Implementation of Activity-Based Costing for Carsales.Com Ltd

The study discusses the implementation of activity-based costing (ABC) for Carsales.Com Ltd, the largest online automotive, motorcycle and marine classifieds business in Australia. It explores the benefits of ABC model and suggests appropriate management accounting techniques for the company. The study also includes the company's corporate strategies and goals, marketing strategies, and the application of ABC model for the company. The most appropriate management accounting technique for the company is identified as budgetary control procedure.

Running head: MANAGERIAL ACCOUNTING
Managerial Accounting
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

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Executive Summary:
The discourse of the study is based on implementation of “activity-based costing (ABC)” from
organisational point of view. The accomplishment of future goal is duly included with selection
of the company listed under the ASX. For the purpose of reporting, “Carsales.Com Ltd (ASX:
CAR)” has been selected, which is recognised as the largest “online automotive, motorcycle and
marine classifieds business” based in Australia. Apart from the aid of ABC model, the study has
also suggested an appropriate management accounting tool for “Carsales.Com Ltd”. Some of
the main findings suggests the main implementation and incorporation for ABC model needs to
be supported with thorough knowledge of cost accounting which are currently in use. In
addition to this, the cross functional team is responsible for incorporating their business system
as per suitability of the departments. The most appropriate management accounting technique
which can be implemented with “carsales.com” can be duly identified with the intimidation of
budgetary control procedure. This is conducive in defining the role of budget as part planning
and controlling. The managers of the company need to utilise the budget for appropriate
control, monitor and planning at departmental level.

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Table of Contents
Introduction:....................................................................................................................................3
Answer to Question a:.....................................................................................................................3
Answer to Question b:.....................................................................................................................5
Part i:............................................................................................................................................5
Part ii:...........................................................................................................................................6
Part iii:..........................................................................................................................................7
Answer to Question c:.....................................................................................................................9
Answer to Question d:...................................................................................................................10
Conclusion:....................................................................................................................................11
Reference.......................................................................................................................................13

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Introduction:
The different types of interpretations of the study is based on implementation of
“activity-based costing (ABC)” from organisational point of view. The accomplishment of future
goal is duly included with selection of the company listed under the ASX. For the purpose of
reporting, “Carsales.Com Ltd (ASX: CAR)” has been selected, which is recognised as the largest
“online automotive, motorcycle and marine classifieds business” based in Australia
(Carsales.com.au 2018). The present goal of thiss company is depicted in terms of aligning the
considerations for implementing this costing system which will improve the overall decision-
making associated to higher-level management. Finally, apart from the aid of ABC model, the
study has also suggested an appropriate management accounting tool for “Carsales.Com Ltd.”
Answer to Question a:
ABC model can be depicted as an accounting technique which stresses the different
activities which an entity conducts for assigning indirect costs related to the products. Some of
the other perspective of this model has been considered with relationship of the cost, activities
and products thereby minimising overall arbitration which is associated to cost allocation of the
products in compared to traditional costing system. Some of the challenges encountered in this
model is seen with the complicacy of allocating the products. For instance, the salaries of office
staffs and management can be difficult to be apportioned based on product manufactured. This
relates to creation of nature of model in various types of global industrial sectors. Despite of
this, the costing system is appropriate in “product costing, target costing, product line

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profitability analysis, service pricing and customer profitability analysis ” (Afrbiz.com.au. 2018).
Henceforth, this model is applied in various entities regardless of size and nature of corporate
visions and strategies based on the cost factors. Moreover, the model is characterised of the
following features:
 Since costs as per this model is segregated into fixed costs and variable costs, the model
will be offering a good quality information in developing precise cost system for a
corporate entity.
 The application of this model is further conducive in comparison of cost behavioural
patterns in a much more effective manner
 This technique has identified more “diversity, volume and timeliness” among the cost
behavioural patterns of ABC model
 The significant cost drivers are considered in such a manner that over at costs can be
easily dressed for a particular product
 Moreover, there have been several depictions in the cost behavioural patterns, which
allow identification of cost drivers (Afrbiz.com.au. 2018)

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Figure 1: “Activity-based costing (ABC) model”
(Source: Christian 2018)
Answer to Question b:
This section comprises of the discussion of corporate strategies and goals of
carsales.com and aligning the same with the ABC model.
Part i:
The company aims are attracting more Australian buyers or sellers of automotive such
as trucks, caverns, boards and motorcycle in the classified groups of their websites. It has been
further observed that “carsales.com Ltd” is having its operations situated in Asia Pacific and is
interested in being one of the leading online automotive classified company in “Brazil, South
Korea, Malaysia, Indonesia, Thailand and Mexico” (Mahal and Hossain 2015).

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The main vision of carsales.com is to facilitate hassle free buying and selling experience
of cars. The company aims to develop and empower greater confidence among the customers
when it comes to trading of cars irrespective of the amount which is needed to be paid for
them. The company continues to expand its portfolio which has allowed it to encompass
evolving needs of the customers and support future delivery of services (Hirsch 2016).
Part ii:
The marketing of the products and services adopted by “Carsales.Com Ltd”, are
considered with the following strategies illustrated as follows:
 Firstly, the company has adopted the strategy of filling a market need. Carsales.com’s
consistency of success and growth is mainly due to the entrepreneurship regimes which
is commenced with Greg Roebuck. The continued incubation of creative ideas has led to
better marketing strategy in compared to its contemporaries
 Secondly, the company has aimed to stand out of the competition by following the
strategy of blue ocean. This has led to an uncontested market space resulting in huge
success of the marketing ideas and creating powerful leaps in both buyers and business
driven by value innovation. The main USP of the organisation is identified with creating
classified advertising avenue which will ensure specialised understanding of future
opportunities and business. The range of USP’s include, robust online platform, intuitive
search functionality, effective online ad creation and enhanced buying and selling
experience (Angelopoulos and Pollalis 2017)

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 Thirdly, the innovation culture has been led by various ideas which has played a central
role in defining the integral environment of the business which is important in day-to-
day decision-making for medium-term and long-term planning
 Fourthly, the company is involved in developing of new products with vital expansion
strategy which ranges from idea generation, concept development, product
development, test marketing to commercialisation (Almeida and Cunha 2017)
Part iii:
Despite of the popularity of a business system among manufacturing industry, service
industry has also implemented the ABC system and gaining rapid popularity. Online classifieds
service such as carsales.com does not comprise of much direct costs and most of the costs are
considered under the overheads. Furthermore, it also does not consist of tangible assets such
as inventory as it does not manufacture any product. Henceforth, such online services might
not find the traditional costing system to be helpful in nature. The different types of associated
benefits of ABC model will have importance in greater decision-making and better management
of cost functions (Rohani, Azman and Zakaria 2015).
The three core sections of this costing system comprise of “resource, activity and cost
object”. With particular reference to the expenses incurred by carsales.com, these are included
within the resource section. The corporate office and branches along with human resource, IT
departments and call centres can be merged into a single group. The service is provided by
human resource and IT Department of carsales.com is illustrated with calculating the main
costs. The cost transfer is associated to other department’s service volume. Conversely, the

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various offices of the company can assign such costs. Henceforth, the ABC system will allow
diversifying the future scope of cost assignment among the branches which will be conducive
for the company in estimating future advertising costs (Ali et al. 2015).
Carsales.com has further involved in defining the activities as per the transactions which
the customers conduct for the different products. These transactions are included with several
channels which originate from commercial financing. In order to deal with the buying and
selling process, the company needs the applicant to go through several procedures. Firstly, the
user needs to identify their choice of automotive which they want to sell, as per their make,
model, location, minimum price, maximum price and body type. Secondly after choosing the
appropriate model of car the user can enquire among several listed cars along with their brief
details on total kilometre in the event, transmission type and engine model. The enquiry
information is followed by providing the relevant details of the buyer such as name, email
address, phone number. The buyer can also directly call the dealer of the car if needed (Hirsch
2016).
The various types of cost objects segregation are based on two factors. The first part has
included the calculation of additional costs which is based as a result of government taxes. This
needs to be included as the prices offered in the website excludes the government tax. The cost
segregation of government tax based on the cost driver can be applied with the total value of
the car. Henceforth, higher is the value of the car, higher will be the government tax taken into
consideration. In case the company adopts a business system, it will be also able to define the
services which are rendered between two services such as buying and selling. Henceforth, the

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awareness ABC system will be conducive in calculating the costs separately. It will also allow for
identifying the cost which would involve higher in case there are any shipping charges involved.
As the main focus is kept on smoothening of car buying and selling process, car sales.com has
been successful in generating more brand awareness and created a monopoly competition for
itself.
Figure 2: Activity-based costing system
(Source: Ali et al. 2015)
Answer to Question c:
The main procedure of application of ABC model for “car sales.com” is based on the
support from higher-level management. Moreover, the incorporation of designing of the model
is associated to the responsibility of a “cross functional team” rather than sole involvement of
accounting department. The various departments from which the representatives would take
part will include higher-level accounting management staff, along with personals from
engineering and marketing team. The various types of external consultations need to be

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considered with the knowledge of ABC model for providing relevant advice to the selected
team.
There are two reasons for implementing ABC model for “car sales.com”. The initial
implementation process will ensure that if higher management of the company does not
provide adequate support, then managers may not accept the change. In addition to this, lack
of support from higher management will also significantly reduce the importance of ABC model
among the subordinates. The main implementation and incorporation for ABC model needs to
be supported with thorough knowledge of cost accounting which are currently in use. In
addition to this, the cross functional team is responsible for incorporating their business system
as per suitability of the departments. Therefore, the important elements of the model will be
conducive in generating external financial reports.
Answer to Question d:
The most appropriate management accounting technique which can be implemented
with “carsales.com” can be duly identified with the intimidation of budgetary control
procedure. This is conducive in defining the role of budget as part planning and controlling. The
managers of the company need to utilise the budget for appropriate control, monitor and
planning at departmental level. Therefore, the several numbers of benefits of budgetary control
for the company are listed as follows:
 The several corporate strategies can be accomplished with a common goal with the help
of budgetary control. The activities can be synchronised based on the goals and
objectives set for the business in long-term

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 It needs to be also understood that most of the cost components for a specific
department in “carsales.com” is comparatively greater compared to the planned budget
and several types of appropriate actions needed to be undertaken for minimising such
variances in the budget (Druhmann and Zingg 2014)
 Some of the other considerations for implementation of this technique is with the
knowledge which can be procured from the past experiences with budgetary control. In
case of any flaws identified in the previous budget, the managers of carsales.com can
effectively formulate the strategies for eliminating any occurrence of such instance in
the future (Mohamed, Kerosi and Tirimba 2016)
Conclusion:
The various discussions of the study have shown that ABC model can be depicted as an
accounting technique which stresses the different activities which an entity conducts for
assigning indirect costs related to the products. Since costs as per this model is segregated into
fixed costs and variable costs, the model will be offering a good quality information in
developing precise cost system for carsales.com. With particular reference to the expenses
incurred by carsales.com, these are included within the resource section. The corporate office
and branches along with human resource, IT departments and call centres can be merged into a
single group. The service is provided by human resource and IT Department of carsales.com is
illustrated with calculating the main costs. Carsales.com has further involved in defining the
activities as per the transactions which the customers conduct for the different products. These
transactions are included with several channels which originate from commercial financing. The

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additional costs are seen as government taxes. This needs to be included as the prices offered
in the website excludes the government tax. The cost segregation of government tax based on
the cost driver can be applied with the total value of the car. Henceforth, higher is the value of
the car, higher will be the government tax taken into consideration.

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Reference
Afrbiz.com.au. (2018). AFR Business Case Studies | carsales.com.au: Effective business strategy
for online success. [online] Available at:
http://www.afrbiz.com.au/case-studies/carsales.com.au-effective-business-strategy-for-online-
success.html [Accessed 23 May 2018].
Afrbiz.com.au. (2018). AFR Business Case Studies | Home page - Edition 6. [online] Available at:
http://www.afrbiz.com.au/media/k2/attachments/Carsales_Case_Study_Ed_6.pdf [Accessed 23
May 2018].
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FIRMS'PERFORMANCE IN SAUDI ARABIA. Science International, 27(1).
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in a manufacturing company. Procedia Manufacturing, 13, pp.932-939.
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Carsales.com.au. (2018). About Us - carsales.com.au. [online] Available at:
https://www.carsales.com.au/carsales-info/about-carsales [Accessed 23 May 2018].
Christian, D., 2018. Building Cost Management: Case Study Using Costing Methods. IJAME.
Druhmann, C.K. and Zingg, M., 2014. Budgetary Control for External Facility Management
Service Providers. International Journal of Facility Management, 5(2).

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Rohani, J.M., Azman, N.A. and Zakaria, M.H., 2015. DEVELOPMENT OF ACTIVITY-BASED
COSTING IN FABRICATION COMPANY: A CASE STUDY. Jurnal Mekanikal, 38, pp.44-52.