Activity-Based Costing in Managerial Accounting for Webjet Limited

This report explains the importance of management accounting and its tools for a company to survive in the market. It highlights the use of Activity-Based Costing tool in achieving the strategies of Webjet Limited. It provides an overview of Webjet Limited, its mission, objectives, and corporate strategies. It also recommends implementing Activity-Based Costing and suggests Balanced Scorecard as another managerial accounting tool.

Managerial Accounting Activity-Based
Costing

MANAGERIAL ACCOUNTING 1
Executive Summary
The management of every business today faces various difficulties in regards to decision
making. Management accounting utilizes data from the operations of the business to make
reports that offer details of the business performance. This report is being prepared in order to
highlight the use of management accounting and how it helps in attaining the strategies of the
business.

MANAGERIAL ACCOUNTING 2
Table of Contents
Executive Summary...................................................................................................................1
Introduction................................................................................................................................3
Activity-Based Costing..........................................................................................................3
Activity-Based Costing features............................................................................................4
Overview of Webjet Limited.................................................................................................5
The mission of Webjet limited...........................................................................................5
Objectives of Webjet Limited............................................................................................5
Corporate Strategies of Webjet Limited................................................................................6
B2B Growth Strategy.........................................................................................................6
B2B Strategy of Growth.....................................................................................................6
Achieving Strategies of Webjet Limited through Activity-Based Costing............................7
Study cost and processes....................................................................................................7
Identification of the Activities...........................................................................................8
Determining Rates of Per-Activity of Assignment............................................................8
Applying cost objects.........................................................................................................8
Recommendation for the Implementation of Activity-Based Costing...................................8
The suggestion of Managerial accounting tool......................................................................9
Conclusion................................................................................................................................10
References................................................................................................................................11

MANAGERIAL ACCOUNTING 3
Introduction
Management accounting comprised of making and offering statistical and financial
information to the managers of the business such that they can take daily managerial
decisions (Debitor, 2018). It is different from financial accounting. In financial accounting
statements are organised for the internal stakeholders of the company and in management
accounting reports are prepared for external stakeholders (Freedman, 2018). This report is
being prepared in order to explain how much the management accounting and its tools are
important for a company to survive in the market for the longer time period. Therefore,
Activity-Based Costing tool of management accounting will be used in this report to explain
its support in achieving the strategies of Webjet Limited. The report will be comprised of the
concept of Activity-Based Costing and its important features. Besides this overview of
Webjet limited, its mission, objectives and corporate strategies will be provided to identify
whether Activity-Based Costing will help in attaining the strategies or not. Further, the report
will provide the recommendations for implementing Activity-Based Costing and suggestion
of one more management accounting tool.
ABC (Activity-Based Costing)
A technique of accounting that supports in recognizing and allotting the overhead cost and
then allots those costs to the products is known as Activity-Based Costing (Accounting Tools,
2017). A system of ABC detects the relationship among overhead activities, manufactured
products, and costs, and by this relationship, it allots indirect costs to products less randomly
than out-dated approaches of costing. Some of the cost becomes hard to assign by Activity-
Based Costing (Business case, 2018). The indirect costs like salaries of office staff and
management at times becomes hard to allot to the products of the company. Therefore, this
costing method is useful in the manufacturing companies.

MANAGERIAL ACCOUNTING 4
Activity-Based Costing is significantly used in the industry of manufacturing because it
enhances the cost data dependability; therefore, creating appropriate costs and well-classified
cost arisen by the company in the process of production. This system of costing is used in
product costing, service pricing, target costing, analysis of product line profitability and
analysis customer profitability. It is also famous because companies can create better
corporate strategies and focus on the costs (Adler, 2013).
Activity-Based Costing features
 ABC system is said to be a practice that helps in recognizing the activities of the
company and allots cost to every activity with resources.
 This cost accounting method provides best results in a complex business environment
such as companies with various products, and machines (CGMA, 2013).
 This tool of management accounting works best in the manufacturing sector
 The Activity-Based Costing supports techniques of performance management like
scorecard and continuous improvement.
 It takes a challenge of operating costs to search effective ways of eliminating and
allocating overheads.
 The forms cost behaviour is diversity-related, time-related, volume related and
diversity related.
 The overall cost is distributed into 2 kinds that are fixed cost and variable cost which
is important to deliver superiority data to create appropriate system of costing in the
business (Account Learning, 2018).
 The cost drivers imitate the cost behavior patterns
 The proper cost drivers can be recognized for tracing the overhead to a product.

MANAGERIAL ACCOUNTING 5
Overview of Webjet Limited
Webjet Limited is an Australian company deals in the business of digital travel and covering
wholesale market as well as global consumer markets. The company operates its business in
New Zealand, Hong Kong, Singapore, Australia, and North America. The registered office of
the company is in Melbourne, Victoria (Australia). The company was established in the year
1998, it is an agency of online travel in New Zealand and Australia. Webjet provides travel
products and services in domestic as well as international flights, holiday, packages deals,
travel insurance, hotel accommodations, cruises, and car and motor-home hire (Webjet
Limited, 2018).
Webjet acquired one of the online travels booking group i.e. the Online Republic, in 2016 for
$NZ83 million (Webjet Limited, 2017). Online republic is a known worldwide e-commerce
group situated in New Zealand, focusing on online bookings of cruises, motorhomes, and
rental cars.
The mission of Webjet limited
The mission of Webjet Limited Company is to provide benefits to the users of their services
by confirming increased confidence and trust through the removal of user misperception and
pledge of brand genuineness. The company will function as a limited registry, in which
Webjet Ltd. can make and monitor domain names that endorse the individuality and
genuineness of its brand (Public Now, 2018).
Objectives of Webjet Limited
 The objective of Webjet limited is to offer information, resources, and services to the
customers in a way that result increased brand awareness, convenience, and trust.
 It will provide a commanding internet space for the Webjet Limited, its associates,
and buddies that are linked with the brand.

MANAGERIAL ACCOUNTING 6
 In the Webjet domain space, the second and third level domain name will be used to
adapt services to involve customer on precise product classes, with internet users
guaranteed of brand genuineness (101 Domain, 2018).
Corporate Strategies of Webjet Limited
Corporate strategies involve corporate action of a firm with the aim to achieve objectives of
the company while gaining the competitive advantage. A corporate strategy involves an
evidently definite, long-term vision that companies set, looking to make corporate value and
inspire the personnel to execute the correct actions to attain satisfaction of the customers
(Corporate Finance Institute, 2018). Webjet Limited Company’s strategy is to increase share
in every market in which they operate and they have set three-year booking development
targets for both web beds and B2C businesses (Webjet, 2018).
B2B Growth Strategy- Webjet Limited Company believes that they are better positioned
considering the on-going growth of bookings as the B2B market endures to move towards
online and they are regularly concentrating on enhancing visitations and conversions. They
look at the substantial opportunity of growth in the business of Webjet OTA from both
international and domestic flight bookings, along with packages. Along with this, they are
regularly looking for the opportunities to increase the brands of Online Republic into other
international and regional markets (Elliott, 2018).
B2B Strategy of Growth – The aim of the Webjet Limited Company is to become the
leading player in the B2B sector. They look for significant opportunities to increase market
share in every region and anticipate to the WebBeds business to get advantage from the
network of increasing their worldwide inventory offerings. Together with their low-cost
model of a multi-supply combination strategy, they believe they can pursue to provide the

MANAGERIAL ACCOUNTING 7
greatest depth and breadth of inventory at inexpensive prices to their B2B clients (Webjet
Limited, 2017).
Achieving Strategies of Webjet Limited through Activity-Based Costing
Source [(IPS Business, 2018)]
Activity Based Costing allocates the cost depending of the multiple cost pools with their cost
drivers; this results in creating specific costing and improved control on the overhead cost. If
Webjet Limited Company implements this cost accounting or managerial accounting tool in
the business operations then it will support in allocating the cost of the activities depending
on the consumed proportion of activity. Activity-based costing tool will classify different
activities of Webjet Limited Company and will allocate the cost of all the activities along
with resources. The execution of ABC system in the business can be processed through some
important steps i.e.
Study cost and processes – Activity-based costing is famous because it is process oriented.
Therefore, the first step in the implementation of Activity-based Costing is a detailed
examination of each procedure and cost of the company. Employee’s involvement is one of
the essential steps to receive complete details in an appropriate format so that there can be
acceptance of the measures formed by the costing system.

MANAGERIAL ACCOUNTING 8
Identification of the Activities – The time when the operations of the Webjet Limited
Company will be understood, a proper care should be provided while choosing the business
activities that are important for the cost allocation. There are various activities in a business
like Product-level activities, Unit-level activities, customer-level activities and Batch-level
activities (Finance and Control, 2015).
Determining Rates of Per-Activity of Assignment – The time costs of each activity
determined in the collective form, it can be observed that it becomes important to unite the
pool of costs.
Applying cost objects – In the end the final step of applying cost objects this can be done by
utilizing the rates depending on the activities for determining the cost of activities to each
cost object.
Recommendation for the Implementation of Activity-Based Costing
 If there will be lack of proper planning in the starting the implementation of the
Activity-based costing will fail.
 Without evaluating the role and scope of proposed Activity-based costing system, it
should not be implemented in the business.
 Besides the fact that Activity-Based Costing performs excellently in front of other
traditional methods in the matter of its efficiency and reliability, but it disregards
capital costs.
 In order to implement Activity-based costing Webjet Limited Company needs to
ensure that they have required experienced and skilled employees in its business
operations because they are the one who can understand the know-how of the overall
system, and utilize the information effectively to take appropriate decisions.

MANAGERIAL ACCOUNTING 9
 While implementing activity-based costing in the system company should ensure that
all the employees in the company are in the support of the system and are ready to use
the information which will be extracted from it.
The suggestion of Managerial accounting tool
Activity-based costing system is very effective and support in terms of allocating cost to all
the activities in the company along with its resources. Along with this, it helps in decreasing
the unnecessary cost of the unnecessary activities which are not important for the business to
perform in present time period. However, on the other side, there is another tool of
managerial accounting that can be utilized by Webjet Limited Company in order to enhance
the performance of the business is Balanced Scorecard.
The Balanced Scorecard is said to be a metric of the performance of business utilized at the
management level to classify and develop various operations in the company and their
external outcomes. This system is utilized in the business to measure the feedback of the
company. Collection of the information is very important to deliver quantitative outcomes
because the data that has been gathered is understood by the managers and administrators and
then used to make effective company’s decisions. In the starting, this method was introduced
by Dr. Robert Kaplan who is a renowned accounting academic and Dr. David Norton which
is a business philosopher and supervisory (Niven, 2011).

MANAGERIAL ACCOUNTING 10
Source [(Integrating Performance, 2018)]
Conclusion
In the conclusion, it can be said that Webjet Limited is one of the growing and money making
company in its field, however, every organization cannot be operated without implementing
various techniques and tools so that objectives can be achieved. Therefore, the above report
has provided the detail explanation of the management accounting tool i.e. Activity-based
costing which is one of the most effective tools and is utilized by many business
organizations. The above report has suggested Webjet Limited Company implement ABC
system of cost accounting to measure the cost of all the activities that are being performed in
its diversified business field and can reduce the unnecessary cost of unwanted activities.
Moreover, the report has recommended some important points that should be kept in mind
while implementing the system i.e. Activity-based costing. Along with this suggestion of
another management accounting tool has been provided that is balanced scorecard which is
also very helpful in not just measuring the financial perspectives of the business but also
includes non-financial perspectives so that all the areas of the business can be improved by
providing objectives.

MANAGERIAL ACCOUNTING 11
References
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2018]
Adler, R. (2013) Management Accounting. 3rd edn. U.K: Routledge.
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23 May 2018]
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[accessed 23 May 2018]
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2018]

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Elliott (2018) Webjet [online]. Available from
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[accessed 23 May 2018]

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May 2018]
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[accessed 23 May 2018]