Activity-Based Costing Model and Its Implementation for Ooh Media Limited

This report discusses the implementation of activity-based costing (ABC) model for Ooh Media Limited, a leading provider of out-of-home advertising sector in Australia and New Zealand. It sheds light on the characteristics of ABC model, its alignment with the goals and strategies of Ooh Media Limited, recommendations for implementation, and an alternative management accounting tool. The report provides a detailed account of the ABC model and its implementation process by offering apt suggestions.

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:
In this report, sincere attempt is taken for providing a brief discussion of the variety
of aspects, which are inherent in the model of activity-based costing (ABC). The report is
prepared with the intent to shed light on the above-stated model with regards to one of the
entities listed in the “Australian Securities Exchange (ASX)”. To meet this intent, Ooh Media
Limited is considered in this paper. Ooh Media Limited is considered as a leading provider of
the rapidly growing out-of-home advertising sector in Australia and New Zealand.
It has been found that all the business organisations are adopting the ABC model for
enhancing their overall costing system. Moreover, with the help of this model, it is possible
to divide the total costs into fixed costs and variable costs. Furthermore, the management
of Ooh Media Limited could seek essential costing information by utilising the ABC model.
The reason is that such system would help the company in creating effective costing
techniques.

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Table of Contents
Introduction:..............................................................................................................................3
a) Activity-based costing (ABC) model and its characteristics:..................................................3
b) Alignment of ABC model with the present goals and strategies of Ooh Media Limited:.....5
i) Mission and objectives of Ooh Media Limited:..................................................................5
ii) Corporate strategies of Ooh Media Limited:.....................................................................6
iii) Role of ABC model in accomplishing the strategies of Ooh Media Limited:....................6
c) Recommendations regarding the implementation of ABC model for Ooh Media Limited:..8
d) Alternative management accounting tool for Ooh Media Limited:......................................9
Conclusion:...............................................................................................................................10
References:...............................................................................................................................11

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Introduction:
In this report, sincere attempt is taken for providing a brief discussion of the variety
of aspects, which are inherent in the model of activity-based costing (ABC). The report is
prepared with the intent to shed light on the above-stated model with regards to one of the
entities listed in the “Australian Securities Exchange (ASX)”. To meet this intent, Ooh Media
Limited is considered in this paper. Ooh Media Limited is considered as a leading provider of
the rapidly growing out-of-home advertising sector in Australia and New Zealand. It has
unparalleled portfolio of digital and classic signs throughout roadside, airport, retail and
place-based media offering in cafes, office towers, bars, universities and fitness venues
(oOh!media AU 2018). Hence, this paper would provide a detailed account of the
characteristics of the ABC model and its implementation process by offering apt suggestions.
a) Activity-based costing (ABC) model and its characteristics:
One of the popular costing tools is the ABC model helping the enterprises to identify
activities carried out forming a part of the business operations. It assigns the products with
indirect costs and importance is laid on the relation among products, activities and costs so
that the goods produced could be assigned with indirect costs with much efficacy, which is
not possible under the conventional costing model (Brooks 2015). Exceptions could be
found where the managers of the enterprises find it extremely hard to assign the products
with some indirect costs in accordance with this model. For instance, it becomes
complicated for the managers and as a result, it might minimise their ability in assign the
same with indirect cost. However, all the necessary cost information are provided under the
ABC model due to which popularity is gained in almost all global industries and companies

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irrespective of their nature and size (Benson et al. 2015). The role of ABC model is significant
in some major business areas that include product line profitability analysis, analysis of
customer profitability, target costing and others. Hence, the applicability of the ABC model
is widely popular in all types of business organisations. This model has a certain set of
characteristics, which are described as follows:
 It is possible to distribute the overall costs as variable costs and fixed costs with the
help of ABC model application. As a result, this division of cost eases the process of
the organisations in enforcing effective pricing strategies based on their industry
movements and cost operations (Edmonds et al. 2016).
 The patterns in cost behaviour could be compared easily in the costing operations of
the organisations.
 Adequate benefits could be obtained by using this model, as the patterns of cost
behaviour could be associated with different aspects like volume, time, diversity and
other events related to cost.
 In order to trace the overhead costs to the products or services, the cost drivers are
identified under the ABC model (Gitman 2014).
 The managers of the business firms find it relatively easy to state the cost behaviour
patterns with the help of the identified cost drivers.

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Figure 1: Model of activity-based costing (ABC)
(Source: Gitman, Juchau and Flanagan 2015)
b) Alignment of ABC model with the present goals and strategies of Ooh Media Limited:
If the ABC model is applied, it becomes easy for the firms in meeting their set
objectives and strategies. The current section highlights the mission, objectives and
corporate strategies of Ooh Media Limited, which is associated with the said ABC model:
i) Mission and objectives of Ooh Media Limited:
For Ooh Media Limited, a clear purpose is presented so that it could conduct its
business operations in the most appropriate fashion. The mission of the company is to
ensure rapid and on-time services to its wide range of customers. For ensuring the stated
mission, three significant business dimensions are developed and they are safety,
sustainability and responsibility. Hence, the company is committed to work collectively in
order to assure the growth and value development for the shareholders (Heisinger and
Hoyle 2015).
Along with this, it has laid out various specific objectives as well. The primary
objective is to assure the safety and health of its employees by creating various safety

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principles and standards. The second objective takes into account the achievement of the
business targets and objectives by working in combination. Finally, it intends to assure
business integrity and mutual respect with the associated stakeholders.
ii) Corporate strategies of Ooh Media Limited:
Ooh Media Limited has a range of activities that help in driving the business
operations. Based on the significant strategies, the organisation intends to become the
leading advertising provider by providing effective out-of-home advertising services. Hence,
the company is needed to raise its level of productivity by gaining adequate knowledge of
the critical risks. Hence, the company is involved in working with combination so that the
overall objectives could be achieved. When these strategies are applied, Ooh Media Limited
could ensure competitive advantage in the out-of-home advertising sector.
iii) Role of ABC model in accomplishing the strategies of Ooh Media Limited:
It has already been dissected that the popularity of ABC model has increased over
the years widely, especially in manufacturing sector, mining sector, service sector and
others. In this respect, it is to be mentioned that Ooh Media Limited is considered as a
leading provider of the rapidly growing out-of-home advertising sector in Australia and New
Zealand. This helps in developing an organisational strategy through which certain
advantages are bound to be sought by implementing the ABC model and ultimately, this
would result in accomplishment of business objectives and goals (Lawrence 2016).
The adoption of the ABC system in Ooh Media Limited would classify the out-of-
home advertising industry into certain significant categories. The main categories are the
following:

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 Processing activities
 Input activities
 Administrative activities
 Support activities
The enforcement of the ABC model in the organisation would recognise five various
activity levels that constitute of batch-level activities, unit-level activities, factory-level
activities, service-level activities and consumer-level activities. The unit-level activities take
place when each service is formulated within the organisation. The batch-level activities are
inherent when the organisation carries out the production process in unit groups. The
service-level activities are those that support the service formulation design for specific
services. For seeking advantages from the service formulation process, the use of facility-
level activities is made (Narayanaswamy 2017). Hence, it could be cited that the ABC system
would help Ooh Media Limited for assisting the classification of repetitive and non-
repetitive production activities.
In addition, ABC model helps the organisation in developing relationship between cost
activities and cost drivers. The development of cause and effect relation could be made
through the cost drivers and from this relationship; it would be possible to develop the cost
objectives. After seeking help from the resource drivers, the management of Ooh Media
Limited finds it easy to measure the services that each activity has consumed. On the other
hand, these activities would assist Ooh Media Limited to measure the demand intensity and
frequency developed on the basis of the ABC model (Osadchy and Akhmetshin 2015).
However, the adoption of the ABC system might place the cost accountants of Ooh
Media Limited in a position where certain problems are bound to be inherent while

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selecting the cost drivers. This mandates the need for trade-off accuracy in contrast to the
issues inherent in the ABC model. As a result, all the similar cost drivers are to be grouped in
a single pool of cost. When the process is complete, the management of Ooh Media Limited
is needed to apply the cost pools in the service line by making application of the rates of
cost driver based on the number of transactions (Titman and Martin 2014).
When the ABC system is applied in the context of the above-depicted processes, the
managers of Ooh Media Limited would possess all the essential cost information about the
total manufacturing system. At the time there is presence of required costing information,
the managers of the organisation might find it easy in optimising the costs of the products
so as to ensure its business objectives and goals.
c) Recommendations regarding the implementation of ABC model for Ooh Media Limited:
Several techniques are present through which it is possible to implement the ABC
model for Ooh Media Limited. Out of them, two most feasible recommendations are
provided in the context of the organisation, which are enumerated briefly as follows:
 Initially, it is recommended to the higher-level management of Ooh Media Limited to
support the implementation of this model within the organisation. Therefore, it is
crucial for the organisation to consider the role of the cross-functional team to
handle the aspects associated with the adoption of the ABC system. Hence, the top
management of the organisation is needed to deliver all the required resources to
the formulated team so as to ensure suitable implementation of the ABC system
within the organisation (Warren and Jones 2018).

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 There is presence of two important factors because of which the top management of
Ooh Media Limited is advised to support the implementation of this system. At the
time the management fails to provide considerable support, the employees of the
organisation might not be willing to accept the change. Moreover, they would
perceive that the system is not important, if the management does not provide
considerable importance to the ABC model (Weygandt, Kimmel and Kieso 2015).
d) Alternative management accounting tool for Ooh Media Limited:
Except the ABC model, there is availability of certain management accounting tools
available for use of the global business organisations. Among them, budgetary control is
deemed to be the most suitable for Ooh Media Limited. The adoption of this technique
would help the organisation in planning and controlling various business operations by
utilising the tool of management accounting. By implementing the tool of budgetary control,
the management of the organisation finds it easy in terms of planning, controlling and
follow-up of the different business operations of the organisation (Weygandt, Kimmel and
Kieso 2015). The budgetary control is observed to have certain benefits, which are
demonstrated briefly as follows:
 The corporate firms are able to increase the overall staff performance so that their
business objectives and strategies could be accomplished (White 2014).
 In case, the actual expenses exceed the overall expense budgeted for each
department, it would be possible for the management of Ooh Media Limited in
undertaking remedial actions for ensuring better performance and expense control.
 When budgetary control is enforced in the business activities of Ooh Media Limited,
adequate amount of information could be obtained about the past events, since it is

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possible to develop effective strategies by utilising the information in order to assure
the non-repeat of such mistakes (Zhang, Hoque and Isa 2015).
Conclusion:
Based on the above discussion, it could be stated that all the business organisations
are adopting the ABC model for enhancing their overall costing system. Moreover, with the
help of this model, it is possible to divide the total costs into fixed costs and variable costs.
Furthermore, the management of Ooh Media Limited could seek essential costing
information by utilising the ABC model. The reason is that such system would help the
company in creating effective costing techniques. Thus, in order to ensure the appropriate
enforcement and adoption of the ABC model, the top management of the company is
required to support the entire process.
However, the adoption of the ABC system might place the cost accountants of Ooh
Media Limited in a position where certain problems are bound to be inherent while
selecting the cost drivers. This mandates the need for trade-off accuracy in contrast to the
issues inherent in the ABC model. As a result, all the similar cost drivers are to be grouped in
a single pool of cost. When the process is complete, the management of Ooh Media Limited
is needed to apply the cost pools in the service line by making application of the rates of
cost driver based on the number of transactions.

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