Value Chain Analysis and Cost Allocation using ABC Approach for A2 Milk Company

Management Accounting 1
Management Accounting
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Management Accounting 2
Executive summary
This paper gives a full description of the concept of value chain. It also identifies the advantages
of value chain in the organization and their development. In the paper, A2 Milk Company was
used as the case study. The value chain analysis was used on the company to access the different
ways this could company could enjoy economies of scale. The company further describes the
concept of cost allocation using the ABC approach.

Management Accounting 3
Table of Contents
No 1a: The concept of Value chain..........................................................................2
The two advantages of conducting Value chain analysis are:.................................3
No.1bi: Chosen Company........................................................................................ 3
The chosen company is a2 Milk Company...............................................................3
No 1bii: Competitive advantage..............................................................................4
A description of the competitive strategy for the company....................................4
Question 1biii: Value Chain model...........................................................................5
No 1biv : Value adding processes...........................................................................6
No 1bv: Relevancy.................................................................................................. 7
Question 2............................................................................................................... 7
(a)............................................................................................................................ 7
Rates of allocation........................................................................................................ 7
(b)............................................................................................................................ 7
The Job overhead allocation for job 20 in October.................................................................7
(C)............................................................................................................................ 7
Overall cost for job 20................................................................................................... 7
D. Fixed and variable overhead amounts allocated to jobs in October.........................................8
Question three..................................................................................................... 8

Management Accounting 4
No 1a: The concept of Value chain
Value chain defines a set of actions or activities done by a firm or company so as to a produce a
valuable service or product to the customers (Jaworski, 2018). The process of analyzing the
different activities which need to be undertaken by the company or firm belonging to a given
industry is referred to as Value Chain analysis. Value chain consists of range of different
activities undertaken the firm so as to come up with valuable products (Rieple & Singh, 2010).
The different activities are design, production, and marketing, offering support to the customers,
as well as recycling and disposal. The different activities which are undertaken within the value
chain process can be carried out either in single firm or group of firms. The concept of value
chain was initially first described by Michael Porter in the 1985. Porter explains that the
manufacturing process of the organization is valued as a full system (Dibb, 2010). This full
system is further divided into subsystems consisting of inputs, transformation activities, as well
as the outputs. The Inputs, outputs, and transformation processes involve the attaining and
consumption of the different available resources. These resources are labor, material, and
buildings, money which stands for capital, equipment, management and administration. The
handling of the value cost procedures within the firm is responsible for determining the profits of
the company as well as the costs incurred. The different activities within the value chain are
categorized as either supportive or primary activities (Fearne, 2012). The primary value chain
activities are responsible for coming up with competitive advantage as well as adding value to
the company. The different primary activities are: logistics, operations, outbound logistics, sales
and marketing, as well as service (Ramaswamy & Ozcan, 2016). The inbound activities with in
value chain comprises of acquiring raw materials and inventories from the different suppliers by
the manufacturers or firm. The operation activity consists of different processes involved in
turning present input for example labor, energy, and raw materials to an output inform of
services or goods. The outbound logistics process consists of delivery of the products or services
from the source of production to the end-users.
There are several drivers which can be controlled by the A2 Milk Company Limited and these
can form a basis for adding value, differentiation as well as enhancement of efficiency. Some of
these activities include organizational policies, timing, linkages, interrelationships, integration as
well as capacity utilization. It should however be noted that some costs can only be reduced
slightly. The value chain analysis of the A2 Milk Company Limited must consider the
customer’s perception and ensure the justification of the higher prices the company charges
compared to its competitors. In the same manner, the company can be able to obtain a
differentiation advantage through conducting an analysis of the various value chain activities.
The company can invest in the procurement of unique as well as valuable inputs which the
competitors may not be able to easily obtain. A2 Milk can either invest in the reconfiguration of
the entire value chain or alter some specific aspects of its chain to form a basis for
differentiation. It could as well alter the cost drivers including timing, linkages interrelationships,
integration and scaling. The company can invest in forward integration to have better
management of its inputs. The company should also consider investing in the utilization of new