Activity Based Costing Model and Its Implementation in Qube Holding

HI5017 Managerial Accounting
Trimester 1 2018
Individual Assignment

Qube Holding
Executive Summary
The system of costing has undergone a huge change and in order to derive the benefits it is
essential that the company need to embrace the modern costing system. Such a step leads to
proper allocation of cost. In this report, the system of Activity Based costing is discussed and
the company selected for the purpose is Qube Holding, listed on the ASX. The report is
discussed in the light of this company that initiates with the ABC system followed by the
benefits derived by the company through the use of ABC. Further, other alternative methods
are even discussed. The analysis gives an indication of the potential that consists in the
modern cost accounting system.
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Qube Holding
Contents
Introduction...........................................................................................................................................3
Activity-based costing model and its features.......................................................................................3
Allocating the ABC model with the current goals of an organization....................................................4
Implementation of Activity-based costing model step by step..............................................................5
Ways through which Qube Holding Limited can utilise it......................................................................6
Significance of Activity-based costing model in Qube Holdings Ltd.......................................................6
Using the Activity-based costing model so as to enhance the structure of top management...............6
Technological influence and utility of ABC model.................................................................................7
Recommendation regarding installation of ABC Models in Qube Holding............................................8
Accounting tools used by the management other than ABC model......................................................8
 Marginal costing............................................................................................................................9
 Absorption costing.........................................................................................................................9
Conclusion...........................................................................................................................................11
Bibliography.........................................................................................................................................12
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Qube Holding
Introduction
A huge portion of indirect costs was aligned to the manufactured goods in the traditional
accounting method which was later on observed that such costs are not utilised equally by all
the manufactured goods and therefore the ancient accounting approach was not able to
effectively evaluate and calculate the exact costs associated with the production of such
goods and related services. This also means that the decision taken based on the data
evaluated through such approach might be inappropriate. ABC model is employed so as to
ascertain the total costs assigned to the production of a particular product line and related
services. ABC model not only helps in the identification of evaluation of costs associated
with every activity but also finds out the extent of such activities utilised by particular goods
and services. Therefore, the activities that employs high overhead costs are ascertained which
further helps the management in finding measures for reducing such unnecessary overhead
costs
Activity-based costing model and its features
Unlike the traditional costing approach where the allocation of costs was simply on the
machine hours, Activity based costing model distributes manufacturing overhead costs to
goods in a more systematic and appropriate manner. The activities that are the ultimate cause
of the overhead are first assigned costs through ABC model. Later the products that are
actually demanding the activities are assigned the cost of these activities1.
ABC model forms and facilitates a very casual relationship between the cost drivers and
indirect costs unlike traditional cost price systems. A transparent and cost-conscious conduct
is initiated by passing on this insight to the responsible cost drivers. The installation of ABC
model makes it easier for the company’s top management and personnel to have an
understanding of the different cost categories and determining activities that adds value to the
goodwill of the company. It also helps in evaluating and eliminating such activities that
depleted the value of the organization. This way Qube Holdings Limited can look for the
1 Petty, J. W, Titman, S., Keown, A. J., Martin, J. D., Burrow, M. and Nguyen, H. (2012)
Financial Management: Principles and Applications, 6th ed. Australia: Pearson Education
Australia.
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