Activity Based Costing Model for Magellan Fin Group Limited: A Comprehensive Analysis

Executive summary
The project provides an analysis of benefits of ABC Method for the Magellan Fin Group
Limited. By using ABC Method, the firm would be able to manage its cost efficiently by
controlling and eliminating unnecessary costs. This system will help the company to achieve
its strategies and objectives. Additionally, there is a recommendation that the company
should implement Management Information System. This system will help managers to
manage the enterprise in an efficient manner by using computer systems to plan and
control the business of the company.
Table of contents
Introduction
The project is about an investment firm Magellan Fin Group Limited and the use of Activity
Based Costing Model or ABC Model in the firm. It explains how under traditional costing
methods costs were assigned by materials used, labour or machine hours and now with the
use ABC Model firms can classify costing in much more scientific manner. Magellan Fin
Group Limited aims at increasing the returns for its investors and doing this in a sustainable
manner. ABC Model helps a firm to segregate costs in an optimum manner and thereby
helps the firm to reduce its costs and undertake better decisions. In the end, there is
information about Management Information System or MIS and how it will help the
company.
ABC Model and its features
ABC Model or Activity Based Costing Model is an accounting technique which identifies the
activities that are being performed by the firm and then it assigns indirect costs to products.
It assigns costs less capriciously to products than the traditional methods of costing. It is
mostly used in the manufacturing sector where it becomes most difficult to assign costs and
arbitrarily assigning costs to lead to inconclusive results.
In traditional costing where indirect or overhead costs were assigned on the basis of
machine hours or direct labour hours or materials consumed to products. Under ABC Model,
costs are assigned on the basis of batch, product, customer and unit level activity. It gives
Magellan Fin Group Limited a better way to assign the costs and undertake the better
management of the costs as the firm can accurately know which product is actually incurring
more costs than it is able to payback.

ABC Model will assist Magellan Fin Group Limited to assign its costs in a more effective
manner. It helps businesses to correct imprecise cost information and helps in assigning
costs on activity basis which is much closer to actual costs incurred rather than just dividing
the costs among products. Finally, such a system helps management of the firm to
undertake decisions which are well informed. Since information available is easily
understandable it reduces the time to make decisions.
Features of ABC Model
It is a costing model which instead of being based on traditional system and assigning costs
in an arbitrary manner assigns costs in a scientific manner based on different activities based
time, batch, product level activity etc.
The total cost instead of being assigned in an arbitrary manner they are assigned in a
scientific manner. This enables the firm to know the exact cost that is being incurred to
produce a particular unit of product which was not possible under tradition costing system
Magellan Fin Group Limited can make a proper distinction between cost behaviour patterns.
As different products require different activities to transform it into the finished product.
When these costs are properly or scientifically assigned, this helps us to make proper
distinctions.
Costs are assign based on multiple activities rather than just volume that is labour or
machine hours. These activities include Diversity related, events related, time-related, etc.
The cost drivers dictate how costs will be assigned. This means there is the certain driver of
costs that is an activity which causes changes in cost. Costs instead of being divided
capriciously are divided based on the cost drivers. Costs are divided in the manner in which
they have been incurred to produce a specific product.
It is based on in-depth knowledge regarding production as production costs are incurred at
multiple points. So, this is not just the activity of costing or finance department but of
departmental heads, supervisors, foreman, etc. It requires cross-functional involvement. Of
departments to assign costs.
ABC model aligns with the current goal and strategies of the company
Mission and objectives of Magellan Fin Group Limited
Magellan Fin Group Limited has established a track record of creating and protecting the
wealth of its investors. Magellan Fin Group Limited aims at maximising the returns of its
investors and to do this by keeping the risks at the lowest. As the equity market is highly
volatile this requires better risk management mechanisms to keep losses at bay. Magellan
Fin Group Limited purpose is to achieve its goals that are giving sustainable high returns to
its investors. Though over the next decade different industries will prevail the Magellan Fin
Group Limited mission statement will still be the same.

Magellan Fin Group Limited aims to achieve long-term capital growth that is growing value
of investments in the long run and thereby increasing the value for its investors, to ensure
stable income for its investors, as a lot of investors rely on this money for their day to day
expenses it is a form of salary for them, maximising the total return for its investors and at
the same time to keep risk under control. So that the company can offer highest returns
with lowest risks.
Corporate strategies
Magellan Fin Group Limited manages global equity an infrastructure funds. In both
categories, the company offers listed and unlisted options. By the term listed options, the
company means listed investment trusts or active Exchange-traded funds found on
Australian Securities Exchange. The other options include hedged or unhedged returns in
Australian dollars. The global equity funds of the company offer attractive risk-adjusted
return over the medium term to long term and it reduces the risk of permanent capital loss.
The global infrastructure funds of the company offer stable earnings, protection from
inflation and a reduced risk of capital losses.
Role of Activity Based Costing Model in achieving Magellan Fin Group Limited strategies
ABC Model will help Magellan Fin Group Limited to achieve its strategies. With better
control over costs and proper analysis of costs of the firm will enable the managers to
reduce its costs and also to keep them under control. It also divides costs, which help
managers to manage the costs in an efficient manner. This enables managers at each
department level to keep in check the costs for which they are responsible and thereby it
improves the method of cost control. The proper segregation of costs is necessary for every
business to maintain effective cost control and this method ensures that segregation. This
will help the company to keep its cost under check and thus, increasing its investor return.
The effective use of ABC Method helps the firm to carry out better management, divides
responsibility which helps in faster decision making and ensures overall growth of the
organisation. This method helps Magellan Fin Group Limited to keep track of its investment
costs and thereby helps the company to achieve its strategies.
Two recommendations about the implementation of ABC model for the company