Managerial Accounting: ABC Model and Its Features

This report discusses the advantages and features of the ABC Model costing and how it can assist companies in achieving their goals. It also covers the implementation of the ABC model and other management tools suitable for the management. The report includes a case study of Australian Agricultural Limited and its mission, objectives, and corporate strategies.

Running head: MANAGERIAL ACCOUNTING
Managerial Accounting
Name of the Student:
Name of the University:
Authors Note:

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Table of Contents
Introduction:...............................................................................................................................2
ABC Model and its features:......................................................................................................2
Identification of the company’s mission and objectives............................................................4
Various corporate strategies implemented by the company:.....................................................6
The ways in which the ABC model can assist the company in achieving its goals:..................7
Recommendation regarding the implementation of the ABC model:........................................7
Other management tool suitable for the management:..............................................................8
Conclusion:................................................................................................................................9
Reference..................................................................................................................................10

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Introduction:
In the present report the advantages, features and other unique characteristics of the
ABC Model costing will be highlighted. Subsequent to that, an effort will be made to develop
an understanding with respect to the principles with which the entity is conducting its
operations.An insight will also be obtained in respect of the mission, vision and the various
objectives of the entity (Chouhan et al. 2016).
The company that has been selected for the particular analysis is Australian
Agricultural limited. The company has got its listing in the Australian stock exchange.
ABC Model and its features:
The various activities that Aare being undertaken by the management of the company
will be undertaken. The understanding of the various activities that are undertaken by the
management will help in understanding the process of allocation of the indirect costs that are
incurred by the company to the various functional areas of the entity. An understanding must
be developed in respect of the relationship that is drawn by the ABC Model of costing
between the various activities that are being performed, the costs that are being incurred by
the entity and the various products that are developed by the entity (Malmi 2016).The
relationship that is drawn by the ABC model enables the allocation of the indirect cost to the
products made by the entity in a less arbitrary method than the traditional way of costing.
There are various costs that are being incurred by the entity are difficult to be allocated under
this method. The salary that is paid to the management of the company and the office staff of
the entity are among the various costs that are difficult for the purpose of allocation
(Hofmann and Bosshard 2017).
The entities that are engaged in manufacturing activities are able to make use of the
method in a more effective and efficient ways than others. The reason being that the data that

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is given out by this method is more reliable than the one obtained from other sources. The
method also lays down the true costs of the entities and which helps in the better allocation of
the costs to the activities of the entity.
The method is effectively utilised by the management for the purpose of
ascertainment of the costs that are incurred by the entity. The costs that are being ascertained
include service pricing, target costing, product costing and the analysis of the product line.
The method is successfully utilised by the management for ensuring that the strategies that
are implemented by it are effectively implemented by it.
Some of the features of the ABC Costing model are as follows:
a) The total costs that are incurred by the entity are divided into two categories that are
variable costs and fixed costs. The division of the costs into two parts enable the
management to get quality information for its management and creating a decent cost
recognition system within the entity (Hammer 2015).
b) For the purpose of decision making by the management the cost behaviour patterns
are identified by this method.
c) The various kinds of cost behaviour patterns that are being recognised by the method
include volume related, diversity related, events related and time related.
d) The cost drivers are also identified by the entity for tracing the overhead to a
particular product.
e) The cost drivers that are already present within the entity are the main components
that dictate the cost behaviour of the entity.

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Identification of the company’s mission and objectives:
The mission vision and the various objectives of the entity as constituted by the management
of the company are as follows:
a) Creation of increased returns for the shareholders of the company-
One of the main sources of finance is the equity capital that is given to it by the
owners of the company. It is very significant on the part of the company to ensure that
adequate returns are generated in respect of the equity shareholders of the company.
the reason for this being that the shareholders of the company invest in it for the
purpose of ensuring that higher returns are earned by them in the future. If the
company fails to deliver the same, the future inflow from the shareholders of the
company will stop (Krstevski and Mancheski 2016). For ensuring that strong returns
are being generated in respect of the shareholders, the company ensures that the
profitability of the business is increased. The company is reluctantly trying to improve
its performance in respect of the sales that is being generated by the company in its
favour and the reducing the costs that are being incurred by it.
CategorisingthecostsintotwopartsIdentificationofthecostbehaviourpatternsTimerelated,volumerelated,diversityrelatedandeventsrelatedCostdriversareidentifiedforthepurposeoftracingthecoststotheproducts

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b) Increasing the innovation and the creativity in its operations:
For ensuring that the company remains relevant in the changing times within the
market, it is necessary that company come with ways that are innovative. This will
help the company to deliver the products at a cost that is less than its competitors and
develop products that meet the needs of the consumer in a better way. This helps the
company to maintain a competitive advantage in the market (Krstevski and
Mancheski 2016). Hence, the company ensures that the requisite human resource is
inducted within the entity for the purpose of delivery of the products and services and
the execution of the services in an innovative and better way. Thus ensures that the
revenue that is being generated by the entity is increased.
c) Increasing the team spirit of the staff of the company-
The company tries to ensure that the team spirit of staff of the company is maintained.
It is very important that the staffs of the company feel that the needs and the
expectation of the employees are being respected by the company. This is required
because the success of any strategy or the achievement of the any objective that has
been ascertained by the company depends on the efficiency with which the staff FO
the company conducts their respective duties on a daily basis.

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Various corporate strategies implemented by the company:
The various corporate strategies that have been implemented by the company for the purpose
of ensuring that the objectives and the goals of the entity are met properly are as follows”:
a) The company has initiated a policy of giving extreme importance to the improvement
of the supply chain management and ensuring that the collection from the debtors is
concluded in an effective and efficient manner by the company. This resulted in the
release of $15.1 million, which was invested in the working capital of the company.
b) The company tried relentlessly to reduce the costs that are incurred by the entity on
per live weight kilogram of the produce. The company also been able to charge a
higher average selling price in respect of the Wagyu and Shorted. This resulted in the
fall in the costs incurred by the company by 27% and the increase in the average
selling price of the produce by 12%. Consequently, the margin that is enjoyed by the
company has improved significantly (Oseifuah 2018).
c) The efficiency of the operations of the living stone facility of the company improved
significantly over the year. The number of heads processed increased by 26%, a 30%
increase in the kilogram of beef that is processed and a 305 decrease in the conversion
costs that are incurred by the company was recorded.

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The ways in which the ABC model can assist the company in achieving its goals:
For the purpose of ensuring the success of the company in the end, the management of
the company ensures that the objectives and the goals of the entity are laid down clearly in
front of them. The management of every company ensures clear enlisting of the various
objectives that are needed to be fulfilled by the entity along with the corporate strategies that
will be implemented by it in the near future. ABC model of costing as a management tool
provides the management with the adequate information that is required for the purpose of
decision making on its part (Mahal and Hossain 2015). For the purpose of ensuring that the
costs that are being incurred by the management in respect of the various activities that are
being conducted by company, are giving good corresponding returns to the entity, the
continuous monitoring of the costs incurred will have to be initiated by the management of
the company. In respect of the monitoring of the costs that are, being incurred by the
management the utilities that are provided by the ABC model of costing is of utmost
necessity.
The ABC model effectively monitors the fixed costs that are being incurred by the
entity over the period of time irrespective of the level of production that is conducted by the
company. The model also helps the management of the company to ascertain the benefits that
have accrued in the favour of the entity corresponding to the costs that are being incurred by
the company in respect of the various activities that have been conducted by It
(Cannavacciuolo et al. 2015).
Recommendation regarding the implementation of the ABC model:
For the purpose of effective adoption of the model and its integration in the functional areas
of the management, the following steps are to be taken up by the management:
a) The various functional areas of the company are to be objectively analysed-

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b) The various activities that are being performed by the functional areas of the company
must also be identified.
c) For the purpose of allocation of the indirect costs that are, being incurred by the
management to the key and significant functional areas of the company the
management needs to finds a suitable and appropriate basis of allocation.
d) The statement of expenditure and the statement of revenue that is being prepared by
the management have to be objectively compared with each other (Cannavacciuolo et
al. 2015).
e) The management of the company will required to remove certain activities that are
being performed by the entity at present for the purpose of increasing the operational
efficiency of the entity.
Other management tool suitable for the management:
One of the other significant tools that can be used in place of ABC Model for the
purpose of managerial decision-making is the tool of standard costing. Under this method, the
management is required to set target performance in respect of every functional area that is
present within the entity. The most significant functional areas include the sales that are
recognised by the company and the costs that are incurred for the same purpose. After the
setting up of the targets, the management needs to be engaged in the actual performance of
the various activities (Busse et al.2016). Subsequent to this, the management needs to
measure the actual performance with the targets that are being set up by it. After the
measurement, a comparison has to be drawn between the actual performance and the targets
that were set up by the management of the company prior to the performance of the task by
the entity. In case any deviation is found in the performance of the entity, the company
ensures that the reasons for the deviation are found out efficiently and the corrective

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measures are being taken up by it for the purpose of mitigating the reasons for the deviation
(Elias and Mehrotra 2018).
Conclusion:
After the conclusion of the above analysis, it can be observed that the ABC model as
a method of costing has significantly improved the quality of information that is available
with the company for the purpose of decision-making. The continuous monitoring of the
costs that are being incurred by the company is made possible by the adoption of the costing
model. As the activities that are being performed by the entity are taken up as the basis of the
cost allocation the decision regarding the same and the data, pertaining to it is more reliable
than the ones provided by other costing tools and methods.

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