Activity Based Costing for Lynas Corporation

This paper discusses how the implementation of Activity Based Costing can help Lynas Corporation improve its performance and profitability. It explains the features of ABC, how it aligns with the company's strategies and goals, and provides recommendations for its implementation. It also suggests an alternative management accounting tool appropriate for Lynas Corporation.

Activity based costing 1
ACTIVITY BASED COSTING
By (Student’s Name)
Professor’s Name
College
Course
Date

Activity based costing 2
ACTIVITY BASED COSTING
Table of Contents
ACTIVITY BASED COSTING...........................................................................................................................1
Executive summary.....................................................................................................................................3
Introduction.................................................................................................................................................3
Explanation of Activity-based costing and its features................................................................................4
How Activity based costing aligns with strategies and goals of the Lynas Corporation...............................7
Mission and objective of the Lynas Corporation.....................................................................................7
Corporate strategies of the Lynas Corporation........................................................................................7
An explanation of how Activity-based costing enables Lynas Corporation to achieve its strategies.......8
Recommendations regarding the implementation of the Activity-based costing model for Lynas
Corporation.................................................................................................................................................9
Alternative management accounting tool appropriate for Lynas Corporation..........................................10
Conclusion.................................................................................................................................................10
References.................................................................................................................................................12

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Executive summary
The costs perform the essential role in the development of any corporations’
particularly in the sector of industrial. A suitable management accounting system of the
company should be consistent with the commitment of the corporate. The management should
also be able to perform its underlying activities by lead time, quality and cost. The paper look at
how the Lynas Corporation should implement the use of the Activity-based costing system to
enable more identifiable and accurate cost information appropriately. The primary focus of this
paper is to discuss in detail how the application of the Activity-based costing can help the Lynas
Corporation to improve its performance. It is also clear that the use of the ABC does not allow
for the improvements of processes or reduces the expenses of the organization. The
implementation of the ABC system into the organization only lays the foundation for the
advances of a process as well as refining information on cost. The paper also presents
appropriate recommendation that the management at Lynas Corporation should apply to
ensure effective implementation process. There is also an explanation of the best alternative
model that is capable of increasing the performance of the organization.
Introduction
Lynas Corporation is a mining Company that has gone through various changes for the
past few years. The business uses a significant amount of equity funding and debt in
establishing both the processing plant and mine, but the return on the investments was still
low. The production department of the organization was also unstable. This is because there
are high costs that are associated with particular activities that the organization performs. The

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current market price of its products also kept on fluctuating in the market. The organization
experiences all these changes because the organization’s ways of operation and corporate
structure were not in line with the modern market settings. Also, production and some of the
activities that the organization performs were hindered by legal challenges and operating
challenges. Therefore, to ensure that all the problems that face the organization are solved, the
management has to developed appropriate model that will help in resetting the cost base of
the Company as well as improving their functional performance while trading in the market.
The management should also ensure that the traditional strategic framework that is in place
support the financial house of the organization. Most of the issues that affect the Lynas
Corporation relate to decisions regarding allocation of costs to activities. I will advise the
management to implement and use the Activity-based costing model. This model will enable
the organization cut the operations cost and increase the efficiency of the business. All these
processes will ensure that there is the effective decision-making process in the organization. To
help explain how Activity-based costing will enhance the performance of the Lynas Corporation;
the paper is separated into different sections with each part narrates issues that deal with the
implementation process. There is an indication of accounting tool that can be used together
with the ABC to facilitate the performance of the organization.
Explanation of Activity-based costing and its features
ABC is the method of accounting that allocates costs to commodities, and the allocation
process depends on the resources that are used in the process of production. Kaplan and
Cooper introduced the concept of ABC system in the year of 1987. Activity-based costing is an

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approach that helps in the accurate allocation of overhead to the activities that use it (Taticchi,
Tonelli and Cagnazzo 2010). The use of the ABC brings about the improvement in performance
of all the organization. It causes an increase in the Organization’s financial performance
explicitly. This approach is mostly being used to assign costs to services and products which
depend on the resources and activities used. This approach uses cost drivers to apportion the
value of different commodities (services as well as products). Activity-based costing model not
only enhances the accuracy of various services and products, but it can also assist managers to
have a good understanding on how to use the unlimited resources through financial
performance, for example, the use of bottom line statement (BLI) and return on investment
(ROI). ABC is the approach that will provide the organization with the accurate method of
managing costs (Bauer et al. 2018). Activity-based costing uses innovative techniques to
measure values of business activities as well as processes to allow for the cost saving of the
individual organizations as well as the overall supply chain. Activity-based costing can be viewed
in different ways. It can be considered to be in process view as well as cost assignment view.
The cost assignment view offers information on activities, cost object, and resources (Amid,
Ghodsypour and Brien 2011). The process view provides nonfinancial information about the
events that are for the business as well as the business process.
The figure below shows a representation of the two views

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According to Kaplan and Cooper Activity-based costing display the following features or
characteristics: ABC divides the TC into variable cost and fixed cost which is crucial in the
provision of the accurate data to help in developing appropriate cost system, the model made
distinction by use of design of cost behavior, the approach restrict the identification of the cost
drivers to assist in finding the overhead of a particular product, and lastly, the cost behavior is
dictated by the cost drivers (Zimmerman and Yahya 2011).

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How Activity based costing aligns with strategies and goals of the Lynas
Corporation
Mission and objective of the Lynas Corporation
Lynas Corporation strives to be a universal leader in RE (Rare Earths) for a maintainable
future (Hellman and Duncan 2018). Lynas Corporation fulfills this by seeking for the workforce
and then meeting the requirements of their customers (Phua and Velu 2012). The company also
aims at investing in the communities where it operates as well as protecting the environments
where the operation of its activities takes place. The vision of the Lynas Corporation is to be the
best in the industry.
The main objectives of the company include: development and exploration of Rare
Earths deposits, The Company also aim at survey for other mineral resources, and designing,
planning as well as the construction of the plant in the western parts of Australia. Another
objective of the company is to facilitate the development of the modern processing plant to be
used in the distribution and production of REO (Rare Earth Oxide). The company has a goal of
committing zero damage in their workplace (Du and Graedel 2011).
Corporate strategies of the Lynas Corporation
Lynas Corporation has a policy of creating reliable, as well as becoming number one
supplier of Rare Earths in the market. The Company also focuses on growing the benchmark for
environmental standards and distributor of security in the global market. The company also
makes debt and structured agreement with its lenders (Meyer and Bras 2011). This kind of deal
will take the company to the next level. Lynas has a framework useful in concentrating
workforce, and this process will ensure that there is a rise in revenues and ensure profitability

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of the production. There is also diversity in the organization. This type of strategy provides that
the organization received varied experience to enrich the discussion process of different issues
in the organization (Long, Van Gosen, Foley and Cordier 2012).
An explanation of how Activity-based costing enables Lynas Corporation to
achieve its strategies
Lynas Corporation will depend on the inventive and strategic method of accounting as
used by the Activity-based costing to remain profitable in the competitive industry. This method
of cost accounting will enable the Company assess, analyze, evaluate and collect the overall
investing as well as spending habit, with the intention of informing the management of ways of
reducing the operational costs (Relich and Pawlewski 2018). The model will enable the Lynas
Corporation a good understanding of its values as well as the actual factors that initiatives these
costs. When both the employees and the Managers can identify the correct costs of activities,
they should then use them in the decision-making process. Due to the rising competition in the
market, the use of the model will assist the organization to improve or maintain their
competitiveness in the market through the use of information on costs that will always be
correct and accurate when the ABC model is used in the production process (Tavana, Yazdani
and Caprio 2017). The approach will enable the organization to use more suitable accounting
information (ABC) to control and planned its operations which will always reflect the actual
costs of the services as well as the product of the company. When the company employs the
use of the model, the costing system will provide accurate information which essential for
managing the decision is making (John, Cullen, Jülicher and Price 2018). ABC will assist the
Company to fulfill its target because the management will be able to increase its profit by

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saving the resources, time, and money of the business. This approach will significantly assist the
organization in this environment where Lynas Corporation operates costs is the significant
factor that the organization needs to consider during their daily operation. The use of the
approach will also enable the organization to improve its financial performance (Brogi et al.
2018). The adoption will help the Company in making precise cost analysis, thereby assisting in
the specification of constraints and reducing unnecessary costs. The technique will allow the
organization to enhance their work process and perform according to the ISO 9000. This will
give their customers enough confidence which then lead to increase profitability. The
customers will be sure of getting quality products (Ahmadi, Ghahramani, Becerik and Soibelman
2018).
Recommendations regarding the implementation of the Activity-based
costing model for Lynas Corporation
Effective communication is essential at all the departmental level of the organization.
The firm should ensure that it communicates the deficits of the costing system that they are
using, the effect of this alteration in the decision making by the management. The organization
should also explain how the new approach can be used to offer accurate information on costs
of particular activities in the organization. The organization should also state the effect of the
new model on the rewarding and valuation of all the employees. Because communication
involves getting feedback, the concerns of the employees should be addressed (Zhuang and
Chang 2017).
The management should also look at the issues of the people particularly the employees
that they will raise concerning the implementation of the Activity-based costing system as the

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new costing system (Leahy et al. 2017). This may include looking into the issues that the
managers may forward that may prevent them from facilitating the changing process. It is also
essential for the organization to address the influence of the new model on compensation
system and measurement of performance. The existing performance metrics need to be
revised, or new one devised, based on the data collected during the activity-based costing
implementation (April and Murray 2017).
Alternative management accounting tool appropriate for Lynas
Corporation
The most suitable management tool that the Lynas Corporation should use instead of
the Activity-based costing is the Activity-based management. The organization can even use the
two management tool at the same time since the approaches work best together. ABC system
will perform the arithmetic of costs with the intention of providing precise cost information,
while the focus of activity-based management (ABM) will be on using the information provided
by the ABC system to manage different activities in the organization (Wang et al. 2018).
Conclusion
The implementation of the Activity-based costing can solve the challenges that the
Lynas Corporation are facing. The approach will provide precise cost information to the
management thereby improving the decision-making process. The paper also discusses some of
the advantages that ABC system will offer to the organization. Some of the benefits conferred
are the improvement of the decision-making process as well as increasing the profitability of

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the Company. Activity-based costing is more suitable for all the organization as it helps in the
allocation of activity costs.

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