Managerial Accounting: Application of Activity-Based Costing in Resolute Mining

This report discusses the application of activity-based costing (ABC) in Resolute Mining, a high-value company in the mining industry. It covers the characteristics, benefits, and challenges of ABC, as well as the alignment of the costing technique with the company's mission, strategy, and objectives. The report also recommends the implementation of budgetary control as an alternative management accounting technique for improving cost efficiency.

Running head: MANAGERIAL ACCOUNTING
Managerial Accounting
Name of the Student:
Name of the University:
Author’s Note:
Course ID:

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Executive Summary:
The main interpretation of the report has been taken into consideration with the “activity-
based costing (ABC)” model related to its characteristics, application and from the
perspective of an organisation. In this report, the ABC system is taken into account with
Resolute Mining (listed under ASX), as the company is considered as high value for
enhancing the overall management accounting criteria of higher management of the
company. In Resolute Mining the application of ABC model has a significant role in terms of
detecting particular activities of business and providing special attention. Based on the
nature of analysis, it is conducive for the organisation for allocating the cost to activities
which concentrate mostly in favour of the customers. Lastly, the implementation of
budgetary control is applied in forming alternative management accounting technique for
improving the overall cost efficiency for Resolute Mining.

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Table of Contents
Introduction:..............................................................................................................................3
Answer to Part a:........................................................................................................................3
Answer to Part b:.......................................................................................................................5
Requirement i:........................................................................................................................5
Requirement ii:.......................................................................................................................6
Requirement iii:......................................................................................................................7
Answer to Part c:........................................................................................................................8
Answer to Part d:.......................................................................................................................9
Conclusion................................................................................................................................10
References................................................................................................................................12

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Introduction:
The underlying sections of the study has been taken into consideration with the
“activity-based costing (ABC)” model related to its characteristics, application and from the
perspective of an organisation. In this report, the ABC system is taken into account with
Resolute Mining (listed under ASX), as the company is considered as high value for
enhancing the overall management accounting criteria of higher management of the
company. In the mining industry, Resolute mining is recognised as a developer, operator
and explorer comprising of nine Gold mines across Australia and Africa, with a production of
more than 8 million ounces of gold (Resolute 2018). The company has taken major
initiatives in applying ABC system with an intention to enhance its management accounting
system and getting a greater edge in achieving its goals and strategies. Lastly, the
recommendation aspect of the report has enforced the system with organisation along with
suitable management accounting tool depending on Departmental requirements (Ayachit,
Attarde and Kulkarni 2014).
Answer to Part a:
A significant criterion of costing under the ABC model is identified with conduction of
business operation based on which the products are applied with indirect cost. An
augmented focus is related to the activities, costs and products for the apportionment of
indirect costs associated to these with less subjectivity as compared to the conventional
costing system. Despite of this fact, managers often struggle in apportionment of cost with
the help of ABC system and they often comprise of the indirect expenses such as staff
remuneration which cannot be easily apportioned under the manufactured products. Due to

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this, the popularity of this costing system has been favoured across different industries
especially in the mining sector. In addition to this, ABC system is also applicable in terms of
“service pricing, product costing, target costing” and various types of other aspects of
costing (Huysmans and De Bruyn 2014).
The evaluation of the study as per the above discussion have emphasised on special
characteristics incumbent with the ABC system. Some of them are listed below as follows:
 ABC system relies on segregation of costs as per fixed cost and variable cost and this
initiate in forming suitable costing systems among the corporate entities while
obtaining important information about costs.
 This particular costing system instigates distinguishing factors for cost behaviour,
which is directly associated to timeliness, diversity, even and volume
 The main requirement of this system is identified with recognising the cost drivers
which are conducive in the depiction of overhead costs associated with the product
 The costing system often considers making the cost accountants familiarise with cost
behaviour patterns as more cost drivers are included (Hayden 2014).

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Figure 1: “Activity-based costing system”
(Source: Linassi, Alberton and Marinho 2016)
Answer to Part b:
Based on the several secondary sources, a considerable amount of assistance is
imparted to the organisations for alignment of present strategies and goals along with the
costing techniques. In order to ensure the alignment, the primary needs and their
identification are summarised as follows:
Requirement i:
It needs to be noted that Resolute mining’s mission statement is considered with
enhancing the business towards accomplishing particular strategies and objectives. Based
on the mission statement of the organisation - “Mine Gold. Create Value”. Resolute mining,
has proved its sustaining operations with two mines, “the Syama Gold Mine in Africa and
the Ravenswood Gold Mine in Australia” and known as one of the largest producers of gold

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which is listed in ASX in FY 2017. It is to be further noted that this improved performance
has been considered with the moderate costing of A$1,280/oz (US$934/oz) (Rml.com.au.
2018).
“Resolute’s flagship Syama Gold Mine in Mali” is further identified to benefit from
the operational parallel sulphide and oxide processing plants. The underground mines in
these areas have sustained a strong cash generation. In addition to this, the profit generated
by the company has been able to provide cutthroat competition to other players in the
market. The overall emphasis is also put by the company in terms of improving the morale,
work ambience and confidence among the staff as this may lead to improved performance.
This allows for ultimate business goals to be accomplished by the company (Rml.com.au.
2018).
Requirement ii:
The corporate strategy developed by Resolute Mining is considered in a such a
manner which shows that business objectives are achieved along with the strategies which
are set by the company as follows:
 Firstly, resolute mining was able to develop long life of the assets by targeting the
Syama goldmine in Mali, West Africa. This is done by targeting up to “250kozpa at
AISC of US$881/oz”.
 The second strategy adopted by the company has targeted extensive development
through the extensive pipeline of organic growth in the field of exploration with an
increased focus on overall value chain in the mining operations.

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 Thirdly, the companies involved in construction of high-grade sulphide extension
(>5g/t Au) below the satellite oxide pits. The high-grade feed to the supplement is
associated with underground sublevel cave.
 Fourthly, the resolute focus on growth was identified with exploration and more
business development in the projects such as “Kilo Goldmines (KGL.tsx-v), Manas
Resources (MSR.asx) and Oklo Resources (OKU.asx)”
 The exploration activities led by the company are further supported with strategy
partnership across Africa which have led to increased profit for the company
 Sixthly, the company has maintained strong balance sheet along with operational
ongoing cash flow generation which has led to cultural and performance
transformation among large long-life mines (Kapian and Anderson 2014)
Requirement iii:
The implementation of ABC model is widely favoured in mining industry however
certain characteristics cannot be implemented into this sector. It needs to be understood
that in various cases the mining operators do not be any direct cost instead the costs are
segregated into overhead expenses. The adoption of ABC costing system will allow Resolute
Mining to enjoy several benefits which will consider its business objectives and strategies
(Özyürek and Dinç 2014).
The ABC system comprises of activity, cost drivers and resources. In case of Resolute
Mining Ltd the resource sections comprise of costs which are segregated into various
departments. The departmental costs are segregated into the following categories:
Service department associated to human resources and information technology

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 Mining Facilities
 Corporate Offices
 Selling channels via online portals
 Call Centres
The consideration of various factors for the cost calculation is associated with
explanation of shared services. Moreover, the departmental service volume needs to be
passed from one department to another. Aside from this, the offices of Resolute Mining and
are segregated depending on the cost criterion. Henceforth, it can be clearly stated that ABC
system leads to increase in cost assignment scope among all the offices and mining facilities
thereby appropriately providing the opportunity for anticipating advertising costs (Barros
and Ferreira 2017).
The main cost objectives can be elaborated based on operations and transactions
carried by the selling activities of resolute mining. Therefore, in terms of organisational
perspectives these might involve the purchasing of entire consignment, certain receipt of
the services rendered to the vendors. Explanation pertaining to these transactions are
allocated into ABC system. The next step involves naming of the activities and with what
factors they will be put against each other. In this case, the size of bat for performing the
activities in batch mode is an integral component. Henceforth, the Department needs to
consider the group activities involved into ABC system. The consideration with Resolute
Mining for additional cost pressure as a result of expansion activities can also be
compensated with this costing system (McLaughlin et al. 2014).
The cost objectives can be differentiated into two sections. The first section will
comprise of the additional costs which are taken care of by the financial managers in the

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relevant distribution channels across West Africa and Australia. Some of these activities may
involve new exploration and Organic production growth among the goldmines. However, it
needs to be discerned that the cost of new exploration should not be combined with organic
production growth. In case the company adopts ABC system, it will have more scope for
identifying the services which are offered between two different cost elements. Being said
this, the element such as variety of a particular product needs to backed up by competitive
advantage and business sustainability.
Answer to Part c:
It needs to be understood that the top level of Resolute Mining should extend greater
support for implementing ABC system within the cost accounting system. After approval,
the cross functional team needs to implement the model across accounting department. In
this case, the special team needs to unify the members from each department for using the
delight ABC system. In addition to this, external specialists need to be appointed for advising
successful enforcement of ABC system.
There are significant reasons which steer up the top management of resolute mining
in supporting the overall system. Primarily, the subordinates and managers may not be
interested to accept the change in case the top management does not take proactive
measures to accept the new standards. Secondly, the implementation of this system may
not mean much to the employees in case there is lack of support from the top management
of the organisation. In order to assure that this system is followed across all hierarchies of
Resolute Mining, the company needs to develop an in-depth understanding of present
costing procedure which are incumbent within the organisation. For allocating the costs in a
suitable manner, it is the role of cross functional team to acknowledge such improvement in

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costing procedure which will lead to success of the team itself (Linassi, Alberton and
Marinho 2016).
Answer to Part d:
As stated, ABC system will be accompanied with more benefits to Resolute Mining.
However, there are certain management accounting tools which can benefit the
organisation. Among various tools, budgetary control can be adopted by the organisation.
Some of the common benefits teamed with this procedure are listed as follows:
o During the enforcement of budgetary control, the management of Resolute Mining
will have a better integration of staff objectives and fulfilment of common goals
pertaining to the actions of the staff. In addition to this, the budgetary control will
also make sure that such standards are in sync with the new set of standards or
targets which are set in a financial year.
o The application of budgetary control technique will further allow for scope of
corrective measures in case the estimated amount for a particular department
during the beginning period is more than it was at the end of previous financial year
o The application of budgetary control is also conducive in making the integration of
several elements into Resolute Mining to be more relevant to the previous errors
which were made by the company. The information collected will be conducive in
evaluating the necessary steps to ensure that such errors are not repeated in the
future or reducing treatment method for this error is will be duly suggested.
Therefore, budgetary control technique sets out the platform for implementing
suitable strategies which will be able to deal with several types of unexpected
situations and rectifying errors made in the past (Bakar 2014).

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Conclusion
The relevant discourse of the topic of the study has considered segregating the costs
into fixed and variable costs based on the main cost drivers. This kind of differentiation of
the cost allows business entities for formulating the enhanced in need of costing services. In
case of Resolute Mining, the application of ABC system will have an important role with
definite business activities which need special attention and evaluation. Based on the
several types of considerations of the analysis, Resolute Mining will be able to allocate the
cost in a most appropriate manner based on the services offered to the customers. Finally,
the implementation of budgetary control will act as an alternative management accounting
technique which will enhance the overall cost efficiency of the company. The rationale for
this is due to the fact that it will minimise the additional burden of expansion costs among
several other services associated to the vendors.

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References
Ayachit, A. C., Attarde, P. M. and Kulkarni, S. (2014) ‘Activity Based Costing In Construction
Project’, International Journal of Advanced Engineering Research and Studies, 4(1), pp. 09-
14.
Bakar, N. R. binti A. (2014) ‘Impact of Organisational Factors on Budgetary Slack’, E-
proceedings of the Conference on Management and Muamalah, (May), pp. 26–27. doi:
10.1017/CBO9781107415324.004.
Barros, R. S. and Ferreira, A. M. D. S. da C. (2017) ‘Time-driven activity-based costing’,
Qualitative Research in Accounting & Management, 14(1), pp. 2–20. doi: 10.1108/QRAM-10-
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Proceedings of the Annual Hawaii International Conference on System Sciences, pp. 3667–
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Kapian, R. S. and Anderson, S. R. (2014) ‘Rethinking activity-based costing’, Technology.
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costing’, International Journal of Contemporary Hospitality Management, 28(7), pp. 1417–
1440. doi: 10.1108/IJCHM-09-2014-0438.

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