Activity Based Costing Model for Cochlear Company Limited

Activity Based Costing 1
ACTIVITY BASED COSTING
By (student’s Name)
Professor’s Name
College
Course
Date

Activity Based Costing 2
ACTIVITY BASED COSTING MODEL
Table of Contents
EXECUTIVE SUMMARY...................................................................................................................3
Introduction................................................................................................................................... 4
ACTIVITY BASED COSTING AND ITS SALIENT FEATURES.................................................................4
How the ABC Model aligns with the organization's goals and strategies......................................6
Mission and objectives of the organization................................................................................6
Objectives of the Cochlear Limited............................................................................................6
Corporate strategies adopted by Cochlear Company Limited....................................................7
How the Activity Based Costing model would help the company achieves its strategies..........8
Recommendations to Iron Mountain Incorporation on the adoption and implementation of the
ABC model..................................................................................................................................... 9
The alternative accounting tool that Cochlear Company Limited can adopt...............................10
Conclusion................................................................................................................................... 10
References................................................................................................................................... 12

Activity Based Costing 3
EXECUTIVE SUMMARY
The main purpose of this paper is to identify some of the benefits that Cochlear
Company limited might obtain through a consistent and effective adoption and application of
the Activity Based Costing (ABC) as it aims at minimizing costs and ensuring efficiency in its
processes and activities. Cochlear company limited can thus apply the use of the ABC model to
identify the costs related to its production activities that cannot be accurately captured and
reported through the adoption and application of the traditional costing systems. Through the
use of the ABC system, it can successfully bring in standardization in its operations and
processes since uniformity is not always a culture practiced in most of the practicing
organizations. The activity-based costing model thus will act as a catalyst to Cochlea’s
developments, through office computerization and accounting as well as the ERP
implementation. The adoption of the traditional enterprise accounting system, numerous tasks
involving non-computerized accounting was practiced, whereby bookkeeping dominated
extensively by outsourced reporting activities. Through the traditional costing methods,
inaccuracy of product costs also becomes inevitable, thereby hindering the company’s ability to
compete on pricing favorably. This also resulted in a reduction in the company’s revenue
streams.
Therefore, the critical roles that would prove to be beneficial to the organization,
through effectively and efficiently adopting and applying the ABC model, would be the ability to
directly trace direct labor costs to their products as well as being able to allocate production
overheads efficiently.

Activity Based Costing 4
The ABC model would thus help the organization to effectively and efficiently utilize the
available resources, though scarce, to adequately apportion job costs about their usability and
availability for producing a single product to each cost unit of the product.
Introduction
Despite the many challenges that come with the adoption and implementation of the
Activity Based Costing model, Cochlear Company Ltd can maintain cost leadership if its approval
gets goodwill from the management as well as the user department and the staff. This model is
an activity cost-oriented model, can help to quickly identify the avoidable costs within the
processes thereby helping the management make informed decisions as well as take
appropriate measures to mitigate against them or overly reduce them to manageable levels
(Weiner, Tu, Javan and Taheri 2018). Through this value will be added to the chain of activities
in production. The company will, therefore, be able to compete favorably regarding pricing
since the cost factors within the product chain would have been reduced or avoided. It will also
be able to maintain cost leadership through reduced costs. In the long run, the overall goals of
maximizing its profitability will be achieved. The value will also be added to customer focus
activities including improving the quality of their products as a result of decreased costs.
ACTIVITY BASED COSTING AND ITS SALIENT FEATURES
This is a costing technique that effectively allocates overheads to those activities which
it relates to in the organization. It can as well be used for the overall reduction of overhead
costs. The model can be best applicable in organizations harboring much machinery, producing