Activity-Based Costing: A Tool for Nufarm Limited to Attain Strategies

This report explains the implementation of Activity-Based Costing in Nufarm Limited to assign costs to activities and products. It discusses the tool of management accounting and its benefits, along with recommendations and suggestions for the company.

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Management Accounting
Nufarm Limited
5/25/2018

Executive Summary
Cost accounting is the procedure of recording, categorizing, examining, briefing, and
allocating costs related with the procedure, and then creating different courses of actions in
order to manage the cost. Costing accounting is also known as management accounting. This
report will involve a detailed explanation of the tool of management accounting i.e. Activity-
based costing and how it will support Nufarm Limited Company to attain strategies.
Introduction
Activity Based costing assigns indirect costs depending on the cost driver of the product, or
the factor that makes the cost. As costs are assigned as per the product, an image starts
appearing of which process of business are acting well and which ones should be enhanced
(Rojas, 2018). This report will talk majorly about the activity-based costing and its assistance
in attaining the company’s goals and strategies. The company on which the implementation
of the cost accounting tool will be discussed is Nufarm Limited Company. Before explaining
this report will provide a brief introduction to the company and its mission and objectives in
the industry it operates. Besides this, this report will provide some recommendations in
regards to the implementation of ABC system. Further, it will provide a suggestion of the
cost accounting tool that is also used by the business to increase their productivity.
ABC system (Activity Based Costing)
ABC system is a specific kind of cost accounting methodology. Cost accounting is a part of
management accounting. Management accounting has an interior focus because it is planned
for the use by the executives with respect to making decisions (MPRA, 2011). The interior
concentration of management accounting deals with the financial accounting, whose

emphasis is on the external area. On the other hand, financial accounting is applied normally
to accounting principles to make statements planned for the third parties who are outside the
boundary of the organization (ELHAMMA and FEI, 2013). The ABC method is different
from traditional method since its fundamental focus is ion activities of the business. An
Activity-based costing method makes use of non-financial variables as well as financial
variables as the base for cost assignment. A typical ABC method makes use of more indirect
pools of cost as compared to traditional method and uses a large number of cost drivers as the
base for cost allocation (Kannaiah, 2015). There is a requirement for ABC method in the
business because the competition is the driving force whereas efficiency and productivity
remain serious topics. Activity-based costing has 2 key elements i.e. performance measures
and cost measures. ABC is said to be a practice that evaluates the performance and cost of the
activities, cost objects, and resources. Resources are allocated to the activities of business,
and then these activities are allotted to the cost objects depending on their usage. ABC system
identifies the fundamental relationships of the cost drivers to the identified activities (Zeuner,
2012).
The common concept of Activity-based costing is that activities intakes resources to create an
output. Expenses must be divided and coordinated with the activity level that intake the
resources. Precisely, the expenditure that is required to make separate units of an exact
product or service must be divided from the expenditures that are experienced to create
different services or products to assist different spenders. This departure must be self-
governing of how many items are formed or vended (Soekardan, 2016).
Features
 Activity-based costing helps in eliminating the cross-subsidies.
 The benefit of activity-based costing is performance measures. Requirements of the
managed care normally involve some needs to evaluate outcomes. Outcome measures

are said to be a performance measure and can be combined into an Activity Based
Costing system.
 Activity-based costing allocated the cost of the activity to the cost objects or reunites
the activity cost in all over the process of business.
 The information extracted from activity-based costing can be utilized in making
market, product, customer-oriented, and channel decisions.
 This system is very effective as it is helpful in managing the procedures and any
issues related to the quality of the processes.
 ABC system is the practical solution for the issues linked with traditional systems of
cost management which are now understood that are misrepresenting and imperfect.
 Activity-based costing offers an assignment network of cost flow, which offers the
cost of work activity and their cost of output to be endlessly reallocated, or approved
on only if the customers, services, or products or sometimes work activities, really use
the activity.
Background- Nufarm Limited Company
Nufarm is a company of agricultural chemical with head office in Melbourne, Australia. The
company was established in the year 1956; it was started by Max Fremder. It has around
registration of 2,100 products and markets products in approx. 1000 countries across the
world. The company manufactures phenopxies, it is a type of herbicides that manage and
eliminate weeds with broadleaf. All these goods are produced in a worldwide network
comprised of Austria, Netherlands, England, and Australia. Many other products of crop
protection are manufactured in production facilities in New Zealand, Africa, Australia,
America, Europe, and Asia. Nufarm Company has made its place in the specialty and turf
markets (municipal parks, forestry weed control, lawn care, aquatic, and golf courses)
(Nufarm, 2018).

In Australian stock exchange company is listed and in 2016 the value for its share capital was
AUD$9.16.
About Mission and Objective of Nufarm Limited Company
The Mission of Nufarm Limited is to make a better tomorrow. The company is responsible
for the decisions and actions (Nufarm, 2018). They know that the trust is the base of every
relationship and they are trying to operate ethically, responsibly, and safely in order to create
that trust among its customers (Nufarm, 2018).
Objectives
 The objective of Nufarm Limited Company is to ensure that its business activities
should provide a high level of protection to the customers and employees, and public's
safety and health along with environment because they believe that every accident is
preventable.
 The Nufarm will manage and measure the risks related with their procedures, offer
safe working situations, train and define their employees in risk-free work practice
and offer information for the management of hazards in the office and for
environmental protection.
 Managers and supervisors are responsible for the occupational health and safety of
their people and measures for the protection of the environment in the business
activities over which they possess control.
 The objective of the company is to continue their business without any negative effect
on their people, environment, and community and to strive for sustainable
development and continual improvement (Nufarm, 2018).

Strategies of Nufarm Limited Company
The concentration of Nufarm Limited Company is on the implementation of their strategy of
delivering tough development towards justifiable business developments and organic growth
in the market where they operate a business. The company’s one Nufarm Strategy is:
 The company is planning to strengthen its position in their planned market and crop
segment.
 It is focused towards establishing a complete strategic foundation
 Nufarm Limited wants to create a business which is cost competitive that is capable to
compete in the market effectively and provide improved outcomes for their customers
and clients (Nufarm, 2015).
 They want to create a tough platform to support profitable and continue growth.
 The strategy of the company is to make a better management of working capital and a
strong balance sheet (ASX, 2016)
 Nufarm Limited Company is creating a strong platform by diversifying its product
positions and a direction for the market strategy.
 It is trying to give more attention to the risk management techniques
 Enhancing their earning quality (Nufarm, 2017)
Achievement of Nufarm Limited company's strategies through Activity-based costing
ABC system is an additional technique of cost accounting that delivers the information for
decision making which lacks in the method of traditional costing. Nufarm Limited Company
should implement this system of costing in order to make appropriate decisions regarding the
cost and resources involved in different activities of the business. Activity-based costing is
not just restricted to the boundaries of business; it cannot completely displace traditional
methods of cost because it mostly fails to fulfill the requirement of financial reporting for
businesses. Activity-based costing concentrates on cost contribution to the product

production. The steps involved in the implementation of ABC system that will help Nufarm
Limited to manage the system are:
Searching Business Activities- In the initial step of the procedure activity of the Nufarm
Limited will be identified and combined together in the group of activities. Activity group
involves supporting activities that are linked to the service or product line.
Investigation of the Activities- At this step, identification of the procedure which assists a
product and avoids few of the universal imprecisions of traditional costing will be done.
Searching Business Activities
Investigation of the Activities
Cost assignment
Calculate rates of
Activities
Allocate costs to the cost
objects
Distribute and prepare
management reports

Costing system needs analysis for the activities, same to the process mapping identified in the
lean manufacturing. The analysis step will recognize the relationships of the indirect cost in
the Nufarm Limited Company.
Cost assignment- On the basis of step 1 and step 2, costs are allocated to the group of
activities. For instance, cost of human resource will be allocated to indirect management and
indirect administration costs.
Calculate rates of Activities- In the initial analysis indirect labor support or hours of indirect
labor will be included. These activities should be allocated with a value in currency.
Allocate costs to the cost objects- The time activity groups, rates, and cost are recognized
and defined, the subsequent step is to allocate the cost objects.
Distribute and prepare management reports- After completing the analysis of Activity-
based costing, the information of the cost must be located in a precise and clear manner for
process owners and cost object (Purchasing and Procurement Center, 2017).
Recommendations
 In order to implement productive activity-based costing the purpose of the
implementation must be defined first in order to avoid doubts and failures.
 For the positive results through activity-based costing system, there must be support
of all the employees and management. It is being said because employees are the one
who provides detail information of the activities of the business and management
department is the one who uses the information that is extracted from the activity-
based costing and take productive decisions.

 In order to have effective results through the implementation of activity-based costing
complete information must be gathered by the management that whether the system
will result in success or not.
 It can recommend that Nufarm Limited Company should not solely rely on the
activity-based costing as the management tool but it should also make use of other
tools in order to get more effective results for the company.
 Activity-based costing system can also utilize for understanding the profitability of
company’s rival.
 Activity-based costing is not the tool which can solve complete problems of the
company it is just a tool which improves and complement other tools of management
like business process re-engineering, Six Sigma, etc. (Qudah and Hroot, 2017)
Suggestion
From the above analysis, it can be said that activity-based costing is one of the effective tool
support in enhancing the results of management tool adopted by various companies.
Moreover, this tool of cost accounting helps in allocating the rates of the activities along with
the resources related to them. Along with Activity-based costing system of cost accounting,
Nufarm Limited can implement time-driven activity-based costing which is one more tool for
management or cost accounting. The Time-Driven Activity-based Costing (TDABC) method
is an innovative tool which is established for overcoming the problems of traditional costing
system and activity-based costing system (Kaplan and Anderson, 2007). In time-driven
activity-based costing executives of the Nufarm Limited can directly measure the resources
demand by all the activities, product, deal, transaction, or service in place of assigning a cost
to the activities and then to the products.

Conclusion
In the conclusion, it can be said that Nufarm Limited Company can implement activity-based
costing system in its business units to enhance the performance of tools of management and
the productivity of the company. This report has discussed costing and how it can be
implemented in the company to assign the cost to the activities and then to the products. The
report has recommended some important points that should be considered by Nufarm Limited
Company while implementing this system in their business units. Further, the
recommendation of time driven activity-based costing has been provided which can be
implemented as it overcomes the limitation of activity-based costing.

References
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