Activity-Based Costing (ABC) for Blackmores Limited

This report examines the application of Activity-Based Costing (ABC) for Blackmores Limited, a vitamin, mineral, and herbal supplements firm. The analysis includes an executive summary, introduction to ABC, and a detailed explanation of the model's features. It explores Blackmores' mission, objectives, and corporate strategies, assessing how ABC aligns with these goals. The report offers recommendations for implementing ABC within the company, emphasizing product differentiation and quality improvement. Additionally, it suggests financial planning as a key management accounting model. The report concludes with a discussion of ABC's benefits in cost management and strategic alignment, supported by references.

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ACTIVITY-BASED COSTING FOR BLACKMORE LTD
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Contents
Executive summary.........................................................................................................................3
Introduction..................................................................................................................................3
Main body........................................................................................................................................4
Explanation of ABC model and its features.................................................................................4
Features....................................................................................................................................4
Blackmores LTD Mission and Objectives.......................................................................................5
Mission- What the company strives for.......................................................................................5
Objectives.................................................................................................................................5
Blackmores LTD corporate strategies.............................................................................................5
How activity-based costing (ABC) model aligns with the current goals and strategies of the
company...........................................................................................................................................6
Recommendations for the implementation of activity-based costing (ABC) model for
Blackmores Limited.........................................................................................................................7
Conclusion.......................................................................................................................................7
References…………………………………………………………………………………………
……………………………………………………8

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ACTIVITY-BASED COSTING FOR BLACKMORE LTD
Executive summary
With the propagation of technology and computer related services, the outburst in data
communication systems, and the rapidly changing trends about globalization, the corporate
world and the mangers in various industries are searching for considerable new ways and
methods in managing and controlling costs. Despite the fact that most of the companies dealing
with online or IT related services have varying degrees of senselessness or intangibility, the
major challenge they face is measuring the costs of the services they deliver. Ideally, Activity-
based costing (ABC), an alternative approach to the traditional costs accounting systems, has
been used or applied to various industries, for example, the manufacturing and service industries.
Consequently, there has been successful enforcement of this system in the insurance, healthcare,
and transport industries over the few last years, but very few publications associate ABC to the
IT-related firms. This research reports on the cost management undertaking using ABC
framework focused on the management division of a vitamin, mineral and herbal supplements
firm (Blackmore). The requirement for the company to create accurate and explicit recharge
rates, aligning the model to the current goals and the strategies of the company in the corporate
domain, how the model helps company achieve its strategies and the recommendation about the
enforcement or implementation of this model for the company based on various findings
(Askarany et al., 2010). The modeling procedure needs the identification of resources, costs
objects, activities and the forces that correspond closely to the organizational obligations within
the management parameters. Finally, the resulting framework gives a managerial tool to quantify
productivity and efficiency for the firm.

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Introduction
During the past two decades activity-based costing (ABC) has been to rated in the
summit of the academic and journals and documented in management accounting textbooks as a
model that upholds accuracy of the product service costing and also guides mangers and the
chief executives of the companies in comprehending how resources are utilized across the
company’s value chains to give strategic results. Because of the activity-based costing, managers
are now at peace with the assessment of all the activities in their respective firms and allocate the
needed resources for their implementation with all the processes involved accounted for. This
system is very attractive and valuable to the companies in the competitive and stiff environments
that require a lot of cost reduction, especially when the traditional or the existing cost systems
fail to address such rational support (Baird 2007). Despite the fact that many firms are aware of
the contemporary advancements in technology and the global economic environment that has
rendered the traditional cost accounting systems irrelevant, the fact remains that they have to
perceive net benefits before enforcing activity-based costing. Because restructuring and
reconstructing the required systems are significant and expensive.
Regarding Blackmore LTD, in addressing the preempted matters, this study seeks to
assess and address the perceived success of ABC in this particular company. Therefore the paper
will address specifically; the requirement for the company to create accurate and explicit
recharge rates, aligning the model to the current goals and the strategies of the company in the
corporate competitive environment, how the model helps company achieve its strategies and the
recommendation about the enforcement or implementation of this model for the company based
on various findings.

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Explanation of ABC model and its features
Activity-based costing with the acronym ABC is an accounting technique that identifies
all the activities that a company performs and then designates indirect costs to products. In a
wider perspective, an activity-based costing system gives focus to the relationship between costs,
activities, and products, and through this connection, it allocates indirect costs to products more
effectively than the traditional systems (Barney 2014). The discussed information is shown in a
diagram representation below.
RESR
PROCESSES
Figure 1.0: The Cost-Assignment Model
The ultimate design of the activity-based costing must consider factors of the trade-off,
including flexibility, accuracy, and cost. This system is similar to all the techniques that uphold
the improvement of the operating performance, such as marketing mapping and decision making
for the Blackmore limited. However, some costs require an extra process to assign using this
system of cost accounting, for instance, office- staff salaries and management may be
challenging to assign to a specific product produced. Therefore, this system has found its
grounds better in the manufacturing firms.
Features
The characteristics of activity-based costing are explicitly and precisely explained herein:
COSTS PRODUCTSACTIVITIES

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-The total or the overall cost is subdivided into two, for example, variable costs and fixed
cost which is very useful in giving quality and reliable information for designing of a suitable
cost model in a manufacturing arena (Baykasoğlu and Kaplanoğlu 2008).
-The significant difference is drawn between the cost behavior patterns.
-The cost behavior patterns are related regarding volume, density, time and events or
occurrences.
-The relevant cost force has to be recognized for accounting for the overhead to a product
or service.
-The cost behavior patterns are determined and dictated by the cost drivers.
Blackmore’s LTD Mission and Objectives
Mission- What the company strives for
Blackmore Limited mission statement states that; "Blackmore's success is premised on
the way we focus on our clients, be innovative, responsible actions with one another at the firm,
the environment and the community around us and strive to demonstrative our values through
innovative ways. We aim to discover, create and develop the best quality natural health formulas
and establish a sustainable market base to prevent disease, to encourage community wellness,
and to improve individual’s lives. We also want to raise the reward shareholders who invest their
finances, believes, trusts and performance of Blackmore’s in the long run.”
Objectives
A target of a minimum of fifty percent rise in the operational capacity by the end of the
year 2017 to focus on supply problems of pharmacies, healthy food stores and by extension e-
commerce paths in Australia.

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- In comparison with the previous years, the company expects at least seventy percent
increase in the overall sales in the coming years.
-The growth of twenty-five percent of the operating cash flows over the 12 months
periods from 2016 to date.
-The growth of the Asian consumers to make the group sales increase to eighty percent in
the coming years.
-To raise or increase the number of research symposia and clinical trials at the company.
And subsequently, to increase the number of research institutions and double education touch
points in the coming three years (Horngren 2009).
Blackmore LTD corporate strategies
Basing on the market niche and the company’s nature and the brand repute, improving
the distinctions or the differentiation of the products is the major cooperate strategy and the
competitive advantages. Supposing, the cost leadership strategy is not well enforced, it may
have negative impacts on the company’s wonderful reputation and make people suspect the
functionality and the quality of the company’s products. According to some researchers, the
differentiation strategy empowers the firm to posses’ better sustainability of performance as
compared to cost leadership strategy (Kallunki and Silvola 2008). Consequently, another
corporate strategy of the company is the adoption of the premium prices, which makes their
products and services unique and attracts customers. Despite the fact that investing in R&D may
be too costly, the company should consider the strategy.
Similarly, a total comprehension of the domestic and global markets is also a strategy the
company is exploiting basing on their product differentiation. This will ensure growth since the
company's products and services are channeled to a wider customer base. To be on the vantage

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side due to the stiff competition in the market, the company should also consider, instead of
raising the prices of their products which is risky, but rather focus or concentrate on increasing
the perceived quality while holding their price at the very level. Finally, the company is on the
move to short-term differentiation without necessarily considering the price premium strategy
and focus on the additional investment in R&D which may seem expensive (Briers and Chua
2009). Blackmore has got a competitive advantage to create and develop its product portfolio
and enlarge its brand into the new market segments because almost a quarter of its population is
regarded as qualified health personnel who are based in both Australian and the Asian markets
segments. Since the company has got a wonderful reputation concerning its products like
vitamin and supplement brands gives it the leverage for sustainable growth. The management
using activity-based costing should ensure that the products are maintained at the very vantage
point through provisions, allocations and thorough assessments throughout the entire time.
How activity-based costing (ABC) model aligns with the current goals and strategies
of the company.
Blackmore Director reports that revenue for the last two years registered and increment
of 13.7%. In fact, the profit margin after the tax increased by 7.1% on the last year. This report
was reviewed and audited by the company’s auditor. Again in my analysis of the company's
condensed consolidated statement of cash flows, over the past years was made by historical cost
and activities except for revaluation of certain financial factors (LaLonde and Pohlen 2007). The
analysis of the company is premised on its critical factor; the cooperate strategies like differential
of the products and the goals the company wants to achieve. Therefore, in this case, the focus is
based on the analysis of the company's value chain, which presents relevant data or information
for the activity-based costing to be defined. In Blackmore limited, the output is quantified by

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every individual activity to better define the required or relevant activity rates for the overall
calculation and accounting of the product cost.
The undertakings of Blackmore's company like a strategic move to establish the premium
prices for their products, or otherwise enhance the quality of their products and services while
maintaining the very market prices for competitive advantage, reflect all the dimensions of
strategic cost management, ranging from market mapping to establishing the ideal products and
prices. Also in this context, there is an explicit explanation on how activity-based costing or cost
management was used to achieve the company’s objectives for the previous years, where
sustainable growth had been recorded (Wegmann 2008). Perhaps sometimes through striving to
implement this system, for instance, tracking down activity costs and processes to products and
market the cost drivers are not properly measured in spite the fact that they drive critical
organizational costs. The managers should be well acquainted with the following two alternative
options: disregard all the significant drivers or alter the system to include them.
Recommendations for the implementation of activity-based costing (ABC) model for
Blackmore Limited
Based on the research findings, without any reasonable doubt, from my perspective I
would to categorically state the following two recommendations for the company: first of all, the
managers or the management division of this company should entirely improve the
differentiation of all their products to enable the company a competitive advantage in both the
domestic and international market segments. Secondly, the company should greatly focus on
improving the perceived quality of their products while holding their prices at the very level to
attract a wider customer base (Ward 2012).
Another recommended mode

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Financial Planning
Now, a part from the activity-based (ABC) as a model of management account, I would
like to particularly suggest ‘Financial Planning’ as yet another very important model used in
management account. Financial planning in management account is based on budgeting and
budget processes. As matter of fact, the main aim or the ultimate goal for any business entity is
the maximization of profits but to minimize on cost. Therefore, for managers to detect
tremendous increase in the profit margin, they have to make, and comply with the proper and
sound financial planning. Financial planning therefore must be one of the most fundamental
management tools for realizing the business objectives. It involves activities like: evaluating the
business environment, ascertaining the vision and the obligations of the business, identification
of the relevant resource needed to execute the business objectives, budget for every single
activity within the business, calculate the total cost, identify the risks associated with the cost
products then allocate the required capital for each activity. This is essentially what financial
planning entails in management accounting.
Conclusion
In conclusion, activity-based costing (ABC) has proved to be the best cost management
tool for various companies and more particularly for Blackmore Limited. Through this cost
management to the company has achieved the very sustainable growth, wide profit margins and
the positive reputation for its macro environment. The company has established a wide market
base for their natural herbs, vitamins and supplements brands both within the domestic segment
and the global one including a market segment in the Asian continent. Through this system, the
management division of the company has adopted the best corporate strategies and develops
realistic objectives which as ultimately given them the competitive advantage over other

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companies. It is through activity-based costing that the company has attracted more holders and
increased their rewards, also improved the perceived quality of their products giving them the
best reputation internally and externally. From this research, therefore, various conclusions can
be made to give rise to the future research undertakings. Otherwise, in general, cost theory, the
accounting costs, and the model concepts present a very important role in what concerns the
appropriate establishment of company goals and strategies. Thumbs up for the technological
advancement that has given various companies new costing approaches particular activity-based
costing (ABC).

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References
Askarany, D., Yazdifar, H. and Askary, S., 2010. Supply chain management, activity-based
costing, and organizational factors. International journal of production economics, 127(2),
pp.238-248.
Baird, K., Harrison, G. and Reeve, R., 2007. The success of activity management practices: the
influence of organizational and cultural factors. Accounting & Finance, 47(1), pp.47-67.
Barney, J.B., 2014. Gaining and sustaining competitive advantage. Pearson higher ed.
Baykasoğlu, A. and Kaplanoğlu, V., 2008. Application of activity-based costing to a land
transportation company: A case study. International Journal of Production Economics, 116(2),
pp.308-324.
Briers, M, and Chua, W.F., 2009. The role of actor-networks and boundary objects in
management accounting change: a field study of an implementation of activity-based costing.
Accounting, organizations and society, 26(3), pp.237-269.
Cadez, S. and Guilding, C., 2008. An exploratory investigation of an integrated contingency
model of strategic management accounting. Accounting, organizations and society, 33(7-8),
pp.836-863.
Horngren, C.T., 2009. Cost accounting: A managerial emphasis, 13/e. Pearson Education India.