Production Cost Analysis and Reduction Strategies in a Soap Manufacturing Company in Ondo State

This study conducts a production cost analysis and develops reduction strategies for a soap manufacturing company in Ondo State, South West Nigeria. The soap manufacturing industry in Nigeria faces intense competition from large-scale multinational producers and cheaper imported alternatives, making cost competitiveness a survival imperative for medium-scale domestic producers. This research employs activity-based costing to decompose total production costs into material, labour, overhead, and energy cost components, enabling more precise identification of cost reduction opportunities compared to traditional absorption costing. Production records, utility bills, and payroll data covering twelve months were analysed, supplemented by interviews with production, finance, and procurement managers. Results reveal that raw material costs, principally palm fatty acid distillate and sodium hydroxide, constitute sixty-eight percent of total production costs and exhibit high price volatility linked to global commodity markets. Energy costs represent the second-largest cost category at seventeen percent, driven by reliance on diesel generators due to unreliable grid electricity. Cost reduction recommendations include entering multi-year price-fixed supply contracts with domestic palm oil processors, investing in solar-diesel hybrid power systems, and conducting formulation optimisation trials to reduce sodium hydroxide consumption without compromising product quality. Keywords: production cost analysis, activity-based costing, soap manufacturing, Ondo State, cost reduction