Management Accounting Report on Activity Based Costing (ABC) Model

Running head: MANAGEMENT ACCOUNTING REPORT 1
Management Accounting Report
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Word Count: 3,166

MANAGEMENT ACCOUNTING REPORT 2
TABLE OF CONTENTS
CHAPTER PAGE NUMBER
Executive Summary......................................................................................................................................................3
Introduction.................................................................................................................................................................3
Explanation of Activity Based Costing (ABC) Model.....................................................................................................4
The purpose of the two studies and what research questions they set out to explore about Activity Based Costing
(ABC) model................................................................................................................................................................. 5
Similarities and Differences in the findings of the two studies.....................................................................................8
a. Similarities.............................................................................................................................................................8
b. Differences.............................................................................................................................................................9
Four (4) specific outcomes or lessons learned from the two studies' research
Findings that will be useful for management accountants in Australian Companies to learn from...........................10
Conclusion..................................................................................................................................................................12
References................................................................................................................................................................. 14
Executive summary

MANAGEMENT ACCOUNTING REPORT 3
Activity Based Costing (ABC) is considered an essential model of costing and cost control
that is useful in any manufacturing organization. It is always important for organizations to
consider adopting practices of managerial accounting that are best suited to their specific
strategic goals and objectives. Research has indicated that systems of accounting are not
uniformly applicable to all companies, due to their varying range of operational activities that
are performed by various organizations. The main focus of this paper is on two articles with
regard to Activity Based Costing (ABC) model, which is used by many organizations that
understand the value and importance of accurate and proper allocation of overheads or
indirect costs. The results from the findings of these two research studies have been used by
management accountants in Australian companies in understanding the discussed costing
model.
Introduction
The main purpose of this paper is to discuss two research-based journal articles relating
to Activity Based Costing (ABC). These two articles discussed are “Implementation of the
Activity based Costing Model for a Farm: An Australian Case” and “The Impact of Activity based
Costing on Organizational Performance”. The paper explains the Activity Based Costing (ABC)
method and discusses the purpose of the two studies as well as what research questions they
set out to explore about the topic. Additionally, the similarities and differences in the findings
of the two studies are also discussed in this paper, as well as four specific outcomes or lessons
learned from the research findings of the two studies that will be useful for management
accountants in Australian companies to learn from.

MANAGEMENT ACCOUNTING REPORT 4
Explanation of Activity Based Costing (ABC) Model
Activity based Costing (ABC) method is an approach of managerial accounting which
identifies costs of overheads of activities and then allocates such costs to objects. Activity based
Costing (ABC) method can be explained in other words as a way of allocating or assigning
indirect costs of overheads to the various departments or products within an organization,
which helps it in generating the costs during the processes of production (Zopounidis, 2008).
The main focus of Activity based Costing (ABC) method is to identify activities or processes of
production, which are in processing a job. Such individual job activities are then placed together
into groups having processes that are similar, and into a pool of costs relating to a single cost
driver of activities. These pools of costs are then evaluated, analyzed and allocated
predetermined rate of overhead which is later assigned to all individual products and jobs. As
already discussed, Activity based Costing (ABC) method is process that involves multiple steps.
However, it is a much more accurate method or approach of allocating indirect costs to
products and departments, in a proper manner (Mallouk, 2009).
Activity based Costing (ABC) method assists managerial accountants in allocating
overhead expenses to products and jobs based upon the amount or number of activities
needed for producing the specific products, rather than simply getting an estimate of the
amount used by each job (Roos & S.-A, 2011). Assignment or allocation of indirect costs in a
proper and accurate way is very essential for management, especially in cases where the firm is
experiencing downsizes or it is outsourcing certain services. This is because departments which
are highly profitable can be allocated indirect costs, thus making them be viewed as