Activity-based costing (ABC)

This report discusses the importance and purpose of Activity-based costing (ABC) in business operations and decision-making. It includes an explanation of ABC, its characteristics, and features. Two research studies related to ABC are analyzed, highlighting similarities and differences in findings. The report concludes with four outcomes related to ABC, two from each study.

Activity-based costing (ABC) 1
Activity-based costing (ABC)

Activity-based costing (ABC) 2
Executive Summary
Management accounting tools are taken as those tools which are useful in the business for
financial and managerial decisions making. Activity based costing is one of them which
provide better understanding related to cost analysis, investment analysis, procurement
management, financial decision and so on. Use of ABC costing analysis is important in
business organisation which explains the financial findings in the context of business
decisions. This reading will describe activity based costing purpose and its management
within the organisation. It will include discussions over similarities and differences upon
issues related to activity based costing and its importance in business decisions making and
operations. At the end it will deliver outcomes and usability of management accounting tools
in Australia. This will provide the real nature & behaviour about product and costing.
Activity Base costing system provides not only the accurate cost of product bust also gives us
mechanism for managing costs. This system gave different type of level of utility.

Activity-based costing (ABC) 3
Table of Contents
Executive Summary...................................................................................................................2
Introduction:...............................................................................................................................4
a) Explanation of Activity based Costing:.................................................................................5
b). Explanation of purpose of both journal topics in the context of “Activity Based
Costing”..................................................................................................................................6
c). Similarities and Difference between analysis of findings:....................................................9
d). four outcomes related to Activity based costing: (two from each study)...........................11
Conclusion:..............................................................................................................................13
References:...............................................................................................................................14

Activity-based costing (ABC) 4
Introduction:
The major purpose of making this report is to provide proper acknowledgment of using
management accounting tool in real life organisation. This reading is based on research
journal articles which will explain importance, use and significance of management
accounting tool through detailed analysis. Analysis will be based on accounting and
management journal and articles. Activity based costing is to be chosen as per instructions
and purpose of this study will be explained based on two research management articles. A
proper discussion will be made based on similarities and differences in findings of two
research articles. It will include a recommendations and outcomes out of research findings
which will justify usage of management accounting systems (tools) in Australia Company.
For this purpose, an organisation will be taken as example named CIMIC Group.

Activity-based costing (ABC) 5
a) Explanation of Activity based Costing:
Activity Base costing system succeeded in products and services. ABC view use in
purchasing department. Activity Base Costing acceptable in cost calculation and managerial
accounting as a very useful system. Activity Base Costing is a type of managerial accounting
which define the cost of activities without the effect of other variables that result provided to
management on time. It’s kind of a tool to evaluate operating cost & in result provide method
of understand the underlying activities of existing cost. ABC also gives the accurate
information about cost of resource demands from customers, services, individual products
(Horngren, et al., 2013).
Characteristics of ABC Costing
ABC is a costing system. It’s provided the detail about cost of each activity along with
resource to all service and products. ABC also provides non-production cost. ABC help in
management account. ABC provides more accurate information about product & service that
any other system provides. Activity Base Costing defines the true cost of each product &
service with accuracy. With the help of Activity Base Costing, it recognises business
operations for taking decision. ABC is mostly using by manufacture company. This will help
to manufacture for his business plan. From the Activity Base Costing manufacture earns more
profit & defines the accuracy of investing amount & knows about the actual product cost.
Activity Base Costing processes this in three steps. This can collect the data from cost of
product & assemble the overhead cost. ABC couldn’t collect the data from accumulating all
cost (Rajasekaran & Lalitha, 2011).
Its transfers overhead cost from high rate to low rate. Some time it difficult to know about
the actual cost of product due to some indirect cost, employee salary etc. for these types of
data we unable to understand about the actual cost of product (Fisher, 2015)

Activity-based costing (ABC) 6
Financial mangers taking help of Activity Base Costing for gain more profits by knowing
actual cost of product. For knowing actual product cost, we need a multiple accounting
process & that can take much more time & not providing accurate data. So, we take help of
Activity base Costing & provide the accurate data & that process provides the actual cost of
product. This will exactly know about the profitable or unprofitable amount of nay product &
manufactures taking help of these data in their business. That can be easily earning more
profit. Activity Base Costing very helpful in his filed no any other system that can replace
Activity Base Costing System (Fisher, 2015).
Features of Activity based costing:
1. Activity Based Costing is a costing strategy in which all costing facts and information
related to process, products and departmental data are included.
2. Use of ABC Analysis can be done to compare cost data with previous movement of cost
and administrative cost flows and predetermined facts.
3. ABC analysis supports the management to enable their relevant and accurate
understanding of resources and responds to different cost as per process requirements.
4. Company can be made with the help of ABC analysis, it is moderate management tool that
monitor financial statement as per growth rate of company in business benefit concern
Accounting Based Costing come after more study & research. In this system to provide
accurate data this will change the face of accounting system. At that time when lack of
knowledge of costing & methods this will come & change complete the face of accounting.
It’s traditional way of overhead accounting.
b). Explanation of purpose of both journal topics in the context of “Activity Based
Costing”
In this research analysis based report, two research based article has been taken based on
Activity based costing, which is essential to make this study more reliable and specific in the

Activity-based costing (ABC) 7
context of business operational decisions. These research journals will explain the significant
use of Activity Based Costing in the business (CIMIC group).
The first journal “Accounting and Management Accounting systems” which explain the topic
titles” the relationship between activities based costing, business strategy and performance in
Moroccan enterprises”. The second Journal name of Accounting and business management
which depicts about Activity based costing and its strategies. The major purpose of using
both research Journal as supportive article is to make proper understanding of “how Activity
Based Costing” works”, “How it can be used in the business decision of the company.
Purpose:
The purpose of this study and using both journals is to refining more specific general
approaches of defining and evaluating more exact and reliable product cost and business
activity based on process. Activity based costing is accounting analysis methods which
developed by Cooper and Kalpan to assign all overhead end projects, jobs and process. The
use of these research journals attempt to elaborate an important topics related to activity
based costing and its usage in business operations. It major aim is to justify the rectify the
nature of ABC analysis and to determine the projected profit of this application to the
company under research. To research perspective, now a days the light of exploring interest
in the matter of benefit and of the implication of ABC systems in CIMIC Group of the
company (Innes, & Mitchell, 2011)
Both researches Journal attain similar purpose and objective of study:
1. Basically, it will highlight the process and concept of ABC systems in relation to
know and understand the application of ABC analysis.
2. To verify the ways and benefits of implication of ABC systems in the Business
operation.

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3. Adoption rate of ABC systems in Australia, how it works in the different business
environment of Australia.
4. How ABC strategies impacts on business decisions and usage of ABS concept
impacts business performance (Gosselin, 2017)
5. How it affects the global rises of financial decisions and accounting standards in
business?
From the above points, both Journals want to give proper review related to the concepts of
ABC systems and its decision making process. Journal “Accounting and Management
accounting” depicts the uses of ABC systems. In this research, the study concludes that if
company wants to imply this systems as management tool, they will definitely lead to
efficiency with two major benefits: firstly, able to develop internal management, processes
and acts within the organisation and it observes the indirect and recovery cost than traditional
management systems (Arora, 2013).
Other management journal “ “Journal of accounting business and management” shows an
explanation most specific and to expand the concept of ABC systems. Hence, the major
motive of study such topics related to ABC systems. It explains the number of reasons also to
be stated after ABC adoption. Overall research are to be and on explained topics. It will
provide the number of detection of fraud and ABC Company met their requirement as per
their requirements (Foster & Swenson, 2017) “for the manufacture some product consumes
the activity & activity consume the costing. This system provides directly & indirectly costs
information about the product. This will automatically help in improve the process of
production. These provide more advantage & benefits. So, manufacture just need to know
about this system method & technique. The company must provide training about this system
for his mangers &b Employee. So, they can know about this system & apply this with get

Activity-based costing (ABC) 9
much more accurate information about product costing. At the end it will directly get
beneficial for taking quick decisions & process of production.
c). Similarities and Difference between analysis of findings:
1. Similarities between both Journal study:
Particulars Journal of Business and
Management
Accounting and management
information system
1. Business
strategy
Through this research of study, it
is observed that ABC Model
helps to measure assigned
performance to activities on
consumptions of reliable acts and
data.
This Journal explains about ABC
model that it helps in measuring
business performance and cost
effectiveness through business
decisions making activities.
2. Effectiveness
of costing
Writers in this Journal explain
that ABC model recognises the
usual and casual relationship of
cost and performance in business
operations. It provides not only
cost features and accurate results
through cost analysis after
designing product (exist or new
product) (Pigott , 2012).
The writers of this journal
delivers the same objective of
ABC management tools, they
explain that ABC model of
management accounting compare
projected and actual product of
cost to measure them in time and
give accurate and exact result of
profit.
Performance
appraisal
Through this Journal, it is said
that ABC accounting describes
reliable and accuracy in product
to determine cost and appraise
performance of product
ABC model helps in focusing cost
determination by bringing
reliability and effectiveness in
manufacturing, distribution
performance of product.
Identification of cost
behaviour
THIS Journal explains that ABC
costing recognises reality of cost
behaviour by advanced
technology, environmental
manufacturing activity.
This journal delivers the same
aspects. It is said that ABC Model
explore and helps in identifying
possible behaviour of cost through
control fixed cost overhead and
variable cost in the relation of
manufacturing and distribution
product activities.
ABC brings an accuracy and
effectiveness related to products
on cause and effect relationship
for the incurrence of cost.
It explains that ABC model study
of cost behaviour based on
process and products value which
evaluate the relationship between
cost effectiveness and causes
(Neumann et. al., 2014).

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1. Differences of views of both Journal study:
Particulars Journal of Business and
Management
Accounting and management
information system
1. Situational
and environmental
change
In this journal it is explained that
ABC model helps in improving
production process to develop
performance in companies (Merz
Mike & Hardy Arlen, 2013).
But There is nothing like that in
the Journal of Accounting and
management accounting systems.
2. Approaches In this Journal , the directive
approach has been applied in
which all content are explained
directly in the each language
While this journal has implied
implicit Approach in which all
the content are not directly
explained. It becomes is
necessary sometimes for readers
to take help of seniors or of
practitioner to explain
(Narayanan & Ratna. 2015).
3. Production
process and
consumption
This journal explain the ABC
model figures out production
capacity but it is not mentioned
that ABC model helps in
determining cost behaviour for
consumption and progress of
cost material.
Journal of Accounting and
management accounting systems
explains that ABC model are
used to figure out production
process cost and consumption of
products. It helps in determining
cost nature and behaviour.
Through the above table, it is observed that both Journal have used different approaches to
define importance of ABC costing but their major focus is to deliver same content and views
which are related to ABC costing technique. At this time of technology will help to define
this type of management model such as ABC that can explain about product actual cost. If we
couldn’t get help of Activity Base Costing system then we face more problems about like
huge amount data of product costing, labor charges, indirect charges. These type of data in
big amount & calculate this data is very difficult to understand. If use other method or system
to know about the actual cost of product then we need much longer time compare to Activity
Base Costing System. ABC helps the business to do so. It’s real cost of product or not we
couldn’t know but with help of Activity base Costing we much more accurate about the
costing of each product (Lee, 2011).

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d). four outcomes related to Activity based costing: (two from each study)
Journal of Business and management:
1. Accuracy check of Cost behaviour: “Journal of business and management” explain
that ABC model is the concept which checks the accuracy of cost behaviour and
product reliability and durability. Through this Journal, it can be understood that
usage of ABC model in the business help in checking accuracy behaviour, to figure
out causes of treats and trace the area of costs related to managerial responsibility.
2. Performance development: According to this Journal, ABC management tools
improve management process which help in determining cost, it increase the
performance of the cost as per cost opportunity matters. It develops the program and
development performance in order to deliver projects and output on time. It improves
the managerial and financial position based on competitive era of companies (Kaplan
Robert, 2012).
3. Accounting and Management accounting systems:
Measure complexity of projects: ABC model helps in determining and measuring
complexity of big projects, it helps the management of the company to evaluate
business operations cost and product performance based on complex nature of the
projects. ABC model use cost analysis concept in order to determine and control
additional cost. This journal also explains that companies can evaluate their product
transparency and reliability of project in order to make them more productive and
much easier than other projects. It recognises all usual and casual relationship
regarding cost driver to activities. Journal has also explained (Turney Peter & Stratton
Alan. 2018).
4. Providing financial information: Through this Journal, we can understand that ABC
model is able to explore financial and non-financial model both effectively. It helps in

Activity-based costing (ABC) 12
define accuracy and reliability of each product. It creates high benefits, which helps
the companies to application of ABC model within their organisation effectively. It is
based on new technology which provides transparent and effective results related to
the financial business decisions (Jawahar Lal, 2016).
Activity Base Costing System provide overhead accounting data. This will help to rectify the
inaccurate cost information. This is just because of we choose wrong type of method. From
the Activity Base Costing System, we redesign the structure of any product costing. We
improve over decision of product price.
From this method the manufactures get benefit from known about the actual cost of product.
If manufactures not use this system, then they fear about potential loss of status
&manufacture always feels fear about product pricing.
Just because of the costing calculation amount is big & hard to get accurate data. In this we
use ABC system & break out these barriers of fear.
For use of Activity Base Costing System, every mangers & Employee will be aware of this
system & know about its technique & formulas so that they can study & collect all required
data & process through ABC system (Cooper & Kaplan, 2018).

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Conclusion:
Based on the study of Activity based costing, research analysis implied those methods which
are related to traditional costing techniques. The use of ABC was come into light which
business tried to move towards modern technology and processes, so that the ABC Model
approached in order to explore business organisational business activities. This report
concluded use and importance of ABC model in business decision making. It has revealed the
reliability and accuracy of ABC model towards business decisions. This journal has
explained about ABC model and relationship between business strategies. It helped the
business and individual to understand and control cost behaviour in order to increase business
benefits and productivity, similarities and differences between two research journal have been
explained in this assignment which create understanding of significance of ABC model in
depth.

Activity-based costing (ABC) 14
References:
Arora. M. N., (2013) Cost Accounting. New Delhi: Vikas Publishing House Pvt Ltd.
Cooper. R. & Kaplan. R., (2018) Cost Cutting Activity. Economist, PP. 57-67.
Fisher, J. (2015) “Contingency-Based Research on Management Control Systems:
Categorization by Levels of Complexity”, Journal of Accounting Literature, 14, PP. 24-53
Foster, G. & Swenson, D. W. (2017) “Measuring the Success of Activity-Based Cost
Management and its Determinants”, Journal of Management Accounting Research, 9, PP.
109-141
Gosselin, M. (2017) “The effect of strategy and organizational structure on the adoption and
implementation of activity-based costing”, Accounting, Organizations and Society, 22(2), PP.
105-122
Innes, J. & Mitchell, F. (2011) “Activity based costing: a survey of CIMA members”,
Management Accounting, October: PP. 28-30.
Jawahar Lal. (2016) Cost Accounting, New Delhi: Tata Mcgaw-Hill Publishing.
Kaplan Robert. (2012) In Defense Of Activity – Based Cost Management, Management
Accounting, PP. 58-63.
Lee. Y. (2011). Activity- Based Costing At Cal Electronic Circuits, Management
Accounting. Oct, 36-38.
Merz Mike & Hardy Arlen. (2013) ABC Puts Accountants On Design Team At HP.
Management Accounting. Sep, PP. 22-27.
Narayanan. G. & Ratna. S. (2015) Activity Based Costing At In Steel Industries. National
Bureau Of Economic Research.

Activity-based costing (ABC) 15
Neumann Bruce R., Gerlach James H., Moldaure Edwin., Finch Michael And Olson
Christine. (2014) Cost Management Using ABC For IT Activities & Services. Management
Accounting Quarterly, PP. 29-40.
Pigott , D., (2012) ABC In Apharmaceutical Company A Remedy. Management Accounting,
PP. 18-21.
Rajasekaran, V., & Lalitha, R., (2011) Cost Accounting, New Delhi Dorling Kindersley
(India) Pvt. Ltd
Turney Peter & Stratton Alan. (2018) Using ABC To Support Continuous Improvement.
Management Accounting, PP. 46-50.