Activity Based Costing System for Harvey Norman Company

This report discusses the compatibility of activity based costing system with Harvey Norman Company's operations and strategies. It also suggests an alternative management system.

Activity Based Costing System for Inharvey Norman Company 1
ACTIVITY BASED COSTING FOR HARVEY NORMAN COMPANY
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Activity Based Costing System for Inharvey Norman Company 2
ACTIVITY BASED COSTING FOR HARVEY NORMAN COMPANY
Executive summary
Harvey Norman Company is an Australian based company with massive operations from
its various departments and branches. The company wants to employ an effective management
and costing tool in its operations. Activity based costing is the recommended system. The report
shows the compatibility of the system to the company’s operations. The system is found to be in
line with most of company’s strategies and goals. Alternative system is also discussed. Time
based costing could be used in place of activity based costing due to its outstanding feature as
seen in the report.

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Table of Contents
Introduction...............................................................................................................................................2
Activity based costing and its features.....................................................................................................3
Definition................................................................................................................................................3
Key features of activity based costing..................................................................................................3
How activity based costing aligns with corporate strategies and objectives of Harvey Norman
limited company........................................................................................................................................4
Mission of Harvey Norman Company.................................................................................................4
Objective of Harvey Norman Company..............................................................................................4
Corporate strategies of Harvey Norman Company limited...............................................................6
Alignment of activity based costing with corporate strategies Harvey Norman Company.................8
Recommendations on implementation of activity based costing system in Harvey Norman
company‘s management............................................................................................................................9
Alternative management system that could be used in place of activity based costing........................9
Conclusion................................................................................................................................................10
References................................................................................................................................................11

Activity Based Costing System for Inharvey Norman Company 4
Introduction
Harvey Norman is a multinational retailer of furniture, bedding, computers,
communications and consumer electrical products. The company is based in Australia. It is a
franchisee of the mother company, Harvey Norman holdings limited. The company runs other
retail outlets all over Australia and outside Australia. This coupled up with the fact that different
departments of the company are managed differently, implies that the company y must be run
using the most effective and efficient. The following report will be discussing activity based
costing and management tool and its applicability in Harvey Norman Company. The evaluation
of compatibility of the system to the company’s operations is done by first understanding the
company’s mission and objectives as well as strategies laid down towards achieving the
objectives. The alignment of activity based costing system to the strategies of Harvey Norman
company is then discussed in the report. Apart from activity based costing management and
costing system, the report also addresses alternative system that can be used in the place of
activity based costing.
Activity based costing and its features
Definition
Activity based costing tool identifies company’s activities and assigns cost to each
activity with respect to resources to all products and services that each activity has consumed.
Activity based costing approach involves tracing resource consumption and costing the final
product and services in a company or an organization. ABC system appreciates the relationship
between cost, activities and products and from this relationship, indirect costs are assigned to
products. The method applies best in manufacturing sector. This is because some costs such as

Activity Based Costing System for Inharvey Norman Company 5
salaries and administrative cost incurred in a company are hard to assign (Demeere, Stouthuysen,
and Roodhooft 2009).
Key features of activity based costing
Some of the common feature of ABC costing tool that differentiate it from other
traditional costing tools are as follows.
In ABC costing method, total cost is divide into types, that is, fixed cost and variable
cost. The division of total cost is important in providing quality information to design a cost
system. The method also distinguishes the cost behavior patterns. Cost behaviors patterns are
volume related, diversity related, events related and time related (Tse and Gong 2009). The
appropriate cost drivers are identified to ensure track on the overhead to a product. The cost
drivers determine the cost behavior pattern.
How activity based costing aligns with corporate strategies and objectives of Harvey
Norman limited company
Mission of Harvey Norman Company
Harvey Norman main mission is to be the dominant company in retail of the home used
products. To acquire the largest market share all over the world is the key mission that the
company is working toward s achieving. Maintaining the growing trends in terms of financial
performance of the company is also Harvey Norman’s operational mission. The company has
been recording exemplary performance since 2013 to last financial year (Kaplan et.al. 2014).
This growing trend does the company good therefore the management aims at maintaining the
trend. The company is also focused at giving back to the society by supporting women
empowerment programs. Harvey Norman Company supports the Harvey women’s rugby team.

Activity Based Costing System for Inharvey Norman Company 6
With the company’s sponsorship the team has achieved a lot and has helped in exploitation of
women’s talents. The company is aiming at continued society participation. Harvey Norman
Company aims at being a global company with locations everywhere on the globe. Opening up
new retail outlets will increase the company’s market share over the world (Shander et.al 2010).
Objective of Harvey Norman Company
The main objective behind the formation of Harvey Norman Company is to retail hose
appliances and other furniture products used domestically. The company has over year strived to
achieve this objective. Adding and maintaining shareholders value is always another objective of
Harvey Norman Company. The shareholder’s value is added by ensuring excellent performance
of the company in terms of amount of profit generated. Harvey Norman Company has laid down
a number of strategies to improve shareholders incomes and revenues (Zott and Amit 2010).
Providing highest quality and latest design of products has always been Harvey’s objective since
its establishment. The company wants to deliver the best products such that the consumer’s
demands are fully addressed. This objective aims at keeping the company on revolution with
changes in consumer’s preferences.
The chart below depicts Harvey’s performance;

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Corporate strategies of Harvey Norman Company limited
In order to achieve the company’s objectives and to uphold its mission, Harvey Norman
Company has laid down several strategies. The company main business is to make as much sales
as possible. To improve on that, the company’s management believes that best sales person
remuneration will transform to high sales (Garrison et.al. 2010). As a result, the company has
established best commissions for its employees as well as the best working conditions and better
working terms. Harvey Norman Company most revenues have been improving since this
strategy was put in place.
To address the objective of a wider market share, Harvey Norman is opening new retail
centers all over the globe. No doubt that house hold products are in demand in every country.

Activity Based Costing System for Inharvey Norman Company 8
Especially in the developing countries, the demand for these products has not been fully
addressed. Harvey Norman Company is strategically opening up in these countries to take
advantage of this demand gaps. Harvey Norman has most of its retail centers in developed
countries where it has been performing well (Garrison et.al. 2010). This performance could even
be made better by opening in developing countries too.
The market for household products is quickly transforming. There are new innovations
each day. So as to keep up with these innovations, the company is going one step ahead of
competitors to ensure a wide range of products in their retail centers (Zimmerman and Yahya-
Zadeh 2011). This is due to divergent nature of consumers preferences in terms of designs and
quality. The companies suppliers are also filtered out depending on their innovations and
development made on their products.
Participation on society’s activities and supporting governments programs is another
strategy that Harvey Norman is deploying so as to ensure acceptability and popularity. How
acceptable the company is to its target market. The company is currently towards women
empowerment programs which are under world’s millennial goals. By so doing, the team acts as
a promotion tool (Dale and Plunkett 2017). On the other hand, more investors and customers are
attracted to the company. By participating and being successful in sports, the company has
created awareness on its existence and the products it deals with. With this popularity, the
company is in a better position to receive best supply proposal from more advanced suppliers so
that it is always at par with consumer’s trends and demands.
Alliance and franchising with other corporations is a strategic move that Harvey Norman
Company is making. Since the company is working towards expansion, it will be easier and

Activity Based Costing System for Inharvey Norman Company 9
cheaper to make alliances with other business so as to boost its acceptability and guarantee its
success in new locations. Alliances with suppliers and other m marketing companies will not
only ensure steady supply of products but will also play a great role in improving the company’s
revenues and performance trends. Franchising is the easiest way for the company to achieve
acceptability in the quickest way possible (Drury 2013). Harvey Norman’s success can be based
on the franchisee. Working as a franchisee of another company is a guarantee of consumer’s
loyalty. The company is also forming partnership with an aim of replacing is old management
infrastructure without losing its functionality.
Harvey Norman Company is also working towards strategically improvement of
management as well costing systems. With so much activities going in its various department
and also its locations, the current system is undermining efficiency (Drury 2013). A new system
that can fully address the company’s activities needs to be put in place to counter this challenge.
Alignment of activity based costing with corporate strategies Harvey Norman Company
An effective and efficient management and costing tool is all that Harvey Company
requires. Activity based costing system is ideal for this company. Its alignment with company’s
goals and strategies is discussed below. The company runs multiple departments as well as
outlets all over Australia and outside. This implies that there are many activities going on that the
company needs to evaluate. That activity based system will help the company in assigning cost
to these activities (Van Der Laan and Dean 2010).
With cost assigned to this activities, better decisions can be made on cost planning can be
reached so as to cut down the operation cost and maximize on revenues. Activity based costing
does not only help in assigning cost but it is a management tool. Harvey is on the move to open
up new retail centers in new locations. With activity based costing, the company can make sound

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strategic decisions. Activity based costing system provides the management with ample
information on the expected cost to be incurred in implementation of this strategy the expected
rewards can also be evaluated using this tool (Zutshi, Creed, Holmes and Brain 2016).
The system will also add an extra advantage to the company’s operational decisions
making process. Activity based costing can be used to evaluate the possible returns of engaging
in a certain operation or activity. This way, the company will avoid engaging in activities that
will see it in losses. Harvey’s strategy to form alliances needs a lot of information to back it up.
The benefit of this move needs to be evaluated. That’s where activity based costing come in.
with this tool; the company can point out the possible loopholes and the chances of success of
this strategy. With this information, the company can evaluate the effectiveness of this, move
towards achieving its objectives (Taticchi, Tonelli and Cagnazzo 2010).
Recommendations on implementation of activity based costing system in Harvey Norman
company‘s management
The benefits of incorporating this system as a management and costing tool over the
current systems needs to be evaluated. This will create a better picture of what Harvey Norman
Company will gain from making these changes. Evaluation of this system will also help the
company avoid unnecessary loses as a result of failure of the system (Tavana, Yazdani and Di
Caprio 2017). The limits of these systems can also be pointed out so as to come up with
necessary solutions to cope up with limits. Training the staff on the application of this system is
very vital. This strategy is new to Harvey Norman Company. Therefore creating awareness on
how to handle the system for the best results needs to be passed down to the staff. Training the
employees and management staff will ensure full effectiveness of the company (Verhagen et.al

Activity Based Costing System for Inharvey Norman Company 11
2012). The employees should also be given an opportunity to build experience on the same. With
necessary skills and experience, the staff and employs can use the tool efficiently which translate
to efficient operations of the company (Garrison and Noreen 2009).
Alternative management system that could be used in place of activity based costing
In case the activity based costing fails, Harvey Norman Company could employ time
driven activity based costing management system. The tool mainly estimates the practical
capacity of committed resources and their cost and the unit times for performing transactional
activities. The system require less information and resources as compare to activity based costing
system hence more cost effective. However, its incorporation is largely determined by the nature
of business a company engages (Shander et.al. 2010).
Conclusion
Harvey Norman’s management issue can all be solved by activity based costing. The
system as seen above is in alignment with most of the company’s strategies and objectives. The
large number of activities in Harvey Norman company makes activity based costing ideal
management and costing tool. The tool will help the company achieve its expansion strategies
and also help build more on shareholder’s value. The financial performance will also improve
greatly with incorporation of this system.

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References
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Drury, C.M., 2013. Management and cost accounting. Springer.
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accounting. Issues in Accounting Education, 25(4), pp.792-793.
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Shah, A.S., Waters, P., Weidemeier, M. and Wertheimer, S., 2014. Using time-driven activity-
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