Application of Activity Based Costing in McMillan Shakespeare Ltd

This report discusses the practical aspects of McMillan Shakespeare Ltd and the applications of Activity Based Costing method. It explains the features of Activity Based Costing, its alignment with McMillan Shakespeare corporate strategies, and its use in the company. The report also provides recommendations for alternative management accounting tools and suggestions for the company.

Running head: MANAGERIAL ACCOUNTING
Managerial Accounting
Name of the Student
Name of the University
Authors Note
Course ID

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Table of Contents
Introduction:...............................................................................................................................2
Discussion:.................................................................................................................................2
Activity Based Costing methods and its features:......................................................................2
Alignment of Activity Based Costing methods with McMillan Shakespeare Ltd:....................4
Alignment with McMillan Shakespeare corporate strategies:...................................................4
Use of ABC Model in McMillan Shakespeare:.........................................................................5
Recommendations:.....................................................................................................................6
Recommendations of alternative management accounting tool:...............................................7
Conclusion:................................................................................................................................8

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Introduction:
The current report is associated with the understanding of the practical aspects of the
digital company that is associated with the service of providing salary packaging, novated
leasing, financing of fleet and managing service (Angelopoulos and Pollalis 2017). The report
primarily places its emphasis on the applications of the Activity Based Costing method in
McMillan Shakespeare Ltd. The Activity Based Costing is regarded as the young method of
management and recently several companies have placed their emphasis on adopting its
techniques.
Even though the concept of Activity Based Costing was created long before but it is
gained greater importance and managers of several firms have increasingly began
implementing the Activity Based Costing methods in the McMillan Shakespeare Ltd.
McMillan Shakespeare is considered as the global organization and listed among the top 200
ASX listed companies (Mahal and Hossain 2015). The McMillan Shakespeare Ltd is held as
leading single source solution provider of the salary packing, novated leasing, financing of
fleet and managing service. MMS has 21 subsidiary company and among them 15 of the
companies are incorporated in Australia two in New Zealand and four in United Kingdom.
The report would be taking into the considerations the applications of the Activity Based
Costing methods as well as suggesting different alternatives for the company.
Discussion:
Activity Based Costing methods and its features:
Activity Based costing methods is regarded as the new concepts in the theory of
managerial accounting. It is held as the procedure of assigning the costs based on the benefits
that is received from the numerous kinds of indirect activities (Cugueró-Escofet and Fito
2016). This usually comprises of the ordering, setting up the projects, quality assurance etc.

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Activity Based Costing methods is also referred as the collection of numerous kinds of
financial and operating performance information drawing authoritative activities for the
companies and its products.
The basic objective of the Activity Based Costing methods is that places emphasis to
the activities that are fundamental to the objects of costs. Activity Based Costing methods is
used as the tool of computing the costs of numerous goods and services that are produced by
a business entity (Almeida and Cunha 2017). The primary concept of the Activity Based
Costing methods is that it deals with the allocation of costs and largely places emphasis on
the allocations of the indirect costs to the objects that are generated inside the entity. Activity
Based Costing methods assigns most of the costs based on the specific cost drivers that
results in momentous influence on the procedure of allocations. ‘
The primary features of the Activity Based Costing is stated below;
a. One of the important features of the Activity Based Costing methods is that it
separates the aggregate costs and categorises it to the fixed and variable costs
(Kamala et al. 2015). These costs are held as imperative in offering superior
information to generate correct results of costs for the direct and the indirect materials
that are placed in the production procedure.
b. One of the most characteristic features of Activity Based Costing methods is that
places focus on the activities of the fundamental cost objects (Mills 2016). While the
traditional methods of costing is largely reliant on the more general purpose of the
cost system and it is not made in accordance with the requirement for differentiating
activities.
c. Another important feature of the Activity Based Costing methods is that it makes use
of the available cost information that helps in improving the overall quality of the

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management decisions (Zeff 2016). Most importantly, Activity Based Costing
methods places emphasis on the activity instead of placing emphasis on the
department.
Alignment of Activity Based Costing methods with McMillan Shakespeare Ltd:
McMillan Shakespeare Ltd medium term strategy was to move in the direction of
constantly refining the core business activities to generating the organizational growth,
selectively diversifying the streams of revenue and promoting the development and
increasing its product for the benefits of its clients (Vasarhelyi, Alles and Kogan 2018.).
McMillan Shakespeare Ltd constantly takes into the consideration the strategic value adding
acquisition in the complementary sectors of the market to align with business value
proposition that is subjected to market conditions.
As the business of the McMillan Shakespeare Ltd constantly expands in the digital
transaction channel to streamline it procedures it also looks forward to increase the
operational efficiencies (Gitman, Juchau and Flanagan 2015). The McMillan Shakespeare Ltd
looks forward to cut down the average costs by serving its customers in increasing its
customer’s base.
Alignment with McMillan Shakespeare corporate strategies:
The Australia’s most leading global business organization aims to provide its
customers with improved options of self-servicing to not only improve the experience of
customers but also it is central to the McMillan Shakespeare strategy is making an investment
in the technology to create productive gains and margin growth (Ellul et al. 2015). The board
of McMillan Shakespeare undertakes the annual strategic review and lay down the strategy
agenda for the organization. Additionally the asset management business primary objective is

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maintaining the continuity and the flexibility in funding with the help of committed revolving
of bank facilities.
Credits usually originates from the cash and cash equivalent. Therefore the deposits
made in the banks along with the exposure from the outstanding receivables and risk related
with the interest and currency swaps. The most important ways of delivering the strategic
corporate strategy is by promoting the dynamic management indulgence so that it can
improve or increase the overall performance of McMillan Shakespeare (Schaltegger and
Zvezdov 2015). The company manages the exposure from the volatility interest rates through
the help of group’s treasury and policies of pricing. With the help of these business functions,
McMillan Shakespeare wants to offer an exemplary single source solution provider so that it
can operate with similar level of competitiveness and offer the rightful service to its
customers. Therefore the Activity Based Costing can be considered as the helpful means of
attaining the corporate objectives as well as the strategies of McMillan Shakespeare.
Use of ABC Model in McMillan Shakespeare:
The applications of the Activity Based Costing model in McMillan Shakespeare
would be considered as the better move of minimizing the cost (Christ and Burritt 2015). The
application of the Activity Based Costing would help in reducing the cost of the company. In
the modern age of innovations and modernization where most of the organizations places
their focus on attaining the pat of continuous growth in the products and services by setting
down the benchmark in its business activities (Chak and Fung 2015). It can be stated that
McMillan Shakespeare must consider application of the Activity Based Costing since it
would help the company with corporate strategic objective of accomplishing and improving
the activities of the business value chain.

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The application of the Activity Based Costing would help in continuous monitoring of
the costs associated to the activities of the undertaking the improved decision making (Taleb,
Gibson and Hovey 2015). The application of activity based costing would help in drawing
greater amount of revenue for the company. Since the company is engaged in the process of
rendering services, implementing the Activity Based Costing would help the company in
eliminating the unnecessary costs. The application of teh Activity Based Costing would
require a thorough understanding of the operations department costs that are associated in
reading the product and services (Otley 2016). The application of the Activity Based Costing
would help in selection of the appropriate method of supporting the department with cost
allocations. Therefore the above stated methods would helpful for the McMillan Shakespeare
in completing each of their cost driver to the concerned departments.
Recommendations:
The implementation of the Activity Based Costing is the McMillan Shakespeare ltd
requires inclusive amount of backing from the management of top level of the company
commencing from the higher level authority to the subordinate level. Until this kind of
support is lend to the Activity Based Costing no kind of management accounting tools along
with the applications of the Activity Based Costing is not possible (Fullerton, Kennedy and
Widener 2014). As a result of this, there is a requirement of extensive amount of backing
from the higher level management of McMillan Shakespeare that turns out to be
indispensable affairs. It is recommendations that the support to Activity Based Costing can be
lend through active participation of the management in application of the Activity Based
Costing which ultimately makes a successful method of cost allocations.
The application of change in any form of business is always met with lower level of
acceptance from the current set of staff of the organizations. Given that the applications of the
Activity Based Costing is not made adequately then the management may not be able to yield

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effective amount of support to the company (Otley 2016). It is the duty of the management to
educate the ground level workers or the ground level functionaries regarding the changes in
the process of costing system. Engaging with the subordinates and educating regarding the
applications of the Activity Based Costing would help in reducing the resilience of the staff.
Therefore, for better application of the Activity Based Costing it becomes obligatory for the
management to assure that employees in the McMillan Shakespeare are well aware of the
application of the Activity Based Costing.
Recommendations of alternative management accounting tool:
A recommendations can be provided regarding the application of the absorption
method of costing for the McMillan Shakespeare as the substitute of the Activity Based
Costing. Absorption costing is regarded as another method of cost accounting that is used for
determining the valuation of the inventories (Fullerton, Kennedy and Widener 2014). The
absorptions costing takes into the considerations all the different forms of costs that are
associated with the products and services along with the fixed and variable costs. This usually
comprises of the costs that are involved in the direct materials or the direct labour. These
costs are usually included in the products pricing.
The adoption of the absorption costing as the alternative to the Activity Based Costing
methods would provide the McMillan Shakespeare ltd with the opportunity of more exclusive
and the precise view of the cost that are involved in the production of the product goods or
inventory (Schaltegger and Zvezdov 2015). This methods would assist the company in
providing the inclusive understanding of the costs to generate the goods and services. The
absorption costing methods would help the company in allocating the direct costs are
involved in the services that are rendered by the company or the products produced.

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In the current situation the absorption costing relating to all the services that are
rendered by McMillan Shakespeare (Gitman, Juchau and Flanagan 2015). The company can
directly assign the costs of services rendered to the cost units. Furthermore the application of
the absorption costing methods would offer McMillan Shakespeare with the opportunity of
allocating all the different directs costs of the production. Therefore, the application of the
absorption costing would be helpful in making an accurate costing system for the McMillan
Shakespeare.
Conclusion:
On a conclusive note it can be stated that primary objective of preparing the report is
about understanding the procedure of the place a relative amount of effort on the activity
based costing in the single solution provider company of McMillan Shakespeare. The report
primarily placed emphasis on gaining an understanding of the application of the Activity
Based Costing along with its significant features and procedures of applications.
The report comprehensively provides the justification of the application of the
Activity Based Costing in McMillan Shakespeare Ltd based on the cost allocation objects.
The report provides a detailed analysis of Activity Based Costing and also considered an
understanding of area of manufacturing that was helpful in providing valuable advice to the
company.

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