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

This project examines the benefits of implementing the Activity Based Costing (ABC) Model for Magellan Fin Group Limited, an investment firm focused on maximizing investor returns. The ABC Model provides a more accurate and detailed approach to cost allocation compared to traditional methods, enabling the firm to identify and manage costs effectively. The project explores the features of the ABC Model, its alignment with Magellan Fin Group Limited's strategies, and its potential to improve cost control, decision-making, and overall profitability. Additionally, the project recommends the implementation of a Management Information System (MIS) to further enhance the company's performance by providing comprehensive and timely information for strategic planning and control.

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

First, by using ABC Model Magellan Fin Group Limited would be able to get in detail
information about the cost behaviour of the company. This will enable the managers of the
company to analyse costs in an effective manner and initiate control mechanisms as and
when required. The company can segregate responsibility regarding cost management to
different managers as now costs are well segregated and managers who are responsible for
specific costs can initiate the corrective action quickly. This will also improve the efficiency
of the firm as the responsible individuals are better able to take decisions if they have
autonomy and as each manager is responsible for the part of the cost, it gives them ample
autonomy.
Second, it gives management information regarding accurate costs of the products. It will
help Magellan Fin Group Limited to decide its charges relating to brokerage or commission.
It will also segregate the areas where management have to hire more employees to deliver
the services and this additional cost can be included in the product. This also helps
management to get information regarding the investments which are making losses and
thus the managers can disinvest and save resources of the firm. This will also enable
managers to find the most profitable investment and they can initiate rigorous sales efforts.
Thus, the ABC model helps Magellan Fin Group Limited to increase its profits and undertake
management in an effective manner.

One other management accounting tools suitable for the company.
The other management tool which will help Magellan Fin Group Limited to achieve its
objectives effectively and efficiently is Management Information System (MIS).
Management Information System (MIS)
It is a computerized database of business information which is prepared and programmed in
a manner that it helps in generating comprehensive information reports for every level of
management in the company. This information helps the firm to understand the
organization and eases the decision-making process for the management. These
sophisticated systems help the managers to analyse information in a well-organized
manner.
As Magellan Fin Group Limited most of the financial information is stored in computers this
enables them to effectively use MIS system. Using this will provide managers
comprehensive information regarding stock value indices, exchange rates, market futures,
the effect of fluctuations on the performance of the company, infrastructure rates globally
and other political and economic information which will affect stock prices and thereby
affect the performance of the company. This system can provide up to date information to
managers without regularly wasting time on preparing these records. This will save time and
energy. Up to date information will help management to initiate corrective actions (if
required) as quickly as possible. This will also enable the management to take advantages of
certain lucrative investments, as this system keeps management supplied with regular
information. This will ease the efforts of the managers as they don’t have to carry out a lot
of calculation as computer system does it for them and they can be sure of the accuracy of
calculations.
Stock prices are a result of a mix of factors political, economic, social, cultural,
environmental, etc. These factors interact with each other and influence the prices of
shares. The calculation regarding how these factors will interact with each other can be
better done by computers and with high accuracy. This will ease the work of managers and
they can make endless calculation by altering variables and prediction its effect on the
prices of shares. This will enable the managers to make better decisions.
It will help the managers to take planning and control decisions. Managers can predict the
future performance of different shares by computer algorithms and this will help them to
invest in high performing shares. At the same time, it will help them to make exit from the
shares which are underperforming and are giving negative returns. This will help Magellan
Fin Group Limited to increase the return of its investors. At the same time, Magellan Fin
Group Limited can initiate control decisions with the help of MIS, computer algorithms can
predict in the areas where the firms have deviated from the cost and thus initiate corrective
measures. It will also help the firm to identify the key areas and take action on a priority
basis.

Conclusion
At the end of the project, the reader knows the meaning of Activity Based Costing Model, its
features and how using it in Magellan Fin Group Limited will help the company to make
better decisions. This will not only help the company to maximise the return for its investors
but also to take decisions in an efficient manner. ABC Model helps the company to initiate
better management decisions. The project aimed at explaining how this will help the
Magellan Fin Group Limited to achieve its strategies and also about another management
tool Management Information System or MIS and how it will also improve the performance
of the firm.
List of references
https://www.magellangroup.com.au/why-global/
https://accountlearning.com/activity-based-costing-meaning-features-objectives-
implementation/
https://www.accountingcoach.com/activity-based-costing/explanation
https://www.investopedia.com/terms/a/abc.asp
https://www.inc.com/encyclopedia/management-information-systems-mis.html
http://www.yourarticlelibrary.com/accounting/costing/advantages-and-demerits-of-
activity-based-costing-abc/52617