Activity based costing for AGL Energy Limited Company

Running head: MANAGERIAL ACCOUNTING 1
Activity based costing for AGL Energy Limited Company
Student’s Name
Institution

MANAGERIAL ACCOUNTING 2
Introduction
Every company is willing to have a management system which can improve its
performance. For this reason, they always train their managerial personnel to achieve this. Some
have also decided to employ the skilled staffs. But for some companies, they have decided to in
cooperate the management tools in their system. An excellent example of the tool that is used by
many companies includes the Activity Based Costing. The ABC system is an example of a
management tool which assigns a cost to activities and the activities of the products. The system
is considered to be useful in the companies than the traditional method of the management
system (Christopher, 2016). The implementation of the ABC system improves the efficiency and
the quality of the service. Apart from the ABC management tool, there are other examples of the
systems. These include Time Drive Activity-based Costing, the Balanced Score Card method
among others. They have been considered very useful because of the reduction in the running
capital. The systems are also very useful and instrumental regarding the management decision
making . The Activity Based Costing system provides a clear cost data which can be used in the
allocation of the prices of the products. The AGL energy Limited is a good example of the
company which is willing to implement the ABC management system. The use of the ABC
system will enable the company to improve its performance (Christopher, 2016). The report,
therefore, covers some issues. Firstly, the report contains the general ABC model and its
features. Secondly, the application of the Activity Based Costing system is also discussed in the
report.
The explanation of ABC model and its features
The Activity Based Costing system is an example of the management tool where the cost
is assigned to the activity and the activity of the products. It is the improvement of the

MANAGERIAL ACCOUNTING 3
Traditional management system. The Activity Based Costing system was started by the two
scholars namely: Kaplan and Coopers (1978). The system can recognize the relationship that
exists between the activity and the products concerning the costs. This makes it unique than the
traditional methods of management systems. In the old management system, the managers were
not able to identify the rating of the product concerning time and cost. The timing of the
manufacturing process was done manually by the managerial staffs. This could slow down the
performance of the whole process (Zang, 2011). Out of the challenges incurred, the management
of the companies such as the AGL energy limited opted for the implementation of the Activity
Based in their system.
The Activity Based Costing system is preferred to the Time Drive Activity Based Costing
because it is easy to implement. Apart from this, the system is also cheap regarding training than
the other management systems. The ABC system is used by the company to show the actual cost
of the product and even its time allocation. The system is considered reliable than the traditional
management systems. The reliability of the cost data is very helpful in producing the actual price
of the product (Dale & Plunkett, 2017). The use of the Activity Based Costing in a company
helps it to identify and classify the products regarding prices in the production process. Through
these advantages, the AGL energy limited will be able to boost its management regarding the
energy production. It will also assist in comparison and setting of the prices about the
international market. By constant application, the ABC system can be improved to form the
Time Drive Activity Based Costing system.
Features of the Activity Based Costing
Because of numerous features that are posed by the Activity Based Costing, its
application is much recommended by various companies. The AGL energy company is one of