HI5017: [Company Name] Activity Based Costing Research Analysis Report

This report presents an analysis of activity-based costing (ABC) based on two research journals: the Accounting, Auditing and Accountability Journal, and the Journal of Applied Management Accounting Research. The report begins with an executive summary and introduction, followed by a detailed explanation of ABC, including its meaning, advantages, and disadvantages. The study delves into the purposes, research questions, and findings of the two journals, comparing and contrasting their insights. The report highlights learning outcomes for management accountants, focusing on how ABC can improve cost calculation accuracy, facilitate effective decision-making, and streamline processes. The research explores the impact of ABC on organizational performance and the development of decision support systems. The report concludes with a summary of the key findings and implications of ABC in managerial accounting.

[TYPE THE COMPANY NAME]
Activity based costing
Research analysis
Name of the author

EXECUTIVE SUMMARY
The report under consideration focuses on the two research based journals that have
provided several insights into the activity based costing technique followed by several
entities. The benefits that the organisations ensure in their pockets from this method have
been discussed with several learning outcomes that are needed by the management
accountants. The future success depends on the right decision making and the benefit of this
model in helping to develop a correct decision assisting software is also discussed.
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Table of Contents
EXECUTIVE SUMMARY........................................................................................................2
INTRODUCTION......................................................................................................................2
ALL ABOUT ACTIVITY BASED COSTING.........................................................................2
MEANING.................................................................................................................................2
ADVANTAGES........................................................................................................................3
DISADVANTAGES..................................................................................................................3
ACCOUNTING, AUDITING AND ACCOUNTABILITY JOURNAL...................................3
STUDY PURPOSE....................................................................................................................3
RESEARCH QUESTION..........................................................................................................4
RESEARCH FINDINGS...........................................................................................................4
JOURNAL OF APPLIED MANAGEMENT ACCOUNTING RESEARCH...........................4
PURPOSE OF STUDY..............................................................................................................4
RESEARCH QUESTION..........................................................................................................4
RESEARCH FINDINGS...........................................................................................................5
SIMILARITIES IN THE FINDINGS OF THE TWO STUDIES.............................................5
DIFFERENCES IN THE FINDINGS OF THE TWO STUDIES.............................................5
LEARNING OUTCOMES FOR THE MANAGEMENT ACCOUNTANTS..........................5
STUDY OF ACCOUNTING, AUDITING AND ACCOUNTABILITY JOURNAL..............5
JOURNAL OF APPLIED MANAGEMENT ACCOUNTING RESEARCH...........................6
CONCLUSION..........................................................................................................................6
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REFERENCES...........................................................................................................................6
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INTRODUCTION
With the ramified changes and costing methods, organization needs to use the
effective coting methods to absorb the cost in the different process system of organisation.
Every organisation transacting business in any corner of the world is required to formulate
certain methods that enable it to get the accurate costing of its products. There are many
problems persistent in the traditional approach that the companies are following from ages.
The report under study focuses on one such method that is prevalent all over the world and
has emerged has the best method that helps in generating accurate costs. The report focuses
on the study of two journals namely the Accounting, Auditing and Accountability Journal and
the Journal of Applied Management Accounting Research. Both the studies have been
analysed for the relevant purpose and the research question. Later in the report a comparison
is made between the two studies to understand the similarities and differences that are present
in both the studies. The purpose of the report is to generate learning outcomes for the help of
the management accountants. The management accountants under the study are from the
group of management accountants of Australian companies.
ALL ABOUT ACTIVITY BASED COSTING
MEANING
This method is used to analysis and bifurcate the cost of the particular process in
different departments and process. The activity based costing is used by the organization
which is facing high complexity and process issues in the organization management.
However, the decision to adopt the activity based costing method is based on the cost benefit
analysis. For instance, if the acceptance of the ABC costing model in the business process
showcases higher costing than its benefits then company should not adopt this activity based
costing in the process (Brady, et al. 2017).
Activity based costing method derives its technicalities from its name itself. This method is
based on the allocation of the overhead costs on the basis of the activities consumed by the
different products or departments of the organisation. The idea is that, every overhead cost is
generated due to certain level of activity consumption. However, every production
department do not consume same level of that activity as it is based on the cost drivers.
Sometimes the activity consumption is also not proportional to the level of production.
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Hence, the allocation of costs on the basis of the level of production indicated by the
consumption of machine hours or labour hours is insignificant. The allocation should be done
on the basis of much realistic criteria, i.e. the level of activities used (Plank, 2018).
This activity is named as cost driver in this method that is behind the generation of the
costs. Various cost drivers are present like the number of machine setups, number of
soldering points, the number of quality inspections, the number of purchase orders, the power
consumption, and etc. Introduction of activity based costing method has phased out the old
and unrealistic traditional costing method (Hoozée, and Hansen, 2017).
ADVANTAGES
 This method has improved the cost calculation accuracy. The company is able to allocate to
every department the accurate share of costs that actually belongs to that department. There
are less chances of any cost allocation done wrong.
 It is able to analyse the areas that do not add value to the entity. This way the company is able
to reduce the load of overall costs. Only those costs that add certain value and help in income
generation are sustained. Rest other costs can be detected and worked on.
 For those entities that work on pricing the goods on the basis of a certain mark-up on the
costs are able to do that process easily. This is so because an almost perfect estimation is
made by this method (Cooper, 2017).
 An effective decision making system can also be put in place and the benefits of information
technology can be fully exploited. A systematic approach for cost calculation shall work
more effectively and error free using this costing model (Schaltegger, and Burritt, 2017).
 Even for the technique of transfer pricing this model turns to be more effective and valuable.
The internal transfers in the company from one department to another are saved from
incorrect pricing.
 This model is a helpful approach in helping the management to decide whether a certain
product should be produced in house or whether it should be purchased. The cost that
company shall incur under both the alternatives can be calculated (Christopher, 2016).
 The main advantage of the activity based costing is the right bifurcation of the costing which
may be beneficial to allocate and absorb the cost in different department and process.
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DISADVANTAGES
 The implementation of this model is not a one day affair. A lot of processes are there. Plus
there are many analysis and studies required to get the feasibility of success. Hence the
implementation of this model turns out to be costly.it is not in the clutches of small firms to
adopt and maintain this model.
 The level of activity is an important factor that determines the success of this model. If the
firm is relatively small and has a small lot of overall overhead costs, it’s useless for it to
adopt this method. As this method shall uselessly add cost burden (Greasley, 2017).
 The most depressing disadvantage is the huge time consumption in adoption and
implementation of this method. Further it gets difficult at times to convince the staff to get
ready to adopt this method (Langfield-Smith, et al. 2017).
ACCOUNTING, AUDITING AND ACCOUNTABILITY JOURNAL
THE IMPACT OF ACTIVITY-BASED COSTING ON ORGANISATIONAL
PERFORMANCE
STUDY PURPOSE
This study under the particular journal tries to build a relationship that might exist
between the application of the activity based model in the entity and the effect it have on the
performance of the organisation. It is believed with certainty that this model provides an edge
ahead the traditional costing methods and a strategic benefit is extended to the organisations.
However, certain researches argue that the organisations that have not adopted this model
have a higher EPS, market price and asset turnover than the firms that have adopted this
method. While the other researchers say that this is seen only in the implementation and
budding stage of this model (Dale, and Plunkett, 2017). The main purpose of this study to
determine the advantages, disadvantages of the adopted process. It is analyzed that if
company should firstly adopt the cost and benefit analysis method before accepting the
activity based costing method to absorb the cost in different departments. In the initial time,
when organization adopts the activity based costing will have to face high initial investment
cost which might negatively impact the profitability and increased business costing. There are
several companies which have faced high complexity and increase business production
costing after adopting the activity based costing such as Pan African resources, Pental
Company and GE capital (Kumar, and Reinartz, 2018).
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The complexities and the modifications that persist in the economy every day have made the
traditional methods out dated. The benefit that the model provides to the entity is believed to
improve the performance of the entity. Every entity is seeking to improve its performance.
This is done with the objective of maximisation of shareholders wealth. However, adoption
of the activity based costing is beneficial for the organization which are having high
complexity in the process (Hopkins, et al.2017).
RESEARCH QUESTION
Does the adoption of the activity based costing model helps in improving the
performance of organisation?
RESEARCH FINDINGS
The research has analysed several factors that are changed due to the adoption of the
activity based model. The activity based costing method helps in the bifurcation of different
activities that are currently happening in the entity. This way it allows the allocation of costs
incurred on those activities through the use of multiple cost drivers. The activity based
costing model helps the management to get informed in a detailed manner about the whole
working of the entity. This information tends to be very useful to the management as far as
the decision making is concerned. It is possible for the management to make decision
regarding the various aspects related to costs like reducing costs by eliminating wastes and
streamlining processes. This research has also made an observation that the first three years
of the organisations that have successfully opted for this method provides outreaching results
that are not obtained by non-adopting organisations. The most important thing to be kept in
mind is that the benefits availed by this method must exceed the overall costs incurred
(Arnaboldi, Lapsley, and Steccolini, 2015).
JOURNAL OF APPLIED MANAGEMENT ACCOUNTING RESEARCH
DEVELOPMENT OF A DECISION SUPPORT SYSTEM BASED ON ABC FOR
COSTING AND PRICING DECISIONS, AND ITS CONVERSION TO A WEB
BASED DSS
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PURPOSE OF STUDY
This study focuses on the use of the activity based costing model to formulate a
decision support system. More accurate costs are being computed by this model and hence it
should be used to streamline the information technology function to improvise the decision
making capacity. This research has focused on the intensive use of data that is used by this
method. The purpose is to coordinate the benefits that the activity based costing model
together with the decision support system based on computer can provide the business. More
accurate costing and pricing decisions can be formulated or not is seen from this study.
Activity based costing model have proved to be a success in its offline counterpart. However,
the way it behaves in the online mode is to be seen with the help of this method (Dhubea,
Salim, and Al-Riami, 2017).
RESEARCH QUESTION
Is it possible to formulate a decision support system based on the activity based
costing model? If it is so, can it be converted into a web based decision support system?
RESEARCH FINDINGS
The feedbacks generated from this study have shown that the implementation of the
decision support system has gradually improved the performance as far as the decision
making process is concerned. Positive responses have been received from the management
accountants. The activity based model has completely merged in the decision support system
and has helped the management accountants reap the benefits of the developed technology.
However the company needs to hire a software designer to get the system developed. The
technicalities shall be dealt by the software designer, but the accounting requirements are to
be specified by the management accountant. Bringing the decision support system on the web
platform requires the company to remain updated with the system. The staffs need to be
trained to feed data timely into the system. System security needs to be maintained along with
the same system. It is analyzed that if the cost account and management finds issue in the
process changes in the adopted costing method then they will be properly trained and
promoted to strengthen the overall outcomes and efficiency in long run (Mohammed,
Obrenovic, and Aina, 2017). The main research finding is that the use of the activity based
costing should be accepted only in the organization which is facing high complexity in the
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business. It is analyzed that if company could use these activities based costing then it would
first focus on identifying the cost and benefits associated with the project.
Though there exist exceptions. Not every firm that ever tried to adopt the activity
based costing model have achieved success. Many a times the firms fail to achieve the results
they desire from the activity based costing model. One important thing is the availability of
certain features in the decision support system. They include flexibility, user friendly
interface, and an adaptive approach. This decision support system has enabled the company’s
management accountants to develop a successful approach that helps in determining the
prices of the products, improve the performances of their respective departments and to bring
optimisation in the capacity level.
SIMILARITIES IN THE FINDINGS OF THE TWO STUDIES
Both the studies have shown that the activity based model is an effective measure to
help the management accountants in making the decisions related to the business of the
entity. The benefits provided by the adoption of this model helps the organisations to achieve
far reaching benefits that work on a long term basis. These both findings focus on providing
the issues, challenges and benefits of adopting the activity based costing in the process
system of organization. These both articles have given similar assumptions and estimations
while researching on the use of the activity based costing method in the business process. In
addition to this, in these articles it is divulged that the acceptance of the activity based costing
model in organization is adopted by change management which needs to be followed to
optimise the benefits. The resistance from staff should be managed beforehand to avoid any
kind of opposition later if the process of costing model is done in efficient manner.
DIFFERENCES IN THE FINDINGS OF THE TWO STUDIES
The first study from the accounting, auditing and the accountability journal highlights
the impacts of the adoption of a new costing model brings in the performance of the entity.
The research has brought in limelight the benefits that are accrued to help the entity achieve
an overall performance improvement. However, the study of the journal of applied
management accounting researched has focused just on one component that is improved in
the overall performance improvement. That factor is the development of a decision support
system. This system is developed as a part of the entity’s core functional model and integrates
in it the components of the activity based model. The data used and regression analysis
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implemented in both articles are based on the different data reflects different estimations and
assumptions. However, one study has suggested that how activity based costing will be more
beneficial for the economic growth of the Organizaiton and another study has also suggested
how well company could strengthen the overall outcomes by adopting the activity based
costing in the process (Frazier, 2014).
LEARNING OUTCOMES FOR THE MANAGEMENT ACCOUNTANTS
STUDY OF ACCOUNTING, AUDITING AND ACCOUNTABILITY JOURNAL
1. It is considered that Activity based costing method is based on the allocation of the overhead
costs on the basis of the activities consumed by the different products or departments. It is
ideally accepted by those organization which are indulged in complex business process and
organization. The management accountants need to make a budget estimate of the cost to be
incurred on the adoption of the activity based costing model and the benefits it shall provide
to the organisation. After the budget is made, a decision should be taken based on the
feasibility of the adoption.
2. The change management needs to be followed to optimise the benefits. The resistance from
staff should be managed beforehand to avoid any kind of opposition later.
3. The proper training and development program should be accepted by company while
adopting the activity based costing model in the business (Kaplan, et al, 2014).
JOURNAL OF APPLIED MANAGEMENT ACCOUNTING RESEARCH
1. The software of decision support system should be developed with the help of a professional
software designer.
2. Even when the designer is developing the software, the requirements that the management
accountant have from the software should be versed by them to the software designer.
3. The use of accounting software and system should be used on the basis of the skills and
software program which might be easy for the employees to learn while implementing the
process system of the costing after adopting the activity based costing.
CONCLUSION
There are several pros and cons have been suggested under these two different journal
articles. However, while the other researchers say that this is seen only in the implementation
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and budding stage of this activity based costing and main focus should be to analysis the
other factors while adopting the costing method. It is analyzed that company should firstly
adopt the cost and benefit analysis process before accepting the activity based costing method
to absorb the cost in different departments. If the cost associated with the activity based
costing is higher than the benefits given by this model to organization then it should not be
accepted by the management in its costing method and vice-versa. In a layman’s words,
benefits can be achieved from the adoption of this model only when the management looks
from a broader and open mind, rather than from a narrow vision. Now in the end, it could be
inferred that only organization which have been facing high complexity in determining the
process costing and absorption of the costs of the different products and services in
organization will indulge in adopting the activity based costing. These two articles have
shown the different assumptions and estimations in the undertaken project.
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