Activity Based Costing For ALS Company

This report discusses the compatibility of Activity Based Costing with ALS Company's corporate strategies and objectives. It also provides recommendations on implementation and an alternative management accounting tool. The report is aimed at providing ALS Company with a more efficient and effective management and costing system.

Activity Based Costing For ALS Company 1
ACTIVITY BASED COSTING FOR ALS COMPANY
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ACTIVITY BASED COSTING FOR ALS COMPANY
Executive summary
The report has addressed the business of ALS Company clearly. The objectives, missions
and corporate strategies are also explained in the report. Activity based costing and its feature is
also looked at. The compatibility of activity based costing with the companies strategies and
goals are also addressed where the system is seen to be in line with company’s operations. The
necessary recommendations and how they should be implemented are also outline so that the
company can derive more from incorporation of the system.

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Table of Contents
Introduction.................................................................................................................................................3
Activity based costing and its features........................................................................................................3
Definition.................................................................................................................................................3
Features...................................................................................................................................................4
How activity based costing aligns with ALS’ corporate strategies and objectives.......................................4
Missions of ALS Company........................................................................................................................4
Objectives of ALS Company.....................................................................................................................5
Corporate strategies of ALS Company.....................................................................................................5
Alignment of activity based costing system with ALS Company’s strategies and objectives.......................7
Recommendations on implementation of activity based costing in ALS Company.....................................8
Alternative management accounting tool...................................................................................................9
Conclusion...................................................................................................................................................9
References.................................................................................................................................................11

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Introduction
ALS limited is an analytical service provider company. The company is a leading
testing, inspection, certification and verification company headquartered at Brisbane, Australia.
The company operates four major divisions, that is, life sciences, minerals, industrial and energy.
The company’s locations are spread throughout the globe. Currently, ALS is the most recognized
analytical and testing company in the world. This implies that the company operations involve a
lot of activities. To manage all this activities effectively, the company must incorporate the best
management and costing system. The report is a description of activity based costing and
management system. The system’s alignment with company’s objectives and strategies is
addressed by first explaining the company’s objectives and strategies. How the model plays
along towards achieving the company’s missions and objectives is also addressed. The report
winds up by addressing the necessary recommendation and an alternative costing system that
could be used in the place of activity based costing.
Activity based costing and its features
Definition
Activity based costing is a system that identifies activities in an organization and assign
cost to each activity according to the resources consumed by each activity. The resource
consumption is traced which helps in costing the final products (Zott and Amit 2010). The model
assigns indirect cost into direct cost which makes it different from other costing systems. The
systems achieve this by analyzing the relationship between cost, activities and products.

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Features
The system divides cost into two that is, variable cost and fixed cost. By so doing, the
system allows for ample provision of relevant information for the construction of a viable costing
structure. Activity based costing also distinguishes cost behavior patterns. This cost patters are
volume related, diversity related, events related and time related (Yang 2008). The appropriate
cost drivers are identified to ensure track of the overhead to a product. The cost drivers
determine the cost behavior pattern.
How activity based costing aligns with ALS’ corporate strategies and
objectives
Missions of ALS Company
The mission of ALS Company is to lead a fight to treat and cure ALS through global
research and national wide advocacy, while also empowering people with Lou Gehrig’s disease
and their families to live fuller lives by providing them with compassionate care and support.
The company’s main mission is to better the lives of the infected patients by improving their
living standard through financial support provided (Ludolph et.al 2010). The company also aims
at operating at business model designed so as to ensure stability and promote financial strength.
ALS Company is also working towards creating awareness in the association’s fight against ALS
disease. The company wants to ensure smooth operations within company by pressing towards
functioning as one organization with unity of purpose.

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Objectives of ALS Company
ALS company provides testing, inspection and certification and verification services. The
company has distributed its objectives to four divisions. The objectives of each division are as
follows.
ALS life sciences division comprises four analytical testing areas, that is, environmental
food and pharmaceutical, electronics and consumer products. ALS geochemistry provides testing
services for global mining industry in four key service areas. These service areas include
geochemistry, metallurgy, mine site services and inspection (Kugler and Verhoogen 2011).
Mineral services cover the entire resource life-cycle from exploration, spectral mineralogy,
feasibility, production, design, development through to trade and finally rehabilitation. ALS
energy provides a range of analysis and certification testing services supporting exploration,
production and cargo shipment. ALS industrial provides diagnostic testing and engineering
solutions for the energy resources, transportation and infrastructure sectors. With these divisions,
the company is able to ensure efficient and effective service provision to the clients.
Corporate strategies of ALS Company
The company has laid down several strategies which are a map towards achieving is
objectives and upholding the company’s missions. These strategies are explained as follows.
ALS Company is working towards winning customers contracts. With a stable flow of
contracts, the company implies company’s stay in business. In order to win maximum customer
contracts, ALS must understand the real demands of the customers. With enough information on
what customers need, the company can evaluate and implement the ones it can manage. With
customer’s need information, the company can also make a sound decision on what set of
services to offer so as to address the issue of completion (Kiani et.al. 2009). With increased

Activity Based Costing For ALS Company 7
customer contracts, the company will be able to create value to its shareholders as well as
improve its financial performance.
Due to shortage of resources to accomplish its business, ALS Company wants to ensure
maximum use of the available resources. The resource shortage should not be the limit to
achieving the company’s objectives. ALS is also borrowing some resources so as to facilitate its
operation. This strategy has a strong positive effect on both performance and operations. By
maximizing the utility of available resources ALS Company will be able to cover the deficient in
terms of infrastructure shortage and carry out service provision (Kaplan and Norton 2008). ALS
also needs to understand and coordinate activities within the other ALS business units to ensure
the availability, expertise and technical capabilities exist. This strategy is aimed at addressing the
high customer needs which sometimes exceed the resources available.
ALS Company is also developing the appropriate staff. A staff with the required skills
and enough experience on the company’s business and operations implies quality service
provision. To ensure a qualified staff, the company is taking initiative to train new employees
and also equip them with the necessary skills. Also the company want reduce the employment
turnover. Low employment turnover implies conservation of developed talents in the company.
ALS workforce demands are dependent on the contracts won (Kaplan and Norton 2008). The
more skilled and experienced workforce the company have, improve its chances of winning more
contracts. With such a staff the company will be more efficient in responding to new contracts
won and at the same time, the customers are guaranteed of quality service delivery. The long run
impact of these strategies is more sustainable growth rates as well as more value to the
shareholders and also the clients.

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The company is looking forward to be able to manage its cost effectively. The testing
and analytical labs run by ALS Company are usually located in remote areas which pose the
need to inject more costs. If the company is in a position where it could manage the costs
incurred such that unnecessary costs are avoided, the profits realized would increase (Horngren
2009). The company is working towards incorporating an effective management and costing
system. A system that will help the company cut down on its cost and maximize on its outs is the
ideal system required by ALS Company.
Alignment of activity based costing system with ALS Company’s
strategies and objectives
ALS Company as seen above runs a multiple departments in a wide range of locations.
This depicts that the company is involved in numerous activities. All these activities are directed
towards the provision of services which is the main objective of ALS Company. Activity based
costing model will play a great role in assigning cost to all these activities (Greiler, Deursen, and
Storey 2012). This will enable the company make sound decisions on cost management which is
a pivot strategy of the company. The real cost incurred in provision of testing services can be
evaluated so that the company will have a clear picture on devolvement plan to practice.
Since the company location is usually determined by the contract won, the company’s
need to make strategic decision is unavoidable. So as to ensure effectiveness in terms of cost
incurred, the company should ensure their location best suits their operations. With activity
based costing, the benefits acquired as a result of best location can be evaluated. With this
information, the company can decide the most beneficial location. The model is also a
management solution where other decisions such as operational decisions are made more
soundly (Greiler, Deursen and Storey 2012). The viability of an operation can be simply

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evaluated by estimating the cost involved and the expected revenue generation. In case an
operation might lead to a loss, the management will be able to avoid it.
With activity based costing system, the company is able to evaluate cost pattern
behaviors. This way the management will be provided with ample information which is the basis
for budgeting and planning decision. Sound budget decision is the ones that put into
consideration the changes in cost (Eastman 2012). This will help ALS evade loses or unfinished
projects due to resource scarcity or unexpected high cost. Avoiding loses guarantees the
company a more stable and sustainable financial performance.
Activity based costing system equips ALS company with adequate information on the
capability of the resources available to provide required resources. This information is important
to the company in that it is in a position to allocate it resources wisely. Especially with the
problem of resource scarcity the company can make a lot using the available resources. Full
performance and utilization will see the company working on its objectives without fail. A more
stable delivery will attract more customers and more investors to work with the company (Dale
and Plunkett 2017).
Recommendations on implementation of activity based costing in ALS
Company
Before implementation of activity based costing system, the company should analyze the
available leakages in the system. The compatibility of the system with the needs and operations
of ALS Company should be evaluated so that the real value that the system will add to the
company’s operations is predicted so as to judge on its viability. By assessing the system, the
company can make the necessary arrangements to accommodate these limits. Examination of
this system will also help ALS company avoid getting into loses especially as a result of system

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failure (Borry, Cornel and Howard 2010). ALS Company’s staff should be trained on
implementation and use of the system to ensure efficiency. Since the company’s operations are
mainly dependent of contracts won, the company will need to keep its staff updated with skills
and experience necessary for its operations. An experienced staff will ensure efficient
performance.
Alternative management accounting tool
Amp can also deploy cost of quality technique. Cost of quality is a tool that focuses on
the difference between the costs incurred during production, selling and supporting services and
the cost if there were no failures. This tool mainly focuses in maintaining a high cost effective
operation in the firm. Amp is in the best position to use this tool given the nature of its business
(Borry, Cornel and Howard 2010). This tool will advantage the quality level of amp products
which will on the other hand increase its customer’s loyalty. With cost of quality, the company’s
management are in no position to make uniformed decision.
Conclusion
ALS Company is service Provision Company whose main business involves numerous
operations and activities. The company’s strategies are also critical which depicts the company’s
demand for a more efficient and effective management and costing system. Activity based
costing is the ideal system for ALS Company. Its feature is in alignment with company’s
demands especially the corporate strategies. The performance and success of ALS Company is
measured in terms of how best it achieves its objectives and how it follows the strategies laid

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down. In other words, activity based costing is the costing tool that ALS is missing so that it can
take its next step.

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References
Borry, P., Cornel, M.C. and Howard, H.C., 2010. Where are you going, where have you been: a
recent history of the direct-to-consumer genetic testing market. Journal of community
genetics, 1(3), pp.101-106.
Dale, B.G. and Plunkett, J.J., 2017. Quality costing. Routledge.
Eastman, C.M. ed., 2012. Design for X: concurrent engineering imperatives. Springer Science &
Business Media.
Greiler, M., Deursen, A.V. and Storey, M.A., 2012, June. Test confessions: A study of testing
practices for plug-in systems. In Proceedings of the 34th International Conference on Software
Engineering (pp. 244-254). IEEE Press.
Horngren, C.T., 2009. Cost accounting: A managerial emphasis, 13/e. Pearson Education India.
Kaplan, R.S. and Norton, D.P., 2008. Mastering the management system. Harvard business
review, 86(1), p.62.
Kiani, B., Shirouyehzad, H., Khoshsaligheh Bafti, F. and Fouladgar, H., 2009. System dynamics
approach to analysing the cost factors effects on cost of quality. International Journal of Quality
& Reliability Management, 26(7), pp.685-698.
Kugler, M. and Verhoogen, E., 2011. Prices, plant size, and product quality. The Review of
Economic Studies, 79(1), pp.307-339.

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Ludolph, A.C., Bendotti, C., Blaugrund, E., Chio, A., Greensmith, L., Loeffler, J.P., Mead, R.,
Niessen, H.G., Petri, S., Pradat, P.F. and Robberecht, W., 2010. Guidelines for preclinical animal
research in ALS/MND: A consensus meeting. Amyotrophic Lateral Sclerosis, 11(1-2), pp.38-45.
Yang, C.C., 2008. Improving the definition and quantification of quality costs. Total Quality
Management, 19(3), pp.175-191.
Zott, C. and Amit, R., 2010. Business model design: an activity system perspective. Long range
planning, 43(2-3), pp.216-226.