Managerial Accounting : Solved Assignment

Managerial Accounting
5/21/2018
Australian Pharm

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Executive summary
Management accounting information is referred to as the computer-based method that is used by
the companies for tracking the accounting activities in conjunction with the information
technology resources. This report is based on the activity-based costing model that is used by one
of the ASX listed company that is Australian Pharm. This report includes the details related to
the ABC model and its features. Along with this, the report reflects the alignment of the activity-
based costing model with the goals and strategies of the company. In the end, it also includes one
management accounting tool that can be used by the company.

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Contents
Introduction......................................................................................................................................3
Overview of company..................................................................................................................3
Activity-based costing model..........................................................................................................4
Features of Activity-based costing method.....................................................................................5
ABC aligns with goals and strategies..............................................................................................6
The mission of company..............................................................................................................6
Value of the company..................................................................................................................6
Objectives of company................................................................................................................6
Strategies of the company............................................................................................................7
ABC model assist in achieving the company’s strategies...............................................................7
Investment....................................................................................................................................7
Logistics.......................................................................................................................................8
Marketing of the products............................................................................................................8
Innovation in the products and services.......................................................................................8
Recommendations..........................................................................................................................10
Suggestion for management accounting tool.................................................................................11
Conclusion.....................................................................................................................................12
References......................................................................................................................................13

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Introduction
The aim of the report is to talk about the activity-based costing method which is generally used
by the company for improving the management of the accounting information. Australian Pharm
Company hired a new member as a board of Directors of the company who can provide the
details related to the way through which the ABC model can bring the improvement in the
management of the accounting information available to its top management team which includes
CEO and senior managers. This report provides the recommendation of the ABC model to the
Australian Pharm company.
Overview of company
Australian Pharm is the parent company of Priceline Pharmacy, Pharmacist Advice, and Soul
Pattinson Chemist. The company offers the whole product delivery, retail services, marketing
programs and business advisory services (API, 2018). The company currently celebrated its 105
birthday. Moreover, over the years the company is growing from a small co-operative of the 3
pharmacists to the MNC which is now one of the Australia leading beauty and health companies.
The company started the business from a small home in Sydney and expanded the business
across Australia (API, 2018).

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Activity-based costing model
Activity-based costing method is accounting methods that help the managers in determining the
activities that a company performs and then assigns indirect costs associated with the product
and services offered by the company. In simple words, it can be said that the ABC model is a
managerial accounting method that tracks overhead costs associated with the events and then
assigns them to the particular objects. This method was first presented by the Kaplan and Bruns
in the late 1980s (Accounting tools, 2017). ABC model is a simple way through which manager
can allocate the indirect cost to products or departments that lead to the cots in the production
process. This process aims at determining the activities of the business, production processes that
are essential to be utilized to process a job or work (Weygandt, Kimmel and Kieso, 2015).
It is essential for the company to properly assign the indirect cost which is enormously
significant for the management mainly in the case of the outsourcing and downsizing. In an
organization there are many activities that are associated with the additional indirect cost which
might lead to the unprofitability of the activity (CGMA, 2013). The implementation of this
model helps the company in proper assigning the cost that is associated with the activity of the
company. In this model of ABC, a particular activity is basically considered as any event or
business that works like a cost driver. Cost driver model is also recognized as the allocation base
because the company managers make use of this model while allocating the cost of the particular
activity (Investopedia, 2018). This model consists of the two major activities which are discussed
below: -
 Duration drivers: - These drives measure the time that is taken by the activities to
accomplish.

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 Transaction drivers: - It includes the number of times an activity happens.
(Source: CGMA, 2013)
This management accounting method works effectively in the complex conditions of the
environment of a business where the business consists of the machines and products (Garrison,
et.al, 2010). It also includes the tangles processes that are not easy to be managed by the
company.
Features of Activity-based costing method
 The ABC model includes the dealing with the cost drivers that helps the company in
dictating the behavior pattern of the cost.
 ABC model allows the appropriate distinction between the cost behavior patterns that are
used by the companies.

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 The total cost is separated between the two types of cost one is fixed cost and other is a
variable cost which is essential for the company to offer the quality data that is required
to design a suitable cost system in the manufacturing system (Accounting learning,
2018).
 ABC is one of the effective management accounting tools that is used for the proper
allocation of the overheads of the particular activity of a firm.
 It provides the support to the performance management techniques (like Scorecard and
management technology) that are used by the company to evaluate the performance of
their working (Drury, 2013).
ABC aligns with goals and strategies
Mission of company
The vision of the company is to enriching life as the most inspirational choice for health,
wellbeing, and beauty (API, 2018).
The mission of the company is to become the leading health and beauty Care Company across
the world.
Value of the company
API value is assisted by the four values in the day to day operations: -
 Excellence
 Unity
 Respect
 Initiative

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Objectives of company
The objective of the Australian Pharm company is to form a Priceline pharmacy's position as
Australia's favorite mass market health and the beauty retailer. Considering the competitive
market and the sentiments of the customers, the company is continued to offer the in-store
product range and the service capabilities in both the health and beauty (API, 2018). Another
objective of the company is to ensure that the pharmacy distribution business is continued to
deliver the steady and suitable growth.
Strategies of the company
The company forms some strategies through which they are able to accomplish their objectives
related to the company. The company is willing to make the investment so that they can
contribute effectively in developing the professional services as this area is raising an importance
for the pharmacists. The company is making the strategy through which they can bring the rise in
the revenue. The company tries to improve the cost that is associated with the logistics of the
company as this is the effective way through which they can reduce the cost of products and
bring the rise in the profit of the company. Along with this, another strategy that is implemented
by the company is to perform the effective marketing of the products. Marketing of the products
in the market will help the company in registering the effective position. Moreover, the company
brings the innovation in the products and services which is an effective way through which they
can contribute in attracting the customers and improving the services of the company.

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ABC model assist in achieving the company’s strategies
The activity-based costing method helps the Australian Pharm company in accomplishing the
corporate strategies effectively. Below given is the alignment of the Activity-based costing
model with the company's current strategies.
Investment
While doing the investment, the company can get the support from the Activity-based costing
method through which they can analyze the cost that is associated with the investment that is
done by the company. ABC model will help the company in analyzing the cost that is associated
with the professional services (Zimmerman and Yahya-Zadeh, 2011).
Logistics
To bring the rise in the revenue of the company, ABC model will support in reducing the cost
that is associated with the distribution of the products. The company offers the service of product
delivery which is a part of the activity of distribution. Australian Pharm can analyze the cost that
is linked with the distribution activity of the company and they can try to reduce and eliminate
the overhead cost which will make the operation of the company profitable for them
(Christopher, 2016). Along with this, the company will be able to provide the delight services to
the customers. The effective management of the logistics services will help the company in
making the revenue which can be used by the company in other investment that can contribute to
achieve the objectives of the company.
Marketing of the products
The marketing of the products is one of the effective strategies that contribute to achieving the
vision of the company. The marketing of the products can be done through advertisement, direct

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selling, and personal selling. The cost of the marketing of the products is too high which include
both the direct and indirect cost (Nagle, Hogan and Zale, 2016). The company will get the
support from ABC model to allocate the resources and cost-effectively.
Innovation in the products and services
The innovation in the product and services of the Australian Pharm is essential for the company
as this is the only way through which they can make their customer base strong. The strong
customer base helps the company in forming a good reputation in the market which
accomplishes the objective. ABC model supports the company in analyzing the amount that they
are willing to spend on the innovation of the product. The company should consider the needs
and demands of the customers while innovating the products (Chenhall and Moers, 2015). If the
company will be able to meet the demand then they can easily lead to customer satisfaction and
loyalty.
The overall analysis reflects that ABC model supports and provide the assistance to the
Australian Pharm company so that they can effectively accomplish their goals and objectives.
This implementation of the ABC model helps the company in reducing the cost and eliminates
the indirect cost due to which the company is not able to make the profits. In addition, the
company will be able to generate the customer loyalty and satisfaction.

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Recommendations
He research and findings of the analysis reflect that activity-based costing model is one of the
effective ways through which the company can achieve its goals and objectives. Moreover, the
implementation of the ABC model helps the company in generating the additional revenue. The
implementation of the ABC model in an organization is possible only if the manager of the
company support the activity-based costing model. It is recommended to the company to take the
proper approval from the directors wither they are willing to implement ABC model or not.
Moreover, along with this, it is found that this model is difficult to be implemented by the
manager of the company. Therefore, the manager should appoint an expert who can effectively
implement the model in the company. The effective implementation of the model in the
organization is required because this is the only way through which the company can identify
accurate cost associated with the activities of the company.

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Suggestion for management accounting tool
Apart from the activity-based costing method, the company can implement the time driven
activity-based costing model (TDABC). This model is one of the advanced management
accounting tools that are suitable for the company. This approach is the revised approach of the
ABC model in which the managers of the company can directly predict the resources demands
(Kaplan, et.al, 2014). The Time-driven ABC model reduces the amount of the information and
only needed to predict two things: -
 The cost and the resources that are committed with the practical capacity
 The unit time that is required to perform the transactional activities.
Therefore, this can be said that TDABC model is one of the effective models that can be used by
the company. This approach of TDABC will improve the Australian Pharm operations across the
Australia and the company also gets the support as they will able to manage the time and cost
together.

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Conclusion
At the end of the report, this can be concluded that the Activity-based costing is management
accounting which is commonly used by many companies. This tool provides the assistance to the
company related to the ways through which they can decrease or eliminate the cost that is
associated with it. The report reflects that this model helps the Australian Pharm company to
reduce the cost that can affect the profitability of the activity. Australian Pharm can get the
support of this method in the strategies that managers are willing to implement for the current
year.

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References
Accounting learning (2018) Activity Based Costing | Meaning | Features | Objectives |
Implementation [Online]. Available from: https://accountlearning.com/activity-based-costing-
meaning-features-objectives-implementation/ [Accessed on 10th May 2018]
Accounting tools (2017) Activity-Based Costing [Online]. Available from:
https://www.accountingtools.com/articles/2017/5/14/activity-based-costing [Accessed on 10th
May 2018]
API (2018) About Us [Online]. Available from: http://www.api.net.au/about-us/ [Accessed on
10th May 2018]
API (2018) Annual Report [Online]. Available from:
http://www.api.net.au/wp-content/uploads/2017/12/3-API-Annual-Report-2017.pdf [Accessed on
10th May 2018]
API (2018) Our History [Online]. Available from: http://www.api.net.au/about-us/our-history/
[Accessed on 10th May 2018]
API (2018) Vision & Values [Online]. Available from: http://www.api.net.au/about-us/vision-
values/ [Accessed on 10th May 2018]
CGMA (2013) Activity-based costing (ABC) [Online]. Available from:
https://www.cgma.org/resources/tools/essential-tools/activity-based-costing.html [Accessed on
10th May 2018]

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Chenhall, R.H. and Moers, F. (2015) The role of innovation in the evolution of management
accounting and its integration into management control. Accounting, Organizations and
Society, 47, pp.1-13.
Christopher, M. (2016) Logistics & supply chain management. UK: Pearson.
Drury, C.M. (2013) Management, and cost accounting. New York: Springer.
Garrison, R.H., Noreen, E.W., Brewer, P.C. and McGowan, A. (2010) Managerial
accounting. Issues in Accounting Education, 25(4), pp.792-793.
Investopedia (2018) Activity-Based Costing - ABC [Online]. Available from:
https://www.investopedia.com/terms/a/abc.asp [Accessed on 10th May 2018]
Kaplan, R.S., et.al, (2014) Using time-driven activity-based costing to identify value
improvement opportunities in healthcare. Journal of Healthcare Management, 59(6), pp.399-
412.
Nagle, T.T., Hogan, J. and Zale, J. (2016) The Strategy and Tactics of Pricing: New
International Edition. New York: Routledge.
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E. (2015) Financial & managerial accounting. New
Jersey: John Wiley & Sons.
Zimmerman, J.L. and Yahya-Zadeh, M. (2011) Accounting for decision making and
control. Issues in Accounting Education, 26(1), pp.258-259.