Activity Based Costing Model for Origin Energy

This paper discusses a modern approach to apportioning the exact cost of energy to a given cost center or product in the Company known as the Origin Company. Activity-based costing which is useful in the identification of particular cost drivers and after that assigns costs depending on the details of the product mix, facility’s equipment, and operation.

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ACTIVITY BASED COSTING MODEL
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ACTIVITY BASED COSTING MODEL
Table of Contents
Executive Summary.....................................................................................................................................3
Introduction.................................................................................................................................................3
Explanation Activity-based model and its features......................................................................................4
Explanation of how Activity-based costing aligns with the goals as well as strategies of the Origin Energy
.................................................................................................................................................................... 6
Objectives and mission of the Origin Energy...........................................................................................6
Corporate strategies of the Origin Energy...............................................................................................6
Explanation of how Activity-based costing system enables Origin Energy in achieving their strategies. 7
Recommendation about the implementation of Activity-based costing model for Origin Energy..............8
Appropriate management tool suitable for Origin Energy apart from Activity-based costing model..........9
Conclusion...................................................................................................................................................9
References.................................................................................................................................................11

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Executive Summary
This paper discusses a modern approach to apportioning the exact cost of energy to a
given cost center or product in the Company known as the Origin Company. Activity-based
costing which is useful in the identification of particular cost drivers and after that assigns costs
depending on the details of the product mix, facility’s equipment, and operation. The paper will
use ABC method to allocate the values of energy in the chosen manufacturing environment.
This approach can also help the organization to predict and analyze the amount of energy used
in the industry. The costs of energy at Origin Energy located in Australia are applied as an
illustration of this modern model. This paper uses the principle of ABC system explicitly to
comprehensive energy management and energy costing in the organization. This paper also
discusses the recommendation that the Origin Energy should put in place to ensure that this
management accounting tool is appropriately implemented in the organization. Lastly, the
paper enlightens another model that can also help the Origin Company to achieve most of its
strategies.
Introduction
Origin Energy is one of the Listed Company in Australia. The Company undertakes the
energy business. The organization consumes the massive amount of resources, and the cost of
energy is also increasing, and the prediction is that the trend will continue even to the future
years to come. The constant changes that happened in the sector of energy and necessitate
them to acquire relevant information useful in decision making, need a rethinking on the type
of the costing system that the Company should apply to be active in the industry. Due to the

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financial and economic manifested in the sector, Origin Energy must discover ways to stay
strong as well as reducing costs; ensure that its activities continue as usual in the industry with
the role of becoming best of the best in the industry. Therefore, the company requires different
measures to enhance the information system as well as ensuring that the operational track
most of the costs in the company. The complexity of the organization and other different
challenges such as ways to monitor the energy within the processes necessitate the
organization to model the systems, but the system Complexity will make the organization to
suffer more costs regarding information and time to facilitate the creation of the model. At the
same, most of the organization such as the Utility Companies begins to implement modern
technologies to facilitate the distribution of energy. The most favorable management
accounting tool that will enable the Origin Energy to solve most of the issues that affect its
operations and be relevant in the industry is the adoption of the Activity-based costing model.
This approach will enable the management to verify whether a particular Response and
Demand is viable to the organization. The method will also assist in modeling how the facility
uses the energy. It will also offer the required structure to be used in evaluating the product
and processes costs in the organization. The paper is separated into parts with each part
discusses the issues relating to the Activity-based costing.
Explanation Activity-based model and its features
ABC is the management accounting tool used to find costs to process or product of the
Company. Rather than apportioning costs directly to specific products and services, they are
allocated to the Company’s activities (Dalci, Tanis and Kosan 2010). Then, the products cost are

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calculated by finding out how each product has used each activity. This approach requires the
knowledge and skills of the model process to find out the costs distribution. The data obtained
can allow the organization to predict the future costs. Activity-based costing is mostly preferred
than other forms of management accounting (Maclean, Jagannathan and Panth 2018). ABC
applies the method where it traces resources used in to perform specific activities then it cost
object to get a precise distribution of cost. A cost object represents process or product,
whereas the events are actions which the organization must undertake to ensure that there is
the creation of cost objects (Brotchie, Hall, Newton and Nijkamp 2017). Resources represent
the objects consumed by all activities which lead to costs for example Material, labor,
equipment, etc. The idea started by the Activity-based costing is that cost object use activities
which then used the company’s resources, and actual use of the resources resulted in costs
(Sarkis, Zhu and Lai 2011).
The figure below represents the distribution chain of the Activity-based costing model
Activity-based costing has the features that can make it be identified from another type
of the management accounting tool. The characteristics or features include: it has the cost
drivers which are used in tracing resources to the operational activities then activities to cost
objects. The approach has two kinds of costs that is variable cost and then the fixed costs which

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are used in the provision of quality information in the organization (Rajemi, Mativenga and
Aramcharoen 2010). The cost driver of the model also helps in dictating cost behavior design.
Explanation of how Activity-based costing aligns with the goals as well as
strategies of the Origin Energy
Objectives and mission of the Origin Energy
The mission of the Origin is to lead in the transition of smarter, customer-centric, and
cleaner energy to their customers (Moriarty 2018). The objectives of the Origin Energy include
establishing the closer focus on their customers, building trust and loyalty and delivering
different products to their customers, for example, predictable plan. The Company ensures to
use Analytic as they continue to offer different products as well as achieving their customer-
centric goals. Another objective of the origin is providing electricity products and natural gas to
all of their customers in the market (Amiri and Weinberger 2018).
Corporate strategies of the Origin Energy
Origin Energy focuses on being one of a successful organization in the market among the
competing firms that offer the same products. The primary strategy of the Origin Energy is to
ensure the connection of energy resources to its market (Imteaz and Ahsan 2018). It has the
following strategic priorities: To deliver leading customer solutions and experience, create
resources to balance the increasing demand of gas, ensure that there is disciplined in the
management of capital, and embrace digital and a decentralized future (Filapek 2018). Other
strategies include moving toward the production of clean energy and also being one of the
lower cost operators. The Origin Energy mainly focuses on what matters to their customers.

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The company aims at improving each day to be better in the future (Merkenich 2018). This will
motivate them to build and grow the business, connect their customers to the technologies and
energy of the future. These strategies help to set the path and give direction to the Company. It
informs the company what they have to deliver based on the on the opportunity cost and
priorities. The strategies can also tell the organization where it is headed to regarding fulfilling
the set goals (Amiri and Weinberger 2018).
Explanation of how Activity-based costing system enables Origin Energy in
achieving their strategies
ABC system will allow the organization to apportion all the costs of resources to
functions or activities. Nevertheless, the Activity-based costing model can be applied in the
organization to find the allocation of a particular price of resources all over the Company, for
example, the cost of energy. With the distribution of energy cost, management will be able to
find out which activities, as well as cost centers or products, are incurring the highest value of
energy and consuming the highest amount of energy (Govindan, Khodaverdi and Jafarian 2013).
This information will then enable the organization to detect the probable energy waste.
Management can then put its efforts on the departmental areas where there is a significant
amount of energy which is being used and then evaluates them with the intention of finding
out whether a redesign is capable of reducing waste as well as increasing the efficiency of
energy. Activity-based costing will also offer actual cost information that the organization can
use to ensure that there is energy saving in specific functions or areas (Maclean, Jagannathan
and Panth 2018). The approach will, therefore, be useful in the organization in that it will
facilitate the management decision making relating cost issues. The organization will improve

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their performance hence leading to the profitability in the long-run (Drury 2013). The use of
Activity-based costing will also enable the organization to improve their financial performance.
The will increase the profitability and improve the performance in the following ways: It will
identify the exact cost drivers as well as overhead costs leading to active business processes
(Catherine, Soundarrajan and Louis 2018). The manager will be able to develop a hint of the
business processes that perform well and those that are wasteful through the allocation of both
the indirect and direct costs of their products. The costs data of the Activity-based costing is
equally important because it will help the management to come up with optimal choices about
how they should assign the limited resources of the organization. Therefore, effective
implementation of this approach of management accounting into the system of the Origin
Energy will enable them to achieve most of their strategic priorities (Tejera, Rios, Martínez and
Palacios 2018).
Recommendation about the implementation of Activity-based costing
model for Origin Energy
The application of ABC will necessitate the establishment of the process of effective
change management. The process will have the responsibility of ensuring that the organization
supports the system. It will involve putting in place the top manager to fight for the initiative
and the issues that affect all the employees regarding the implementation of the Activity-based
costing system (Fang, Ma and Luo 2018).
The implementation of Activity-based costing will necessitate the organization to put in
place enough resources, such as time, competent team, hardware, software as well as the
human support (people). So, the organization needs to provide enough people and material to

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help in completing the implementation process of Activity-based costing. All the stages that the
model through require enough resources. Such as, the implementation stage needs enough
funds and knowledge, skilled personnel’s (García, Istrate and Iribarren 2018).
Appropriate management tool suitable for Origin Energy apart from
Activity-based costing model
The proper management accounting that the organization should develop is the (ERM)
Enterprise risk management. This will enable the organization to identify the risk as well as
providing a suitable method of addressing the risk factors for the achievement of the set
strategic objectives (Etges, Souza, Kliemann and Felix, 2018). It will also enable the organization
to be ahead of its competitors. The process of managing risk is an important factor used in the
strategic management of any form of organization. Therefore, Origin Energy should include
Enterprise risk management in its ongoing activities. This approach will offer awareness of the
various risks that affect the organization as well as providing suitable methods of solving them
effectively. It will also enhance the confidence of the management and the entire employees
about the accomplishment of the company’s strategic objectives.
Conclusion
This paper provides ways in which the Origin Energy can use Activity-based costing to
improve the decision-making process. The management can use the model to solve most of the
problems faced by Origin Energy. Being that the organization is related to the sector of energy,
the volume of fixed costs is high, and the only model that can help to reduce the costs is the
Activity-based costing model. The approach will not only increase the profit of the entity but

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also increased the perceived value of the customers. Therefore, any organization wishing to
increase their profitability and improve their decision-making process should use ABC model.

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