Concept of Activity Based Costing - Doc

Running head: MANAGERIAL ACCOUNTING
Managerial Accounting
Name of the Student:
Name of the University:
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Executive Summary
The main purpose of this assignment is to analyze the financial statement of a company in order
to understand the internal structure of the business and also recognize the performance
management tool which is used by the company. The company for this assignment as selected is
Telstra ltd. The assignment will be discussing the concept of Activity Based Costing (ABC) and
also its features. The assignment will then be providing recommendations as to how the
management of Telstra ltd can adopted ABC method and implement the same.

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Table of Contents
Introduction......................................................................................................................................3
Overview of the Company...............................................................................................................3
Activity Based Costing Model and its Features..............................................................................3
Alignment of the Goals and strategies of the Business with Activity Based Costing.....................4
Mission and Objectives of Telstra ltd..........................................................................................5
Corporate Strategies.....................................................................................................................5
Role of ABC Model in Achieving the Strategies of the business................................................6
Recommendations about Implementation of ABC Model for Telstra ltd.......................................8
Alternative Management Tool which can be used by Telstra ltd....................................................8
Conclusion.......................................................................................................................................9
Reference.......................................................................................................................................10

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Introduction
The assignment deals with the techniques of with the technique of Activity Based
Costing (ABC) and the features of the same. The company selected for which implementation of
ABC method is to be applied is Telstra ltd. The assignment will be analyzing whether the ABC
technique is applicable to the business or not. The assignment will be recommending suggestions
for implementation of ABC model in the business of Telstra Ltd.
Overview of the Company
Telstra company is engaged in telecommunication business and the business provides a
wide range of connectivity, media and content to the customers of the company in Australia. The
company is regarded as one of the leading brands in telecommunication industry. The company
is also engaged in providing telecommunication and enterprise services globally as well
(Telstra.com.au. 2018). The company is committed in pursuing innovation and better service
generation so as to provide its customers with better quality of services.
Activity Based Costing Model and its Features
ABC model is one of the popular methods which is used in accounting which identifies
the activities of the business and allocates the indirect cost of the business on the basis of
appropriate activities which were identified (Dale and Plunkett 2017). The method establishes
the relation between activities of the business, costs which are indirect in nature and the products
which are produced and effectively appropriates the costs of the business on the basis of such
activities. In some cases, it is complex to assign tasks on the basis of activities of the business
(Frazier 2014). An example can be given of depreciation which is difficult to allocate to a
specific product when there are multiple products which is produced by the business.

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Most of the businesses nowadays are implementing ABC model of costing so as to
improve the costing and accounting structure of the business (Christopher 2016). The method
can effectively allocate the indirect costs which are associated with the business to various
activities which the indirect are related to in the business. The features which can be pointed out
for ABC model are given below:
 The model is known to effectively segregate the total cost of the business on the basis of
fixed costs and variable costs which is needed for forming an efficient cost report for the
business so that the cost system of the business performs effectively.
 The pattern which is noticed in cost behavior can easily be identified with the help of
this method by the businesses.
 The method also reflects significant information about the product diversity, costs
volume and other events.
 In case of ABC model, it is imperative that appropriate cost drivers are identified by the
management and the same should be the basis to trace overhead costs which is
associated with the product.
Alignment of the Goals and strategies of the Business with Activity Based Costing
The management of Telstra ltd is planning to implement ABC model for the purpose of
measuring the costs which are associated with the business. In order to understand the basic
requirement for implementing ABC model costing, the first thing is to be understood is what are
the mission and objectivities of the business.

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Mission and Objectives of Telstra ltd.
The mission of the company is to provide better connectivity for the business. the
company focuses in providing world class experience to the customers of the business. in
addition to this, the company is committed towards transforming the business and its activities
with innovation and technological development. The market and the industry of
telecommunication is rapidly changing and the management recognizes that if the business is to
thrive, they would be needing technological and innovative changes in the business process
(Telstra.com.au. 2018). The management of the company is of the view that right vision and
right strategy and continuous hard work of the employee force of the company can lead the
company into achieving growth and providing g the best quality services for its customers.
Corporate Strategies
The company operates in a dynamic environment where all the process and customer’s
perception are changing regularly. In order to combat such a situation, the business is
continuously investing in the networks of the business, offering simple and intuitive products and
providing world class experience to the customers of the business.
From the point of view of innovation and technological enhancements, the strategy of the
company is focused on meeting the demands of the customers in terms of connectivity and also
increase the network traffic as it creates more network at the same time offering world class
products and services which can provide brilliant experience to the customers (Telstra.com.au.
2018). The management of the company is determined to compete in the dynamic environment
with the help of strong brand image and reputation of the business, cutting edge technologies,
world class leading networks and a growing domestic and international customer base.

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The business’s strategy is to create long term shareholder’s value by following the three
strong pillars which are to deliver brilliant customer services, drive value and growth from the
core and build new businesses which is close to the core. The company has invested around $ 3
billion in 2017 to further improve the networks of telecommunications and a wide range of
improvements are made in the products which is provided by the business such as the speed of
the internet which is the standard 4G has doubled itself due to the additional investment which
the management of the company has undertaken in the networks of the business. The services
which is provided by the business is focused towards helping the customers of the business at all
points. The accounts of the customers which are operated through the networks which is
established by Telstra app is monitored 24/7 and this insures the smooth operation of the network
and the customers gets the best quality of services. Another strategy of the business is to
empower the people to connect with the network as the business plans to bring about changes in
global leadership position and bringing innovative products and services to the customers.
Role of ABC Model in Achieving the Strategies of the business
Although, it is a known fact that ABC model is more popular among the manufacturing
sectors, it significance to service sector could not be ignored because of the varying features
between the two types of industries. The business of Telstra ltd is mainly engaged in
telecommunication industry and in addition to this, the business has wide variety of products
which can be offered to the customers of the business. Therefore, ABC model can be effectively
used by the business to classify the activities of the business on the basis of preference and then
all0ocate the indirect costs which are related to the business to such activities (Weygandt,
Kimmel and Kieso 2015). The business incurs lots of indirect costs which are related to power,
maintenance, network promotion which needs to be related to the products which are offered by

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the company. Some of the indirect costs which are incurred by the business are not easily related
to the products and added on an overall basis to the cost of the products which might not be an
accurate estimation (Yadav and Sagar 2013). Therefore, traditional costing techniques have
minimum scope for such a business and activity-based costing will have much more favorable
effect on the business and also improve the decision-making process of the management of the
company (Bennett and James 2017).
ABC model considers three major sections which are product, costs and activity. In the
case of Telstra ltd, the business has engaged in variety of activities which includes internet
services, telecommunication services, and similar other business activities which can be
effectively identified under different cost units (Tsai et al. 2014). These activities are then related
with the costs which are incurred by the business and the same is allocated on the basis of the
activities which are engaged by the business. The cost objective of the ABC model focuses on
the fixed and variable overhead expenses which are incurred by the business. The expenses are at
first identified and whether they are of fixed or variable nature and also identification is made
regarding which activity the costs can be related with and how such cost can be apportioned
(Öker and Adıgüzel 2016).
The business of Telstra ltd is focused on technological advancements and product
development which is sure to attract more indirect costs which can be effectively handled if the
management follows ABC model of costing. The strategic objective of the business is to enhance
the world leading network by investing in the same and providing the customers with world class
experience in connectivity and network services. The management of the company will only be
able to achieve such strategies if the costs which are associated with implementing such
strategies are properly controlled and allocated which can be done with the help of ABC model

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of costing. Thus, from the above discussions, it is clear that implementation of ABC Model will
be facilitating the management of Telstra ltd to effectively manage the costs which are related to
the business and allocate the same activity and product wise in an appropriate manner.
Recommendations about Implementation of ABC Model for Telstra ltd
In order to appropriately implement ABC model in the system of the company, the
management needs to take necessary steps such as setting up of teams which can help the
business design a basic design which could help in accounting for the costs which are associated
with the business. The following recommendation which are can be suggested to the
management of Telstra ltd for effective implementation of ABC model are given below:
 The management of the company needs to conduct a meeting wherein the implementation
of ABC model is to be discussed with all the teams of the business such as marketing,
sales, operations (Hilton and Platt 2013). The management can also employ the services
of an expert in ABC Model of costing in order to seek advice as to how the management
can effectively implement ABC costing model in the business.
 For successful implementation of ABC model and also operation of the same the
management of the company needs to restructure the cost structure of the business which
was generally following traditional method (Tibesku et al. 2013). The top-level
management needs to play an active role in the implementation of the costing method
Alternative Management Tool which can be used by Telstra ltd
Budgetary Control is one of the management tool which the business of Telstra ltd can
effectively use for the purpose of monitoring and supervising the costs and performance of the
business (Kelly and Rivenbark 2014). In addition to this, budgets can be effectively used by the

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business to plan, forecast, monitor the activities and the cost which the business is likely to incur
from such activities (Wildavsky 2017). The benefits of implementing an appropriate budgeting
system is given below:
 The management of Telstra ltd can effectively plan the activities of the business
following the core objectives of the business with the help of a proper budget (Edwards,
Harris and McCaffer 2014). The bank would be able to effectively coordinate between all
activities of the business and also check whether the business is moving the course as the
management planned.
 Budgets also facilitates the management to set targets which are then communicated to
different departments so that the business can synchronize effectively the activities of the
business (Gorgotskaya and Selyutina 2013).
Conclusion
Thus, from the above discussion it is clear that the management of Telstra ltd needs to
implement ABC Model of costing so as ton facilitate better cost structure and recording of the
indirect costs of the business. The business will be benefiting with the implementation of ABC
model which will benefit the business and also reduce the indirect costs of the business as certain
indirect expenses which were difficult to relate to a product can easily be allocated using the
ABC model. In an overall view, the business of Telstra ltd will be greatly benefit with the
introduction of ABC model.

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Reference
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