Activity Based Costing Assignment (Doc)

Managerial Accounting

Table of Contents
INTRODUCTION..............................................................................................................................1
MAIN BODY.................................................................................................................................... 1
a. Explanation of Activity based costing....................................................................................1
b. Explanation of purpose of both the selected journal articles................................................3
c. Similarities and differences in both the journals...................................................................6
d. Specific lesson and outcomes from these studies.................................................................7
CONCLUSION................................................................................................................................. 8
REFERENCES...................................................................................................................................9

INTRODUCTION
Managerial accounting refers to the process of analysing, observing, recording and
controlling accounting information to attain organisational goals. Managers examine data of
previous years to form strategies for upcoming years and managerial accounting help them, by
providing accurate data. It facilitates the activities related to administration, operations and
execution of a company. It direct the managers to form different documents and reports that
help in decision making to reach predetermined objectives (Benson and et. al., 2015).
Management of an organisation can measure success or failure of the business by analysing
different reports that are generated within the business enterprise.
For this project report selected topic is Activity based costing and two selected journal
articles for this topic are accounting auditing and accountability journal and journal of
management accounting research. The organisation chosen for this project is Innovation
Fibreglass Pty Ltd, which is a plastic products and component manufacturing company and
based in Australia. This report covers explanation of selected topic which is activity based
costing and the purpose of selected two journals under this topic, research questions set out to
explore, similarities and differences in both the selected articles and outcomes from the two
studies that will be useful for the Australian company's management accountants.
MAIN BODY
a. Explanation of Activity based costing
Activity based costing: It is mainly used in manufacturing companies to observe
different activities within an organisation and allot costs to the activities with available
resources. In this system an activity can also be reasoned as any group action or outcome that
is a cost driving force, which is used to mention to an allotment base (Braun, 2013). There are
two different categories of Activity based costing that are transaction drivers and duration
drivers. First one involves the computation of how many times an activity occurs, and another is
used to measure the time that an activity takes to complete. In Innovation Fibreglass Pty Ltd
Activity based costing is used to identified assigned costs to activities that are related to
overheads and after identification same costs are allotted to the related products. It helps the
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managers and accountants of the organisation to improve the costing process in different ways
by expanding the number of cost excavations that can be used to bring together different
overhead costs, creating new bases for distribution of costs to related activities, altering nature
of various indirect costs.
Activity based costing help the accountants of Innovation Fibreglass Pty Ltd by
providing them information of each activity separately. It facilitates their work to identify
different costs for various activities. It improves the accuracy of products and help the
managers to understand and evaluate the way in which resources are used within the
organisation (De Waal, 2013). It assists them while forming strategic decisions for the
organisation. Before implementing this system the organisations have to be aware of its
benefits and also the current running technology in the market, because it may lead the
accountants and managers toward best strategy that should be adopted for cost reduction. The
rates of implementing Activity based costing was continuously increasing in Australia in year
1990 but it has fallen during 1994. The charted accountants suggested the organisations to
adopt activity based costing. According to the market research of year 2009, it was adopted by
13% of the manufacturing companies that are based in Australia.
Activity based costing help the organisation to increase the level of success by improving
performance and organisational processes. It increase the level of employee satisfaction
because it helps to assign costs to different overheads as well as direct or indirect activities of
the organisation. In Innovation Fibreglass Pty Ltd it help the managers to record the
appropriate informations in the books of accounting and assist the accountants while analysing
reports to determine actual position of the company (Downen and Hyde, 2016).
The managers have to follow six steps while implementing activity based costing within
the organisations. These steps are initiation, adoption, adaption, acceptance, routinisation and
integration. In initiation the the managers conduct a feasibility analysis of activity based costing.
Adoption includes decision that are made to invest available resources of the company.
Adaption is related to analysis of different activities of the organisation and cost driving force.
Acceptance means top management make decision about the model. In routinisation the upper
managers of the company provide judgement about the information system. The last step
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integration include the consolidation of activity based costing in the management accounting
system.
It provides such information of such activities that exceeds the assigned costs by
highlighting the inefficiencies in the accounting system, it may lead the managers to reduce
waste with the help of such information. It separates the value adding and non value adding
activities in order to reach the predetermined goals. It is very beneficial for the accountants
while analysing the accounting books to get separate idea of each cost which is concerned with
different activities. The growth in activity based costing supplied an approach for accountants
to lay claim to their strategic relevance. The adoption of ABC in Australia was not able to fulfil
the expectations (Gitman, Juchau and Flanagan, 2015). It is a tool which is used by accountants
to control the extra costs of labour and other overheads. It is very advantageous for managers
and accountants while preparing managerial reports for the organisation it help in
accountability, analysis of different reports and accounting process as it may help to keep the
information of cost separately according to their nature.
b. Explanation of purpose of both the selected journal articles
Purpose of accounting, auditing and accountability journal: The main purpose of this
journal is to determine the use of activity based costing in accounting and accountability and
how facilitates the work of an accountant while analysing the annual reports of an organisation.
Activity based costing is mainly concerned with the allotment of costs to different segments of a
production process, so that the cost of each activity can be recorded accurately and separately.
Accounting is the process of recording informations in the books and activity based costing
facilitate this work of accountants by providing them abstracted information of different costs
that are involved in activities performed by the organisation.
The process of accounting is and accountability are two tasks that are performed by an
accountant and these both tasks are very tough to perform. Activity based costing help the
accountants to perform these tasks easily by separating different cost and improving the
process of an organisation. In Innovation Fibreglass Pty Ltd accountants using activity based
costing to perform their duties in more effective way because it help them to identify the areas
where modification is required, when these area are identified then accountants may take
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action in form of improvements and increase the level of organisational performance. It also
help the companies to easily attain predetermined goals, reducing complexness in the process
of accounting (Accounting, auditing and accountability Journals. 2018).
The purpose of this journal is to clearly identify the role of activity based costing in
accounting, auditing and accountability. This journal is basically related to the use of these
three elements in different organisations. In accounting, ABC is used to identify the function of
different costs that are assigned to different activities or products from available resources
within the organisation. This journal is mainly concerned with the identification of performance
of a business and its market condition. The journal reflects that how an accountant can observe
and analyse the actual condition of the company with the help of provided information. Activity
based costing may help the accountant while analysing the reports because it is used by the
organisation to control the costs and improve the present performance of different activities
(Songini, Gnan and Malmi, 2013).
Accounting, auditing and accountability journal's purpose is to provide the valuable
content to accountants and their organisations, how they can manage their accounting
information in effective manner. In accountability activity based coating may help the
accountants and other executives of the organisation to analyse the performance and
behaviour of individuals by identifying the costs that are allotted for the activities that are going
to be performed by them. The intention of this journal is to easily determine the impact of
activity based costing on accounting and accountability of an organisation. ABC help the
accountants in decision making because it provides the accurate data which is more reliable. It
helps to set appropriate selling prices for the products as the accurate and reliable data is
available and it help to increase profits for the company.
Accountants of Innovation Fibreglass Pty Ltd are also benefited by ABC as it may
facilitate their work. The purpose of this journal is to observe that how accounting, auditing and
accountability can help a company to grow faster by identifying growth opportunities. In
Innovation Fibreglass Pty Ltd activity based costing has helped the accountants while examining
the financial statements to form a report by providing valuable data abut every activity that
was performed by employees of the organisation (Socea, 2012).
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There are two different questions that are set out for the accountants and auditors of
Innovation Fibreglass Pty Ltd. First one is that, do the organisation have used activity based
costing, if yes than how it helped to achieve predetermine organisational goals? Second
question that should be asked is that do activity based costing can be used in auditing process
or not?
Purpose of Journal of management accounting research: The main purpose of this
journal is to identify that activity based costing may or may not facilitate the process of
recording, analysing and controlling the accounting information. In management accounting
reports various information is recorded that directs the managers to make decisions. In
Innovation Fibreglass Pty Ltd activity based costing is used and help the managers to record the
accurate information of cost of each department which is recorded in management accounting
reports such as inventory management report, job cost reports etc.
This journal may help to enhance the knowledge of management accounting and its
different components like its systems, reports etc. Activity based costing help the managers to
make strategic decisions by analysing the actual performance of the company and fields of of
organisation where improvement is required. Managers of the organisation can record the
accurate information with the help of ABC because it may help to record the separate cost of
different activities. It is a system which is mainly used to allot costs to the products according to
their requirements and if the cost exceeds the managers may control it on time, by
implementing ABC. It provides the accurate and transparent data to the managers that will lead
while making different policies for the company to achieve higher level of success and improve
the level of existing performance (Journals of Management Accounting. 2018).
The purpose of this journal is to identify those elements that may help in management
accounting and its elements. Budgetary control is also a part of management accounting in
which managers control the extra costs of different department's activities to save monetary
resources of the company. In budgetary control there is an important role of activity based
costing because it may provide reliable data which can be used to determine future expenses
and consequences that may occur. Managers can make different activities in advance to face
such type of consequences.
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In Innovation Fibreglass Pty Ltd activity based costing is used by the management to get
the accurate data that will help them in decision making and policy formation. It help the
managers to examine exact cost information of different products that are manufactured by the
company. Activity based costing compile the overhead cost for each activity which is performed
by the organisation. It is more beneficial than tradition cost accounting system because that
methods was not able to provide the reliable and valuable data but ABC have succeeded in this
prospect and can provide the actual and more relevant data to the managers (Sajady, Dastgir
and Nejad, 2012).
Management accounting is a tool which help the internal stakeholders to get the
information of organisation's performance, its position and financial status in the market. In
ABC some costs are difficult to allot like chief executives salary, and this journal may help the
managers to dissolve this difficulty by providing solution. The purpose of this journal is to help
the managers to focus on those activities that can generate more profits. This may help to
increase the profitability which may help to enhance the level of performance. It also help to
eliminate possibility of waste and inefficiencies by observing those fields of the organisations
where transformation is required (Saadi Halbouni and Kamal Hassan, 2012).
Journal of Management accounting research aids the managers toward the solutions to
the managerial problems as it can provide the detailed information of management accounting
and solutions to the problems that are faced by a manager while recording the informations in
different reports. A company also have to face different financial problems like late payments
by clients, sudden expenses and this journal may help the managers to identify tools and
techniques that may help to overcome the same in a short period. Activity based costing may
also help to resolve these problems, because it provides the transparent data to the managers
that will help them to identify the problem in advance and plan to resolve the same in less time
(Kanellou and Spathis, 2013).
There are two questions that may be asked to the managers of the organisation. First
one is that do activity based costing facilitate the work of managers? Second is that is it
important for the companies to generate management accounting reports?
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Purpose of both the journals is to provide valuable information to the managers and
accountants that may help them to find solutions for their problems.
c. Similarities and differences in both the journals
Similarities:
Basis Accounting, Auditing and
Accountability
Management accounting
Recording
of
information
Accounting is related with the recording
of different data which is recorded in
the books and auditing is the process of
analysing the same information.
Accountability refers to the governing
process of that information. All the
three elements help the organisation to
reach predetermined objectives.
In management accounting the
information is recorded, controlled,
measured and analysed by the
managers in orders to achieve
organisational goals.
Use of
activity
based
costing
Activity based costing is used in
accounting and accountability to
identify transparent data that may help
to analyse the actual performance of
the company and to observe the cost
that is assigned to different activities of
the organisation.
Activity based costing is used to analyse
accurate cost of each activity which is
performed by the organisation, it will
help the managers to get the idea of
actual information of business and
identify the areas where improvement
is required and also help to reduce the
waste by analysing inefficiencies in the
manufacturing process of the company.
Differences:
Basis Accounting, Auditing and
Accountability
Management accounting
Objective The main objective of accounting is to
find relevancy of transaction, objective
Objective of management accounting is
to provide accurate information to the
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of auditing is to find that the recorded
information is correct or not and to find
that is there any misrepresentation of
the information recorded. Aim of
accountability is to examine the data
entered in the books.
internal stakeholders of the company
to enhance the investments and help
the managers to analyse the business
conditions and for strategies according
to the situation.
Compulsion It is compulsory for the organisations
and there are various regulations for
the companies to conduct accounting,
auditing and accountability within the
organisation in order to provide the
information to the external parties like
government and others.
There is no compulsion on the
companies for management
accounting, it is done by the managers
to analyse the actual position of the
company and to identify the problems
within the organisation that may affect
profitability and productivity.
d. Specific lesson and outcomes from these studies
Outcome from accounting, auditing and accountability journal:
Performance evaluation: Activity based costing can help the accountants and auditors
to evaluate the actual performance of the company which can provide relevant data which is
transaparent (Maskell, Baggaley and Grasso, 2016).
Actual cost of overheads: Activity based costing is a system which is very beneficial for
the accountants because it helps to assign cost to the overheads and than to the related
products. It will help accountants while analysing financial statements of the company by
providing separate information of cost of each product.
Outcome from Journal of management accounting research:
Optimum utilisation of resources: Activity based costing can help accountants for
optimum utilisation of resources as it can provide transparent information of cost of inventory
and overheads of the organisation. (Needles, Powers and Crosson, 2013).
Planning tools: In management accounting different planning tools are used to estimate
possible future consequences that may occur. Hence, it is suggested to the accountants that
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they should use planning tools like forecasting, contingency and scenario tool in management
accounting. These tools may help to be prepare for possible risk or uncertainty.
CONCLUSION
From the above project report it has been analysed that accounting, auditing,
accountability and management accounting all of them are very important because it may help
the managers and accountants to determine the actual information of the business and also
provide the valuable data of a business. Activity based costing is a tool which is used by various
companies to observe accurate information of cost involved in different activities of the
company.
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REFERENCES
Books and Journals:
Benson, K. and et. al., 2015. A review of accounting research in the Asia Pacific region.
Australian Journal of Management. 40(1). pp.36-88.
Braun, K. W., 2013. Custom fabric ventures: An instructional resource in job costing for the
introductory managerial accounting course. Journal of Accounting Education. 31(4).
pp.400-429.
De Waal, A., 2013. Strategic Performance Management: A managerial and behavioral approach.
Macmillan International Higher Education.
Downen, T. and Hyde, B., 2016. Flipping the managerial accounting principles course: Effects on
student performance, evaluation, and attendance. In Advances in Accounting
Education: Teaching and Curriculum Innovations (pp. 61-87). Emerald Group Publishing
Limited.
Gitman, L. J., Juchau, R. and Flanagan, J., 2015. Principles of managerial finance. Pearson Higher
Education AU.
Kanellou, A. and Spathis, C., 2013. Accounting benefits and satisfaction in an ERP environment.
International Journal of Accounting Information Systems. 14(3). pp.209-234.
Maskell, B. H., Baggaley, B. and Grasso, L., 2016. Practical lean accounting: a proven system for
measuring and managing the lean enterprise. Productivity Press.
Needles, B. E., Powers, M. and Crosson, S.V., 2013. Principles of accounting. Cengage Learning.
Saadi Halbouni, S. and Kamal Hassan, M., 2012. The domination of financial accounting on
managerial accounting information: An empirical investigation in the UAE.
International Journal of Commerce and Management. 22(4). pp.306-327.
Sajady, H., Dastgir, M. and Nejad, H. H., 2012. Evaluation of the effectiveness of accounting
information systems. International Journal of Information Science and Management
(IJISM). 6(2). pp.49-59.
Socea, A. D., 2012. Managerial decision-making and financial accounting information. Procedia-
Social and Behavioral Sciences. 58. pp.47-55.
Songini, L., Gnan, L. and Malmi, T., 2013. The role and impact of accounting in family business.
Journal of Family Business Strategy. 4(2). pp.71-83.
Online
Accounting, auditing and accountability Journals. 2018. [Online]. Available Through:
<https://search.proquest.com/business/docview/1826443266/55B8A7B7D57A4E05PQ
/14?accountid=30552>
Journals of Management Accounting. 2018. [Online]. Available through
<https://search.proquest.com/business/docview/200861229/2B08C6913FC4CF0PQ/1?
accountid=30552>
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