Activity Based Costing and Standard Costing for Wise Tech Global

This study analyzes the use of Activity Based Costing and Standard Costing for Wise Tech Global. It discusses the characteristics of ABC, the mission statement, objectives and strategies of the company, and the steps to implement ABC costing. It also recommends the use of standard costing for better cost management.

Managerial accounting

TABLE OF CONTENTS
Introduction................................................................................................................................3
Part A.........................................................................................................................................3
Part B..........................................................................................................................................5
Part C..........................................................................................................................................6
Part D.........................................................................................................................................7
Conclusion..................................................................................................................................7
References..................................................................................................................................7

INTRODUCTION
In management accounting, managers make use of accounting information provisions to gain
better information and understanding before making managerial decisions, which further
improves the performance of control conductions as a whole. The present study is based on
the analysis of Wise Tech Global, with the evaluation of ABC costing on the same. Further,
the study will discuss the mission statement, objectives and strategies of the company, along
with this the study also explains the use of ABC model while aching the corporate strategies.
On the basis of the analysis, the recommendation will be drawn in regards to the successful
implementation of ABC. Regardless of ABC model, the study will also cover another
management tool, with proper justification to aid the company in accomplishing their desired
objectives.
PART A
ABC is the accounting technique that identifies the cost allocation strategy that a company
performs to assigns overhead cost to all its products and services according to final
consumption (Christian, 2018). ABC practice recognizes the connection between resources,
costs and activities and by considering this relationship while assigning the indirect cost to
products or departments.
The main characteristics of Activity Based Costing are enumerated as below:
Allocation of costs
The net cost is classified into two forms which are fixed cost and variable cost that is
considered essential to offer valuable information in order to form an appropriate cost system
for a production purpose. It is important to provide valuable information to design an
appropriate cost system.
Fundamental costs objectives
An appropriate system is based on a calculation of its products and service cost . ABC
analysis system is important for maintaining company’s financial position (Mahal and
Hossain, 2015). ABC controls and monitors the products for utilizing of consumed overhead
resources by directing activities that are expected to drive costs.

Multifunctional system
Costing system is related to various factors like volume, time, diversity and time. The cost
difference is made between various cost analysis systems. Furthermore, the implementation
of ABC is significant, to stimulate strong management support.
Accuracy
Accurate cost of the products estimates and manages company’s expenses in an appropriate
manner that helps in placing the best suitable cost behavioural pattern.
Well-defined
Cost allocation system is defined well in an optimal way by making use of ABC costing, a sit
proportions expenses on the basis of suitable cost drivers based on concerned activities
instead of making use single blanket rate. ABC requires a well-structured ABC system with
optimal knowledge of all organizational level thereby engaging all the involved individuals in
the organization in establishing meaningful work knowledge and making those individuals
familiar with the operations of the organization (Cugueró-Escofet and Fito, 2016). Hence, it
is essential to have cross-functional investment while implementing ABC.
Costs-driven identification
Cost behavioural patterns are identified, and its cost and expenses are determined. In tracing
functioning cost of products and services analysis systems works a lot. ABC helps in making
an appropriate difference among the cost behavioural pattern. These are patterns based on
volume, diversity, events and time (Albalaki, Abdullah and Kamardin, 2018). The suitable
cost driver is required to be determined for tracking the product overhead. Further, the cost
drivers also state the pattern of cost behaviour.
Evaluated and rewarded
ABC model help to evaluates the performance of the employees and system well and are
appreciated accordingly. ABC data must be connected to the reward, recognition and
evaluation of individuals (Arora and Raju, 2017). While implementing ABC, it is important
that the measurement of employee evaluation.

PART B
Wise tech is engaged in dealing with most refined and extensive software solutions that
provide end to end logistics throughout the world (WiseTech Global, 2018).
Company’s mission statement is based on creating a wide range of products which would be
supplied globally. Furthermore, the company aims to provide software solutions which are
supported by data integration to improvise productivity, communication and automation
along with the supply chain of the client.
The company is accumulated with leading team with the clear goals and shared the vision. A
team of the employees is skilled, ambitious, talented and really passionate that leads to
obtaining a goal successfully. Efficient teamwork towards a defined goal and vision is core to
company’s achievement.
The company had entered into integrated partnerships and strategic alliances with the
objective and to improvise overall performance and profitability (Hill, Jones and Schilling,
2014). The company aims to innovate technology, and therefore they motivate the same in
workplace and support and cheer team members in every possible way.
The company has a unique leadership quality they do not believe in controlling and
commanding others by forceful aspects. The company gets things done by making a
contribution to the winning solutions and encouraging employees for boosting their
confidence and competence.
The company believes open working environment and they believe in open communication
principle rather than secret policy, to foster the ideas, opinions and thoughts of employees
(Millar, 2015). WISE TECH Company comes with prominent software solutions to provide
all over solutions for their global competency, excellence, efficiency and logistic value on an
international basis.
Operating strategies of the company are enumerated as below:
Their strategy is to combine their software products to satisfy the requirement of clients for
maintaining their leading position in the market. Company values their client to strive
towards success and growth.
Accounting based costing is adopted by the company to improve costing accuracy and to
picture exact expense and returns of individual product and services. The company

implements ABC to make effective decisions about pricing, selecting manufacture from
outsourcing or from inside the company thereby improving the organizational achievement
(Taber, 2015). ABC not only works as accounting tool but also acts as a support system for
managing the decision of corporation. It helps in providing valuable information which leads
to improvised procedures, tactics, and strategic solutions for the company (Foroughi and et
al., 2017). ABC system helps to identify the factors that control and impact the cost dynamics
in both long and short period with appropriate management of strategic cost, leading to a
better business solution.
PART C
ABC gives the opportunities to diminish the cost of better product designs and regular
improvements in working procedure of the aforesaid company. Wise Tech Company is
recommended to implement ABC because the worldwide implementation rates appear low in
relation to perceptible superiority. The company has to adopt the ABC model for further
reasons-
 Manufacturing excellence- The implementation of Activity-based Costing system will
allow “Wise tech global’ to improve manufacturing by taking information for the
tactical decision, such as manufacturing goods and sourcing for long-term business
success. Product developer of the company can understand the impact of designs on
cost and flexibility, thus can make their designs according to ABC.
 Active performance- ABC help for the constant development process by allowing the
organization to gain new insights into practice by focusing interest on the sources of
demand for activities. In addition, it will permit the organization to offer behavioural
incentives to improve the modern aspects and performance. Thus, its implementation
will help in making things easier with an accuracy of the product cost (Nagasaka and
Lee, 2017).
Steps to implement ABC costing
Task identification- The foremost task of implementing ABC costing is to identify the
activities and to group them together in different activity pools. The company has to design
activity pools helps to form a product and services in one line.

Activity analysis- The next step of implementation is activity analysis that will lead towards
identifying the processes and actions that are related to company’s software manufacturing
and service delivery process, thus, it helps in endless manufacturing. Furthermore, this
process will help to assess indirect cost relationship of various products to work directly.
Assignment of cost- In this step cost is assigned to whole activity pool, such costs include
human resources costs that will be applied to indirect management cost. For that, each
activity cost is decided before implementing ABC costing.
Calculate activity rates- The next step will be of calculating rates on the basis of direct labour
per hour or indirect support labour. Another cost will be simultaneously decided at this stage
regarding the implementation of ABC model (Hoozée and Hansen, 2017). This stage
includes assignment of costs objects, wherein, primarily objects are clear results presented to
the clients.
Prepare and allocate management reports- After completing the ABC costing analysis, it is
important to place the prices in a short and logical manner for cost object and deliver a report
to Wise tech global company owners so they can evaluate and pass an order to implement
ABC costing.
Thus, by implementing ABC analysis “Wise tech global company” can gain lots of
information about their company’s products and activities. Therefore actions should be done
to improvise the system and for better and beneficial product.
PART D
Apart from activity-based costing, the Wise tech global company can use standard costing for
the betterment of cost management. Standard Costing is a type of cost which determines the
variation between the actual cost of the goods produced and the estimated cost by which the
goods should be produced (Gauci, 2015). Standard Cost is basically an estimated budget for
the production of goods. In Standard Costing, various types of accounts are maintained for
the management of the inventory which later determines the cost incurred in the production
of goods. Its variances divert the attention of the managers and help them in taking effective
steps in carrying out the production effectively and efficiently in a cost-effective manner.
Standards act like a yardstick against which the company compares the actual costs to
determine the efficiency and effectiveness. Thus standard costing introduced the methods

which help in managing the costs of the organisation, and it is also useful in cost reduction
processes (Haustein, Luther and Schuster, 2014). One of the other uses of the standard
costing is to analyse the variances and also the person responsible for the same. Therefore it
is beneficial for the Global Wise Tech Company in fixing the responsibilities for
inefficiencies.
The principle of management of exception can be applied by the management of the Global
Wise Tech Company to lessen the burden of the management itself. If the performances are
below the standard more attention is required by the management.
The setting of standards is necessary to so that the performance of the company can be
revamped (Kaplan and Atkinson, 2015). Due to this method, the company will be able to
improve the production of sales. With lower costs, the company is able to invest in other
potential areas.
The global tech company with the help of the standard costing can set the pricing policies,
and promotional strategies (Wild and Shaw, 2013). It helps the management in preparation of
lists, planning and production of new products and cost of furnishing them.
CONCLUSION
By considering the above analysis, the conclusion can be made that ABC system is a very
effective and integral system that assist the company in conducting optimal pricing decisions
and strategies to ensure efficient utilization of variable resources. Further, standards costing
can be used by Wise Tech Global Company for better costs management for their operating
activities.

REFERENCES
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Managerial Cost Problems: A Real Improvement, a Fad or a Fashion?.
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[Accessed on 23rd May 2018].