Essay on Activity Based Costing (ABC)
13 Pages3565 Words71 Views
Added on 2021-05-30
Essay on Activity Based Costing (ABC)
Added on 2021-05-30
ShareRelated Documents
Running head: ACTIVITY BASED COSTING 1Activity Based ActivityStudent’s (Name)Institution
ACTIVITY BASED COSTING2Table of contentsExecutive summary.................................................................................3Introduction...........................................................................................4Explanation of the Activity Based Costing and it features.....................................5Explanation of how the ABC aligns with strategies of the organization.....................5Identification of the mission of the Amcor Limited ....................................6Objectives of the Amcor Limited ........................................................6Corporate strategies of Amcor Limited ...............................................6 Explanation of how the Activity-based costing could assist Amcor Limited in achieving goals...7 Recommendations for implementing of ABC to Amcor Limited...............................8Alternative management tool suitable for Amcor Limited ......................................9
ACTIVITY BASED COSTING3Executive SummaryAmcor Limited is a multinational packaging organization based in Australia. Thecompany produces both flexible and rigid packaging, mostly for food, beverage, healthcare aswell as tobacco companies. Its headquarters is in Melbourne with Ron Delia as the CEO. Inaddition, the company’s revenue is USD 9.1 as per the report in 2016, with 35,000 workers.Since 1860, when the company was established, transformational activities have been takingplace. As a result, the Board of Directors has requested for a report of how useful theActivity Based Costing (ABC) would improve the management accounting informationavailable to its top management team that is the CEO and the senior managers. The board hasidentified the model with the hope that it would boost the management of the company, byidentifying the unnecessary costs and wasteful products. Where the model becomes useful,the company will outdo the other competing companies in the same line of goods that haveposed threats. Introduction Based on the board of director’s directive, the essay describes the ABC model and itscharacteristics. The features will be compared to the company’s mission and vision as well asthe business strategies, to find out whether the model would improve the managementaccounting that is currently being used. One of the outcomes expected from the model isidentifying areas that lead to too much money usage which could be reduced to ensure thatgoals in terms of income are achieved (Klettner, Clarke & Boersma, 2014). Thus the paperattempt to align the model to strategies in the company in attaining higher competitiveadvantage. Apart from that, an alternative model will be provided, so that the board woulddecide on the suitable model in improving its management accounting. ABC Model and Its Features
ACTIVITY BASED COSTING4The Activity Based Model is a costing methodology that assigns indirect costs togoods and services and identifies the cost of each activity that is involved in the productionprocess (White, Lee & Tower, 2008). In short, the model allocates costs of each product thatis used in the making process. The approach is most useful to the organizations that arecomplex, where the production process involves many procedures. Several features areevident in the ABC model, one being that it points clear distinctions between the costbehavior patterns (Subramaniam, McManus & Zhang, 2009). In this feature, the modelpoints out the cost patterns that are constant and those that changes. By that, it becomes easydetermining the costs needed in affording the products. The other feature of the model is thatthe entire cost is grouped into fixed and variable costs. The feature is useful in helpingorganizations gain quality information while designing the right cost system in themanufacturing process. In addition, the Activity Based Model identifies the suitable costdriver while putting overheads on goods and services (Zott & Amit, 2010). In this case, thefactors to be considered while allocating costs are identified, to ensure that the prices put arerealistic. Pointing out the cost drivers is useful in dictating the cost behavior to be expected.Therefore, the main function of the model is to identify costs of each product that is needed inthe production process, by using the cost drivers in determining the patterns of each good andservice. ABC model is significantly concerned about the allocation of overheads regardinggoods and services (Cohen & Zarowin, 2010). In doing so, the costs are divided into shortand long-term variable costs. In the short term variable costs, prices are put based on thevolume related cost drivers. Examples of volume influence cost influencers are the directlabor duration and the direct material prices. Kaplan and Cooper, in their explanationregarding the activity-based costing, claimed that the volume based cost drivers areunsuitable while allocating the long-term variable prices to goods (Johnson, Melin &
End of preview
Want to access all the pages? Upload your documents or become a member.
Related Documents
Managerial Accounting - Solved Assignmentlg...
|11
|2741
|40
Management Accounting in Coco-Colalg...
|10
|2372
|80
Managerial Accounting - ABC Modellg...
|12
|2819
|19
ABC Model of Cost Accounting in ASX Listed Companieslg...
|10
|2460
|375
Activity Based Costing for Amp Limited Financialslg...
|15
|3288
|190
Managerial Accounting - Sample Assignmentlg...
|15
|3054
|213