Activity Based Costing: A Case Study of Navitas Limited

This report analyzes the implementation of Activity Based Costing (ABC) at Navitas Limited, an Australian Securities Exchange listed company specializing in tertiary education. The report explores the company's objectives, strategy, and the potential benefits of adopting ABC. It outlines the features of the ABC model, its alignment with Navitas' goals, and provides recommendations for implementation. The report also discusses alternative management accounting tools and concludes with the potential impact of ABC on Navitas' profitability and growth.

HP
ACTIVITY BASED COSTING

Contents
Introduction................................................................................................................................3
Company’s Objectives...............................................................................................................3
Company’s Strategy...................................................................................................................4
Activity Based Costing model and features...............................................................................4
ABC model alignment with company........................................................................................5
Recommendations......................................................................................................................6
Other possible options................................................................................................................6
Conclusion..................................................................................................................................7
References..................................................................................................................................8
Introduction
2

Navitas Limited is an Australian Securities exchange listed company that is known to have
been the first company to be partnering with the universities and colleges for their programs.
It is primarily known for it is primarily known for being the first to provide a great learning
environment to pre-college, graduate and post graduate students, the company is known for
its great quality teaching staff which like to be called as facilitators in the journey of their
education. The Navitas College of Public Safety NCPS has about a whooping eighty
thousand student. The primary business model of this system is that this company acts as a
third party or a tertiary educational system that partners with the universities in Australia to
teach their courses with the aid of the universities infrastructure.
The company is known for its great quality of education because of the way the courses are
designed, it helps the students to learn with greater practicality and practice than what their
fellow peers might be studying in other universities. The most popular of their courses is
Bachelors of social science in criminal justice. It is highly impressive that such thir party
educators have been listed on the exchange showing that all field have scope to get funded by
external parties who in turn will expect it to grow much more and gain returns to a large
extent. The company has tie ups with about 120 colleges in approximately 30 countries to
begin with (Brimson, 2012).
Company’s Objectives
The company has a clear set of objectives mentioned at all possible places one can see in its
announcements and publishing. They plan to reach greater heights and achieve more and
more with the support of everyone
 To keep faith in their beliefs and potential
 Stay non-conformist and adventure across all possible areas by exploring different
avenues
 Also, be bona fide in whatever they do
 Also strive to improve the credibility and repute
 Value the people and the environment they live in
Company’s Strategy
The company Navitas Ltd. has a set number of practices it lives upon which shall be
discussed further on. On the basis what the company wishes to go ahead with, we shall be
able to understand its needs and thus come up with the practical implications of ABC costing.
3

From what the company had shared in its annual report, they plan to grow by diversifying in
different geographies and my partnering with the best universities to gain the goodwill.
Explanation of ABC Model and its features
ABC took the overhead pool and deconstructed it into numerous cost pools, allotting the
expenses in each pool utilizing a "driver", that is, a surrogate that approximates the manner
by which an asset is devoured by an activity. For instance, the formation of a buy arrange is a
surrogate "driver" for the activity of obtaining material. Each time a buy arrange is
composed, it speaks to the utilization of an asset by the item included and a component of
cost is exchanged (or "driven") from the asset to the item. This way to deal with ABC is
called fetched deterioration. This strategy has a few points of interest over TCS:
o It gives a more precise model of how costs are consumed by exercises and items.
o It makes enhanced data for cost-based valuing, item blend and make/purchase
choices.
o It safeguards that all expenses are consumed by items and, consequently, can in any
case be utilized for stock valuation for money related explanation purposes.
Albeit superior to anything TCS, as a device for dealing with the business cost decay ABC
still has a few deficiencies:
o It is as yet a money related perspective of cost and considers practically no
operational data.
o Detailed investigation of records is required coming about is a tedious logical process.
o It is static - generous changes in item blend or process volume require a reanalysis
and revamping of the model.
o It gives no comprehension of how key business forms influence cost.
How ABC Model can assist company in achieving its goals
preferred approach for this reason over cost deconstruction is to join business process
examination and ABC to make a cost show that powerfully mirrors the fundamental business
process. The procedure begins with an operational stream model of the business procedure
and afterward connects expenses to the assets. Expenses gather in connection to the stream of
exercises. Expenses are connected specifically to the assets that expend these expenses, in
4

this way the expenses don't should be disintegrated. Costs course through exercises to cost
objects (items, administrations, and so on.) (Cokins, 2012).
The upsides of The Model Approach over cost disintegration are many:
o Because the business procedure display is dynamic, re-enactment and "consider the
possibility that" investigation should be possible to assess business choice choices.
o Productivity enhancements, affectability investigation, process changes and
speculation defences would all be able to be assessed by means of the model.
o the demonstrate coordinates the business procedure and the cost framework,
advancing comprehension of how process influences cost.
o It distinguishes key execution estimation openings.
It gives key monetary and operational choice help.
Recommendation for implementation of ABC mode The Model Approach is an organized
approach beginning from the current comprehension of the business procedure and the
current cost framework and finishing up with ABM process change. It can be utilized for a
whole business association, a division or office or a capacity. In extensive associations,
usually fitting to execute a pilot venture initially to create abilities, prepare colleagues and
facilitators and acquire incite results and payback. A common pilot venture can bring about
an approved model in 6 two months. A concise portrayal of the eight stages in The Model
Approach takes after:
Stage One- - Define the venture scope. Look at the all-inclusive business issues that face the
organization and select a zone where enhanced data will yield noteworthy outcomes.
Consider zones with large amounts of item or administration decent variety and additionally
territory with high, ineffectively comprehended aberrant expenses. At last, ensure individuals
in the region to be considered will be steady (Cokins, 2011).
Stage Two- - Identify exercises, assets and yield measures. The two exercises and assets can
be immediate or roundabout. Coordinate exercises are those that are created in light of item
or administration request. Backhanded exercises are those that help item request yet are
produced in light of different exercises. Coordinate assets are devoured specifically by
exercises, while a few assets are expended by implication by different assets. In this model,
just assets (e.g. work, vitality or inhabitance) have costs, so they should be distinguished and
connected to exercises. A yield measure must be recognized for every asset and activity.
5

Figure 2 shows the manner by which request creates exercises which devour assets per the
connected measures.
Stage Three- - Map the operational stream of the procedure to be broke down. There are
numerous graphical systems that are fitting for this assignment. Whatever technique is
utilized, it should unmistakably demonstrate the asset supplies, exercises and requests
alongside their units of yield and their relationship to each other.
Stage Four- - Collect information and characterize principles of information connections.
There are four kinds of information and tenets required: 1) request volume per unit time, 2)
transformation factors between a unit of yield and the information required, 3) limit cutoff
points (or vast, if suitable) per period on assets and 4) monetary information indicating
cost/income per unit for variable expenses and aggregate cost/day and age for settled
expenses.
Stage Five- - Build the PC show. Once more, there are numerous non specific demonstrating
apparatuses accessible. The one utilized looking into it depicted underneath is NetProphet1,
an ABM instrument particularly intended for this reason (Daly, 2009).
Stage Six- - Validate the model. This requires approval of both operational trustworthiness
and money related respectability. Operational outcomes from the model ought to be
contrasted with chronicled information to guarantee it mirrors the business precisely. It
likewise ought to be audited for "sensibility" by tasks individuals. Once the model is
operationally legitimate it must be approved fiscally against add up to recorded expenses and
accommodated at the detail cost level against known costs.
6

Note that the over six stages can commonly be proficient in six- - two months on a pilot task
or independent venture unit or organization. The accompanying two stages are educational
and process change employments of the model.
Stage Seven- - Interpret new data. An all-around planned model will yield a lot of new and
amended data because of connecting the operational and budgetary perspectives of the
business into one intense device. High cost and unbeneficial items and administrations can be
recognized. Potential limit requirements and overabundances can be pinpointed. Non-esteem
included exercises can be focused on. On the money related side, expenses of items, forms
and any cost question (e.g. supplies or sit still limits) can be precisely distinguished. The last
advantage is to recognize process change openings utilizing the new data accessible.
Stage Eight- - Perform activity-based administration. The model is valuable from multiple
points of view in the administration of a business. Among them are: 1) business process re-
designing, 2) key arranging and basic leadership, 3) recreation of potential business dangers
and openings, 4) benchmarking and efficiency change (Garrison, 2015).
Apart from ABC model other management accounting tools
There are few more models that can be used apart from ABC. These tools are time driven
costing, process costing and so on. Here, in process costing the entire process cost is added
and the no of units produced in the process are divided to calculated cost of each unit. Here,
the issues are that all the products don’t take same time hence those products which takes less
time are unnecessarily penalized. In the second method, time taken by each product and each
process is calculated and the same is then used to determine the unit cost of each process
(Dolan, 2010).
The management can also use many other ways such as traditional costing method which is
not the best way to price the product.
Conclusion
Through this report we were able to analyse how the ABC coting method could be
implemented in the company Navitas Ltd. And how it could benefit from the same. It was
highlighted that irrespective of the company operation size or impact on the economy, if a
new method is to be adopted it has to be first accepted by its staff, they should be able to tell
why this change was brought up and why the company needed it. The other important part
would be to encourage them to own up to their activitys when such implementations are
done. It is also seen that ABC costing would help company to figure out the more profitable
7

customers and segregate them from the ones who were eating out on their revenues. This
would enable it to focus on a few set of clients and not stay clueless on which project is
actually generating cash and which is n reality burning cash. The company will thus also be
able to ascertain the relevant product and process costs and thus ensure that there is proper
forecasting and insights into the possible next moves to expand and grow.
References
Brimson, J., 2012, Activity Accounting: An Activity-Based Costing Approach. New York:
Wiley, 1997.
Cokins, G. 2012, "ABC Can Spell a Simpler, Coherent View of Costs." Computing Canada
24, no. 32, 34–35.
Cokins, G. 2011, "Why Is Traditional Accounting Failing Managers?" Hospital Material
Management Quarterly 20, 72–80.
Daly, L. 2009, Pricing for Profitability: Activity-Based Pricing for Competitive Advantage.
New York: Wiley, 2001.
Dolan, P. 2010, "Getting Started With ABC." Supply House Times 40, no. 4 (June 1997):
41–52.
Garrison, H., 2015, Managerial Accounting. 9th ed. Boston: Irwin McGraw-Hill, 1999.
Hicks, H. 2011, Activity-Based Costing: Making It Work for Small and Mid-Sized
Companies. 2nd ed. New York: Wiley.
Horngren, C., 2008, Stratton. Introduction to Management Accounting. 11th ed. Upper
Saddle River, NJ: Prentice Hall, 1999.
8