Application of Activity Based Costing in Oohmedia Company

Managerial Accounting1
APPLICATION OF ACTIVITY BASED COSTING IN OOHMEDIA COMPANY
Student by (Name)
Professor’s (Name)
College
Course
Date

Managerial Accounting2
APPLICATION OF ACTIVITY BASED COSTING IN OOHMEDIA COMPANY
Introduction
The management of a company is essential for its performance. Management staffs of the
various companies spend a lot of money in training their personnel during every financial year.
Sometimes the training is considered to be expensive if compared to the output and profit made
by them. For this reason, most companies have decided to come up with different management
tools which form part of the management system. A good example is the Ooh media company in
Australia which has a plan for implementing the Activity Based Costing (ABC) and train the top
leadership within the company. The report, therefore, talks about this management tool and how
it can be applied with the line of the company's strategic plan .Different recommendations are
also given to direct the company on the full implementation of this kind of management tool.
The report also acknowledges that apart of Activity Based Costing (ABC), there are also other
types of the management tools in companies. Some of these include Time Driven Activity Based
Costing (TDABC) and Balanced Score Card methods. The implementation of the ABC in the
ooh media company, the company will be able to maximize its output at the same time a sign
every product to the attached cost and the time required to attend to it. This new system is much
efficient than the traditional management methods which use the manual ways of attending to the
products. The new management tool will bring a lot of improvement to the oohmedia company
in Australia. Being one of the advertising companies in the country, the Activity Based Costing
will be of great importance to its operations. For this reason, the company should move with
speed to ensure the full implementation of this new system.
Explanation of ABC model and its features

Managerial Accounting3
The Activity Based Costing is a management method which identifies and assigns the
cost of the respective activities. The assignment of the costs is then done to the products. The
system recognizes the relationship that exists between the costs and the assigned activities with
respect to the manufacturing products. Activity Based Costing plays a very great role in the
management system (Beebe 2018). The assigning of the cost to the activity together with the
products assist a lot in time management during the manufacturing process. Through the
assigning of the cost to the activity with respect to the products, the system is considered
effective than the traditional methods. In the current practice, some of the costs were considered
difficult to assign through the method. For example, indirect costs which include the
management and salaries of the staff are also difficult to assign using the same method because
they keep on changing. For this reason, the method has been very effective both in the
manufacturing and the management sectors of the company (Fatah 2013). The Activity Based
Costing is mostly used in manufacturing and management sectors. This is due to its reliability in
cost data, which help the company to produce the true cost. The other reason for its application
in manufacturing industries is because it has a better way of classifying all the cost incurred by
the company at the production stages. The Activity Based Costing is also used in the target
costing, cost related to products, the analysis of the product line with its profitability and the
service pricing of the company. The companies and cooperate also uses the tool in the
formulation of the strategies for the quality services (Hitchner 2010).
Features of the Activity Based Costing (ABC)
The Activity Based Costing is an accounting and management tool that was designed by
the two scholars that are Kaplan and Coopers. This new system has a variety of features that
make it efficient for its functionality. The following represents some the features that make the

Managerial Accounting4
Activity Based Costing suitable tool for use in the management system (Kaplan Robert 2012).
The ABC's system has two types of total costs. For the quality information, this new system is
divided into two types. These include the fixed cost and the variable costs. The classifications
help the system to design the suitable cost system for the quality service delivery.
The cost behavior pattern has a proper distinction between them
The behavior pattern regarding cost different related systems. These include the volume
of the products, the relationship regarding system diversity, and the activity related issues and
finally the time for the events. The overhead to the product is identified by the appropriate cost
drivers at the same time these drivers must always dictate the cost patterns (Marks 2012).
The above features make the Activity Based Costing to be more effective by some
companies. Each product is assigned an appropriate cost together with the overhead time. The
managerial staffs and the Chief Executive Officers on some occasions have proposed the use of
the Activity Based Systems in their management system (Mohammed 2011). A company that
utilizes this method of the management system is in a better position of improving on the quality
and service on its operations. Under this new method, there is two important classification which
is short-term variable costs and the long-term variables costs respectively. The short-term
allocation uses the products allocation to the related products volume costs. These include the
following: the labor hour, the direct costs methods and working hours of the machine of an
industry (Salem and Mazhar 2010). From the Kaplan and Coppers recommendations, the
volume-related costs are not used for the long-term classification. This is because the long-term
has a lot of complexity in the running of the business.
Implementation of the Activity in company’s Management System