Implementation of ABC Costing Model in Woolworths

This paper discusses the implementation of the Activity Based Costing (ABC) model in Woolworths, a leading retail brand in Australia. It highlights the alignment of ABC model with the company's mission and objectives, its role in corporate strategy, and suitable management accounting tools besides ABC model. The paper also emphasizes the importance of budgetary control and its benefits for Woolworths. Get access to solved assignments, essays, and dissertations on Desklib.

Running head: ABC COSTING IMPLEMENTATION
ABC Costing Implementation
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Table of Contents
1. Introduction..................................................................................................................................2
2. Alignment of ABC Model...........................................................................................................2
2.1. Mission & Objective of the Company..................................................................................3
2.2. Woolworths Corporate Strategy...........................................................................................4
2.3. Role of ABC Model in Woolworths.....................................................................................5
3. Implementation of ABC Model in Woolworths..........................................................................6
4. Suitable Management Accounting Tool for Woolworths Besides ABC model..........................7
5. Conclusion...................................................................................................................................8
References........................................................................................................................................9

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1. Introduction
The Activity Based Costing (ABC) model could be considered as an accountancy method
that can accurately attribute each and every cost which an organization incurs during its
operations. It defines the relationship among the resources that are consumed during the
operation of various business unit of a particular company (Allain and Laurin 2018). This
method simply improves the product costing by making it much more accurate then it was. This
method also helps the managers of the organization to understand their costs and act accordingly.
In other words, it provides the managers with competitive edge while making business strategies.
Hence, when an organization lags behind, then this method supports the decision makers when
needed.
This paper will highlight the position of Woolworths Pty Ltd, which is a respected brand
in Australia within retail business that offers quality clothing, beauty products as well as
homeware goods. Moreover, it also in partnership with Asba Bank provides financial services.
Woolworths Pty Ltd is headquartered in Australia and is listed under Australian Stock Exchange
(ASX) (Alles 2015). Hence, Woolworths with some diverse business operations have various
indirect cost which it need to ascertain and this nature of business provides a room for activity-
based costing to identify the various costs accurately.
2. Alignment of ABC Model
Understanding the various costs incurred by the business and the drivers of the same is
desired by the organizations. However, a catch remains when it comes to the method for
assessment of the costs incurred by various operations within the business. Without a perfect

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method it becomes difficult for the organization or its managers to keep the track of the various
indirect costs which the organization incurs (Angelopoulos and Pollalis 2017).
The activity-based costing model has been adopted by numerous firms around the globe
and hence it has been considered as one of the prominent accosting techniques among the
managements across the globe. Though it is used within many organizations but the primary use
of this technique is within the business with various operational unit which deals in range of
products and service. In a firm with various range of product, it is difficult to identify the cost
than the firms with single product. It happens that in such firms the costs are sometimes over-
costed and sometimes under-costed.
The companies with competitive business environment encompassing technological
advancement generally needs to understand their costs in order to manage them in a better way
(Balakrishnan, Blouin and Guay 2018). The traditional method failed to provide the accurate
costing for the company’s products previously but this new model has made it possible to
determine the cost of product at each and every level. Mostly, the active cost of production is
attributable but the direct cost is generally hidden. Hence, this method reveals all the indirect
cost associated in the production process.
2.1. Mission & Objective of the Company
Woolworths aims to become the most renowned brand especially the preferred retailer for
the youth, families and kids. It looks forward to improve its stock turnover and enhance its reach
in the global retail market. It also looks forward to improve its distribution network as well as
supply chain. Woolworths does have several strategic points so as to achieve its long-term
business goals. Moreover, the organization also desired to take a leading position in liquor and
food markets. The primary motive of Woolworths is to maximize its shareholder’s value (Dong,

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Liu and Lin 2014). In order to do the same, the company needs to build a competitive position in
the market. It focuses on profitability through strategic supply chain improvement as well as the
growth. Moreover, the organization also focuses on hiring talents both domestically and
internationally.
Woolworths has dedicated its attention towards satisfaction of existing customers,
enticing new customers and eventually enhancing perception of the people towards them. As it
believes in sustainable growth, the organization has also enhanced its operational efficiencies.
Establishment of premium worth preposition by using its business efforts in a positive way is
also included in the objectives of Woolworths (Kim, Han, Yi and Chang 2016). Hence, it focuses
on hiring skilled employees and maintains a strong human resource base.
2.2. Woolworths Corporate Strategy
The strategy which the organization follows includes the business operations to be
supervised, designed as well as redesigned so as to improve the production of the goods as well
as the services. The design of the company’s system is effective as well as efficient which uses
the resources to its optimum through the assistance of the technologically advanced machineries
and skilled employees. Woolworths corporate strategy aims towards providing the quality
product and services to its customers (Lyons et al. 2014). The operations division of the
company undertakes the its operational strategy and it mainly focuses on the supply and
distribution. The organization also invested in enhancement of information technology.
The company does not have any manufacturing plant as it sub-contracts its suppliers.
Hence, it focuses a lot on the choice of its suppliers as their product determines the value of the
company to its customers. The company maintains its relation with the suppliers and it does not
buys from the open market as the company buys from them only. The company also believes in

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reducing material waste. Moreover, it also focuses on saving money without compromising its
quality as the quality products provides the company a competitive edge over its rivals.
Cost reduction is not only the strategy but is included in the objectives of the company.
Woolworths tries to make deals wherein it gets the quality product but at an affordable price.
Hence, the managers have been focusing on controlling the operational cost through
minimization of waste of the business units (Rai, Hoskyns and Thomas 2014). Moreover, they
also focus on pricing strategy of the product while keeping its quality at its best so as to satisfy
their customers and maximize its value in the market. They also maintain a decent speed of
delivery with creating strategies to improve the same. Woolworths believe in proper delivery of
product to the customers to earn their trust and loyalty while keeping them satisfied with their
service. The company maintains its quality of product and services such that the customer relies
on them heavily which eventually increases the company’s worth in the market. The company
also emphasizes on its flexibility so as to adapt chances and respond quickly to change in
demand within the predictable timeline. Woolworths is well known for its effort towards
innovation. The company continuously researches on the improvement in its product or the
process. It might be enhancing existing product or innovating a new product at all as per the
demand of the customers (Subramaniam and Watson 2016).
2.3. Role of ABC Model in Woolworths
An effective strategy for the corporation is only possible if the managers of the company
have a better understanding of the several costs included in the operation. Through ABC model
of costing, it is possible to keep track of every cost incurred in each and every step. It is a
common belief among the accountants that the inventory cost includes every cost but the case is
not the same as it does not include every indirect cost incurred by the business (Shoaib et al.

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2015). The ABC model of costing identifies all the cost associated with the business in the whole
process of production and then concludes the total expense of the product per unit. In the
tradition model of costing, all the direct overhead was considered but the indirect cost remained
hidden. Hence, the true value of the of the product remained unknown as it had indirect cost
hidden in itself. Therefore, this model of costing traces every cost associated within the
production process and hence provides the management a clear view of their position which
eventually helps them to make business decisions more precisely (Yan et al. 2016).
Many companies seldom engage in activities which does make desired profit and hence
this method actually identify such activities on which resources get wasted as those does not add
to the value significantly. There are generally three goals of the cost accounting system which
includes identification of various costs associated in order to make the financial statement,
providing the cost managers with appropriate information and calculating the budget.
Woolworths, being a huge organization have a need for the implementation of activity-
based costing model to enhance its operations. Companies such as Woolworths could enhance its
pricing strategy to satisfy its clients up to optimum, but for the same, the company needs to
understand all its costs and take decisions accordingly (Dale and Plunkett 2017). Moreover,
management may identify the profitable as well as non-profitable operations run by it. A high
inventory turnover is also very necessary for the organization which could be possible for
Woolworths through usage of activity-based model as it may also be reliable for the company to
manage its stock efficiently. Woolworths could also be able to enhance their processes with the
assistance of this costing method.

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3. Implementation of ABC Model in Woolworths
The support from top management of the company is necessary to implement the model
in the processes of Woolworths. The support is need to include their model in the core values of
the company. The implementation of this method will require a change in whole costing process
and a proper training will be needed for the department which would use the same so as to make
the staff responsible to absorb the design of this model (Cannavacciuolo, Illario, Ippolito and
Ponsiglione 2015).
An implementation of the same throughout the cross-functional team would turn out to be more
fruitful rather than implementing the same in a single department i.e. the accounts department.
The activity-based costing model will be more successful in an organization if every department
of the team have the idea to use the data generated from the ABC model. Hence, in order to
execute the same efficiently, the management should create a team including people from every
department of the business units. However, hiring an expert on ABC model is a basic
requirement who can consult the various teams on how to use the models to its optimum.
The management of Woolworths should implement the ABC model because the same
could assist the managers during some situations where the support from senior management is
not available. Furthermore, in order to include it in the core values of business, the management
should communicate its significance to the subordinates as they may not value the model without
proper guidance (Cooper 2017). Moreover, the usage of the model may enhance the financial
reports of the organization and provide them with better strategies for the future.

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4. Suitable Management Accounting Tool for Woolworths Besides ABC model
The budgetary controlling method might turn up to be fine for Woolworths. This method
identifies the various costs associated with the company and helps the management to plan and
control the activities at various organizational levels. With managers find the budget estimates of
utmost importance as it helps them to take decision, there are a few ways in which budgetary
control could benefit Woolworths (Bobryshev et al. 2014).
 The organization could calibrate the efforts of various employees towards the
organizational goals.
 It can identify which department is within the budget set by the management and which
all departments exceed budget. In such cases the company might take appropriate action
to curb the costing.
 While setting budget, this method will show the company its previous budgets and allow
the management to decide from the success or failure of past. This might prove to be
easy for Woolworths to decide it business strategy (Vanderveen, Stephens and Park,
Qualcomm Inc, 2015).
5. Conclusion
This paper highlights the importance of ABC model as the method which derives the cost
of production in each step of operations. With an aim of gaining a leading position in the market
it operates, Woolworths might find the ABC model to be very efficient in reaching its goals.
ABC model will identify all the hidden indirect cost which is important for taking important
business decisions. Budgetary control is another tool which Woolworths might use so as to
estimate its budget and work towards its progress. These costing model can reflect their
significance through the financial statement of the Woolworths Pty Limited.

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