(PDF) Implementation of the ABC Model in a Company

Running Head: ABC MODEL IMPLEMENTATION OF COMPANIES
ABC Model Implementation in Companies
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ABC MODEL IMPLEMENTATION OF COMPANIES1
Table of Contents
1. Introduction..................................................................................................................................2
2. Alignment of ABC Model...........................................................................................................2
2.1. Mission & Objective of Company........................................................................................4
2.2. Company’s Corporate Strategies..........................................................................................5
2.3. Role of ABC Model in Company.........................................................................................6
3. Implementation of ABC Model...................................................................................................8
4. Suitable management accounting tool suitable for Wesfarmers besides ABC mode..................8
5. Conclusion...................................................................................................................................9
References......................................................................................................................................11

ABC MODEL IMPLEMENTATION OF COMPANIES2
1. Introduction
Activity Based Costing (ABC) is a method of accountancy which determines the
relationship of consumed resources, the product and the cost incurred in the same to recognize
the cost of accurately for each activity (Al-Hroot, Saadaaan and Amireh 2015). In simple words,
this method enhances the costing of the product by providing it more accuracy in comparison to
the traditional techniques. It also provides assistance to the managers in understanding the
allocation as usage of resources in order to help them strategies competitively. It is observed that
various organizations have been prioritizing this method by implementing it so as to gain a
competitive edge by reducing the cost. Moreover, it also provides decision support to the
decision makers when other cost system fail to do the needful.
Wesfarmers is considered to be one of the most valued organizations which is
headquartered in Australia and is listed under Australian Stock Exchange (ASX). With its
enormous business line, Wesfarmers operates in various fields starting from supermarkets, liquor
outlets, hotels to another industry such as chemicals & fertilizers, energy and even coal mining
(Allain and Laurin 2018). Hence, with so many heads of business, Wesfarmers becomes one of
the most diverse companies which could implement activity-based costing and this paper will
identify the gaps which Wesfarmers could fill using the aforementioned costing method.
2. Alignment of ABC Model
Currently, there has been a desire amongst the organizations to understand their cost and
the key influencers of the same. However, a confusion remains with them on how to understand
the costs and differentiation among the various costs which the organization incurs during

ABC MODEL IMPLEMENTATION OF COMPANIES3
various operations (Al-Nuaimi, Mohamed and Alekam 2017). Hence, this makes difficult for the
managers as well as the accountants to keep an accurate track of the costs.
It has been witnessed in a past few years that the activity-based costing method has been
adopted by various firms and is even common among the management accounting techniques. It
is generally used where the organization has diversified range of products as well as various
operations. In such plants, the accuracy of deriving cost is much difficult than that of others. In
such organizations some of the products are under costed while other are over-costed
(Angelopoulos and Pollalis 2017).
With the business environment becoming more competitive with the technological
advancement, the companies try their best to manage their costs. With the traditional methods,
the chances of accuracy were minimal which could be misleading and make decision making
process difficult for managers. Though simple, the traditional method failed to identify the
indirect costs with accuracy. Hence, with the introduction of activity-based cost method, all the
expenses of an organization be it direct or indirect is acquired (Yang and Chang 2018).
Fig-1: Activity Based Costing Model