Management Accounting for David Jones: Features of Activity Based Budgeting and its Suitability

This report discusses the use of activity based costing and its features in an organization. The organization that has been selected for pursuing this report is David Jones, which is an upmarket department store in Australia, deals in different products and altering its operations with time. The report highlights the features of activity based budgeting, the difference between traditional budgeting and activity based budgeting, and checks the suitability of activity based costing for David Jones.

Running head: MANAGEMENT ACCOUNTING
Management Accounting
David Jones

MANAGEMENT ACCOUNTING 1
Table of Contents
Introduction................................................................................................................................2
Overview of David Jones.......................................................................................................2
The vision of David Jones Limited....................................................................................3
The mission of David Jones Limited.................................................................................4
Values of David Jones Limited..........................................................................................4
Overview of Activity Based Budgeting and Features............................................................4
Features of Activity based budgeting.................................................................................6
Difference between traditional budgeting system and activity based budgeting...................7
Checking the Suitability of Activity Based Costing for David Jones....................................9
Conclusion................................................................................................................................11
References................................................................................................................................12

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Introduction
Management is the procedure of recognizing, evaluating, analyzing, understanding, and
communicating info to the administration that is focused towards attaining the goals of the
organization (Nørreklit, 2017). Management accounting is also called cost accounting. The
main dissimilarity between financial accounting and managerial accounting is that financial
accounting is attentive towards offering data to the external parties of the company, and
management accounting information is supporting the executives in the business in taking
proper decisions. There are various tools available that support management accounting
determines and handle their resources, costs, and strategies of the organization (CGMA,
2013). One of the significant tools of management accounting that support organizations in
planning their budgets and managing resources of every activity of the business is Activity
based budgeting. The purpose of this report is to highlight the use of activity based costing
and its features in an organization. The organization that has been selected for pursuing this
report is David Jones, which is an upmarket department store in Australia, deals in different
products and altering its operations with time. After discussing this report will review
whether Activity based costing will be suitable for David Jones or not. In the end, an
argument will be presented that will highlight the dissimilarity between traditional budgeting
and activity based budgeting.
Overview of David Jones
David Jones is the upmarket department store of Australia, which is owned by the retail
group of South Africa i.e. Woolworths Holdings Limited. David Jones established this firm in
1838, a Welsh trader, and forthcoming politician after he settled to Australia, and is the eldest
unceasingly functioning department store in the whole world still operating under its original
name. Presently, David Jones Limited has 45 stores placed in most of the states and territories

MANAGEMENT ACCOUNTING 3
of Australia (except in the Northern Territory and Tasmania) (IBIS World, 2013). The main
rivals of David Jones are the big, high-class subdivision chin of store i.e., Myer. In 2016, the
company opened its first store in New Zealand market after purchasing Kirkcaldie & Stains.
In the same year, the parent company of David Jones i.e. Woolworths Holdings Limited
proclaimed that headquarter of the company is shifted from Sydney, New South Wales to
Richmond, Victoria (David Jones, 2018).
In 2013, Myer management approached David Jones with a provisional, non-binding,
revealing offer for a possible union of the two businesses. Myer thought that the combined
group would have produced highest earnings and sales before tax and interest in 2013 of
around $5.0 billion and $364 million, correspondingly. Moreover, Myer estimated that a
union of both the companies could have helped in attaining around $85 million of continuing
yearly cost collaborations within three years, mainly determined by organizational
competences. The David Jones board disallowed the proposal in November 2013 (David
Jones, 2018). In 2014, again Myer went to David Jones offering to purchase the business at
market value, with David Jones possess a market capitalization of around $1.7 billion. Myer
also specified that its CEO Bernie Brookes would be competent in handling both the entities
if the merger will take place. David Jones recognized the letter affirming it would think about
any offer that will be in the best interest of the company’s shareholders (David Jones, 2018).
The vision of David Jones Limited
The vision of David Jones Limited is to be the most responsible retailer in the world that
could reflect their passion and commitment to be involved in a good trade, for their people,
planet, and customers (Woolworths Holding, 2018).

MANAGEMENT ACCOUNTING 4
The mission of David Jones Limited
The mission of David Jones Limited is to add value to the life of people by offering good
quality products and enhance the experience of their people and customers (Woolworths
Holding, 2018).
Values of David Jones Limited
The values of David Jones notify and reinforce the manner they do the business across their
group. From the value-centric leadership to passionate brand support, they look to implant
their values in all the extents of their business. The values reflect that they are consumer
obsesses, stimulating, accountable, combined, and dedicated towards the quality
(Woolworths Holding, 2018).
Overview of Activity Based Budgeting and Features
Budgets are generally planned for the areas in an organization and for different activities.
System of budgeting i.e. Activity based budgeting offer the inclusive financial plan to the
business as a whole and offers a business various advantages such as it enforces executives to
plan, and it offers information of the resources that could be used to enhance the procedure of
decision making (CGMA, 2013). Besides this, it assists in the utilization of employees,
resources by placing a standard that could be used for the succeeding performance
assessment, and it enhances coordination and communication among customers, organization,
and employees. Budgeting forces administration to do planning for the upcoming period to
frame direction for the business, predict issues, and improve future strategies. When
executives spend their time in planning, the understanding of the capabilities of the business
increases and the understanding of where the key resources of the company must be used
increases. Budgets allow executives to make improved decisions. They support executives to
predict their potential variances, particularly in shortfalls (Huynh and Huynh, 2013). By
evaluating differences to discover the cause, support managers develop activities of the

MANAGEMENT ACCOUNTING 5
organization to attain the planned goals. Budgets set the criteria that can regulate the use of
resources of the company and employee’s motivation.
Source [(Pietrzak, 2013)]
Activity based budgeting is the technique that researches, analyze, and records activities that
are valuable for the business. Activity based budgets are just regulating preceding budgets to
check the inflation or development of the business (Oneshko and Boiko, 2016). In its place,
ABB identifies efficiencies in the operations of the business and creates budgets based on
different activities involved. The two fundamental and basic notions that motivate the usage
of ABB are Activity Based Costing and Activity Based Analysis. The first is the set of
processes and rules utilized in evaluating, assigning, and tracking cost to objects, whereas,
the second concept is the heat of valuation all the function in the fundamental detailed
elements. In order to adopt activity based budgeting, business must have sufficient funds that
can support business in bearing the expenditures that are incurred at the time of conducting
research and preparing budgets under this system (Moustafa, 2005). This method is a time
consuming which comprises detailed analysis and research to prepare the budgets of the
business. However, activity based budgeting helps in getting detailed and precise information
about the cost that can be incurred while planning changes in the future.

MANAGEMENT ACCOUNTING 6
Features of Activity based budgeting
Costlier
Activity based budgeting is a costly method of budgeting as it requires the involvement of
executives and experts that possess the detailed knowledge of the business as well as the
market. Moreover, it is comprised of detailed analysis and research that could not be
conducted without the support of management and funds (Bragg, 2016).
Time Consuming
It takes a lot of time to arrange the data and perform the research to identify the relevant
activities as well as resources required to attain the goals. Therefore, it is a very time
consuming procedure (Bragg, 2016).
Reliable information
Traditional budgeting systems only check the previous year results to prepare the current year
budget that does not provide a company reliable as well as precise information about the
expenditures that are going to incur in the future. However, activity-based budgeting is one of
the reliable systems because it performs a detailed analysis of the activities and the cost
associated with them (Drury, 2008).
Competitive Advantage
The system of activity based budgeting removes all kind of needless activities that support
the company in saving its costs. The saved cost is the utilized in the goods production at less
cost (Drury, 2008). Besides this, it, help the business to attain a competitive edge over its
competitors.
Improve Customer and Company’s Relationship
The system of Activity based budgeting support in enhancing the company's relationship with
its stakeholders particularly with the consumers. The key objective of this system is to

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exclude the excessive activities and offer the consumer the best quality at a reasonable price.
This makes compulsory for the workforce of the business to assist customers in the best
possible way and ensure their increased satisfaction (Bragg, 2016).
Assessment
Method of activity based budgeting measures every cost driver in the business. It considers
all the possible phases included in an activity. The immaterial activities are eradicated and
only the required activities are included to generate value for the business (Drury, 2008).
Short term
The focus of activity based budgeting is towards the short-term objectives of the company. It
does not consider the long-term situation of the company as it focuses more on the short term
goals that could be proved to be very incurable for the organization (Bragg, 2016).
Resource consumption
The process of budgeting makes use of various resources of the business that need the
requirement of the top administration of the company for conducting the analysis (Drury,
2008).
Difference between traditional budgeting system and activity based budgeting
Traditional budgeting is a technique of preparing budgets in which the previous year's budget
is considered as a base. The budget for the current year is prepared by doing some alterations
to the budget of the previous year by amending the overheads depending on the customer
demand, the situation of the market, and inflation rate, etc. Whereas, Activity based is a
system of planning in which cost is linked with the activities and budgeting expenditure is
then compiled based on the expected activity level. Unlike other methods of budgeting,
activity based budgeting adjust cost levels for inflation and changes in the revenue to derive
the yearly budget (E-Finance, 2018). The key objective of budgeting is enhancing and

MANAGEMENT ACCOUNTING 8
controlling the efficiency. From the analysis, it could be said that Activity based budgeting
has several advantages as compared to traditional budgeting. ABB creates a target and
motivates managers to operate towards attaining the goals of the organization. The company
makes use of activity based budgeting to assess its competence and success. Competence is
attained when the process of the business is performed effectively, with zero percentage
waste. The ABB offer a valuation of the competence of an executive. This is because it helps
in comparing the definite outcomes with the pre-planned budgeting activity. Success means
that an executive attains or surpasses the described goals (Pietrzak, 2013).
Activity based budgeting upkeep some potential as an answer to the errors and hindrances of
methods of traditional. Traditional budgets do not recognize any type of waste whereas
activity based budgeting disclose non-value costs. Traditional budgeting concentrate on the
employees and activity based budgeting concentrate on the workload on the employees
(Smith, 2018). Besides this traditional budget, concentrates on the cost of divisions and
activity based budgeting talks about the cost of the process. Traditional budgets talk about the
fixed versus variable costs and activity based costing talks about used capacity versus
unemployed capacity. Traditional budgets evaluate effect whereas activity based budgeting
evaluates root cause (Shane, 2018).
Activity based budgeting is said to be a substitute to the government traditional budgets, the
line item might be essential according to the law, but there is nothing stopping a company
from accepting the activity based budgeting to resolve the internal business issues. ABB
system is useful for the businesses experiencing changes in terms of material, like new
subsidiaries, locations of the business, products of the business, significant consumers, etc.
Because traditional method just adjusts a budget of the previous year. Traditional budgeting
is a system that lacks in offering consistent and detailed information whereas today
organizations adopt activity based budgeting just because it provides them more consistent as

MANAGEMENT ACCOUNTING 9
well as detailed information to manage the expenditures that take place to complete different
business activities (Surbhi, 2017). Moreover, ABB also provides detailed information that
offers various opportunities and data cross-analysis to the company. Unlike traditional
budgeting method, the ABB method analyses the present opportunities and assign resources
precisely to every activity. Businesses select activities or task depending on the goals of the
company, like enticing new consumers or involved in a new business line, then assign
spending by arranging activities as per priorities. This procedure is very beneficial for the
companies with huge history from scratch.
Checking the Suitability of Activity Based Costing for David Jones
From the above analysis, it has been identified that activity based budgeting is beneficial for
those organization that has a long history and regular make changes in its processes as well as
activities. David Jones is one of the well-known chains of an upmarket department store in
Australia comprised of different departments and activities. David Jones is regularly
experiencing the changes in its business such as the addition of different types of products in
its offering, material change, expansion in the different market, etc. Moreover, it has a very
long list of future planning and one of them is to open its second store in the New Zealand
market with different as well as quality offerings (Inside Retail, 2018). This reflects that the
company is regularly gets affected by altering the cost of material, infrastructure, the rate of
land, etc. that disturbs the budget of the company. Therefore, it can be suggested that in order
to operate effectively with the frequent changes in the market as well as in the business
operations David Jones need to avoid its traditional budgeting system and must adopt activity
based budgeting.
ABB budgeting will offer reliable and detailed information of the changing resources price to
the business. Moreover, before creating the budget this system perform proper analysis and
investigation of all the activities involved in the business to identify the actual cost that could

MANAGEMENT ACCOUNTING 10
be incurred and irrelevant activities that can be eliminated from the process. Elimination of
irrelevant activities also supports in saving the cost that eventually could be used in the
business for the production of the service or product. Besides this, activity based budgeting
delivers genuine data in terms of a number of cost declines defined by the cost upgrading
initiatives, thus offering auditors another standpoint to the costs (Hansen, Mowen and Guan,
2007). This reflects that the Activity-Based Budgeting can add something to the growth and
performance of the business in different industries. Moreover, if activities based budgeting
will be adopted within the financial system of the David Jones then the managers of the
business could look at the business as one single system from the initial stage to the last
stage, in place of individual departments. As the aim of the company is to offer quality to its
customers due to its customer-centric approach activity based budgeting will help in
maintaining the consumer focus culture. This system of budgeting will also make the
strategic planning easier when there will be the only motive to satisfy the customer (Julyan,
2018).
One of the major advantages that could be observed after adopting activity based budgeting
in the business is it encourages team spirit among employees of the company (Căpuşneanu,
Topor and Rof, 2013). David Jones Limited is experiencing huge competition from its strong
rival i.e. Myer because it frames different strategies to attract customers and increase its
customer base. In order to deal with this and gain the competitive advantage against its rival
activity based costing will help the company in planning a precise budget with the help of
detailed research and involvement of top management. David Jones is one of the strongest
players of the Australian market with maximum funds and huge investments that reflect that
company can afford this budgeting system because it is a bit costly due to detailed procedure
of the system.

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Conclusion
The technique of management accounting i.e. Activity based budgeting is not a new concept
but it is an effective technique that could change the image of the company in the market. It
supports business in getting proper data and information of the capabilities it possesses to
compete in the market. The above report has highlighted all the significant information that is
required to understand the benefits of the budgeting system and attract businesses to adopt it
for their growth. From the analysis, it has been suggested that David Jones Limited must
adopt this system of budgeting in order to survive in the market for a longer time and manage
the cost of changing resources and activities in the business. In comparison to traditional
budgeting, activity based budgeting is much more reliable and valuable for the company to
increase the revenue and eliminate the unnecessary cost incurred in the business. Moreover,
activity based costing will not just analyze the future funds required for performing the
activities but it will also help the company in understanding the importance of each and every
activity involved in the business along with resources required to complete those activities.
However, ABB is a costly system of budgeting that cannot be afforded by any business
because it is long as well as costlier procedure. The report has also discussed the features of
this system that shows that ABB budgeting enhances the relationship between the company
and its stakeholders by eliminating the additional cost involved in the product that results in
lower cost of production as well as increased disposable income of the customers. Traditional
budgeting is different from activity based costing in terms of cost and time involved in
preparing the budget, assignment of cost to the activities, reliability, etc. In the end, the
suitability of activity based budgeting for David Jones Limited has been proofed by this
report with the help of relevant data.

MANAGEMENT ACCOUNTING 12
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