the research was to establish the relationship between budgeting process
(independent variable) and financial performance (dependent variable) of tea processing factories.
Specifically, the research explored the budgeting process of the KTDA tea factories within Kericho
and Bomet Counties and it was based on budgeting process variables (planning, participative
budgeting, monitoring and control) and its relationship with the financial performance of the tea
factories. The theories that underpinned the study were forecasting and budgeting theory, control
and responsibility accounting theory, budgeting control theory and the agency theory. The study
employed correlational research design as it enabled establishment of relationship between
variables. The census survey method was appropriate as the sample size was small. The Statistical
Package for Social Sciences (SPSS) version 26 was used for analyzing data using both descriptive
and inferential statistics. The study targeted all the KTDA parent tea factories in Kericho and Bomet
counties with a sample of 96 respondents drawn from 7 factories and the response rate was 81.25%
The study found that 52.1% of variations in financial performance was predicted by the independent
variables (R
2 =0.521; p<0.05). In conclusion, there was positive relationship between budgeting
process variables (planning, monitoring and control and participative budgeting) and financial
performance and as indicated by b=0.299 (p<0.05), b=0.281 (p<0.05) and b=0.357 (p<0.05)
respectively and hence null hypothesis was rejected. It was therefore recommended that tea
factories should adopt tight budgeting and budgetary control to improve on their performance. The
research findings may be used by policy makers in emphasizing the importance of budgetary
control on companies’ performances. Equally, the findings may serve as a basis for further research
in similar field.
