HI5017 Managerial Accounting: Activity Based Costing (ABC) Model and Enterprise Risk Management (ERM) for A2 Milk Company

HI5017 Managerial Accounting

Executive summary:
Being the senior manager of the company, ABC model is suggested to being implement in the
A2 milk company. In ABC model manager has explained about its feature, and its important
functions. As per the manager, to obtain the company’s goal is the main objective. The manager
has also explained about the strategies and the current goal of the organisation. As per the listed
company ABC model has adopted to improve the functioning and the management of the
accounting. It has also explained about the how to achieve those strategies with the help of ABC
model.
Introduction:
A2 Milk company is the listed company, of the Australian stock exchange. This company has the
large shareholders in the market and also the reputed company of the Australia. This Company
adopts the ABC model, it is the method of accounting in which basically we conclude the
overhead cost of the company and try to reduce its cost. Activity based costing (ABC) deals with
the indirect cost such as office staff salary, management, etc. This method deals with the
relationship of the cost with their product and its activities. ABC identifies the final output of the
costing, to analyse the profit of the company.
a) An explanation of ABC model and its features:
Activity based costing is the method of accounting to determine the cost at each level. It
basically deals to reduce indirect cost or overhead expenses such as rent, salary, staff expense,
etc. This cost id further divided into two parts Fixed cost and Variable cost. Fixed cost remain
same at all level but variable cost changes as per the change in the output. It is the more accurate
and the reliable method to ascertain the cost of the product. The cost is concerned with the
matching cost called cost driver. ABC is the approach to the costing which assigned to cost
object for an effective management.
Features of accounting:

1 ABC model follows the cost behaviour pattern which relate to the things such as time, volume,
events, etc.
2 In ABC method first we analyse the cost of the resources, then we have to allocate that cost to
some specific product.
3 The cost is divided into two parts – Fixed cost and the Variable cost. These two cost are
important for the framework of the accounting. These two cost are design to find out the actual
cost of the company.
4 To determine direct material and direct labour is also the challenging one.
5 ABC method is based on the arbitrary method rate and it is typically used to calculate
Indirect cost to product cost.
6 ABC also find out the cost of each product and the feature of each activity.
7 ABC model provides the useful cost information and reduces or control the cost which is
unproductive. It also helps in decision making and achieves the strategical and operational
activities.
8 To successfully implement of ABC model there should be the support of top level
management. With the help of leadership and strong support, ABC model will work more
efficiently.
9 ABC can’t do the proper functioning without the knowledge of their employees, other sectors
too.
10 ABC model is the is advocated accounting method which is worth while to perform for a new
organisation.
b) An explanation of how ABC model aligns with the current goals and strategies of
the company. This explanation should include:
i) An identification of the company’s mission and objectives: