Strategic Cost Management: ABC Analysis at Domain Holdings Australia

This report provides an analysis of the Activity-Based Costing (ABC) method and its potential implementation within Domain Holdings Australia, an online real estate and property marketing company. It highlights the key features of ABC costing, emphasizing its ability to identify and categorize various costs (fixed, variable, overhead, direct, and indirect) associated with different activities across functional departments. The report discusses how ABC costing can align with Domain Holding Group's corporate goals and strategies, such as enhancing market competitiveness and improving profitability, by identifying and eliminating non-value-added activities and hidden costs. Furthermore, it recommends the implementation of the ABC model, considering the resources and time required, and suggests time-driven ABC costing as an alternative management costing tool. The goal is to provide insights into how Domain Holdings can leverage ABC costing to optimize its cost structure and improve its overall business performance.

ABC Analysis

Executive Summary
The Activity-Based Costing method popularly known as ABC method of costing is utilized in
many organizations since is development and implementation since late 80’s when it was first
identified by the manufacturing sector. The manufacturing sector was the first industry wherein
the organization was able to identify the true potential and value of the ABC costing method and
make the proper analysis of the processes included in the production units of many
organizations. It was later identified that the ABC costing methods would be able to derive
proper and effective results as per the needs and requirements of the organizations in order to
identify the total costs in all the functional departments of the organization. This report would
include the identification of the essential features of ABC analysis that provides the competitive
advantage for organizations in improving the process of costing and analysis of all the essential
fixed and variable costs that do not contribute potentially for the development of product or
services but adds value unnecessarily to the final products or services. This leads to the reduction
in the profit margins and sales revenue of the products or services in the highly competitive
market. We would analyze the implementation of the ABC costing method in Domain holdings
Australia which is popularly known as Domain Group currently operating in the online retail
business of real-estate and property dealing wherein they provide marketing solutions to the
clients and other companies in the Australian market. We would analyze the impact of the ABC
costing method implementation in Domain Holdings Australia.
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Contents
Executive Summary.....................................................................................................................................2
Introduction.................................................................................................................................................4
Features of ABC costing method.................................................................................................................4
Alignment of corporate goals and strategies with ABC model....................................................................6
• Domain Holding Group mission and objectives.....................................................................................6
• Domain Holding Group’s corporate strategies.......................................................................................6
• The assistance of ABC model in achieving Domain Holding Group’s strategies.....................................7
2 Recommendation for implementation of ABC model...............................................................................7
Alternative management costing tool for Domain Holding Group..............................................................8
Conclusion...................................................................................................................................................8
References...................................................................................................................................................8
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Introduction
The ABC costing method was developed with the primary intention of improvement in the
manufacturing unit during the late 80’s so that the organizations could be able to identify the
hidden overhead costs which do not add value to the production process but contributes in the
total costs of production. The ABC costing method is one of the influential costing techniques in
comparison to other traditional costing tools and techniques since it involves identification of the
actual fixed and variable costs that are incurred in the processes executed by the organization in
the execution of their operational and business activities. The organizations implementing the
ABC costing method has the intention to identify all the possible types of costs hampering the
productivity and performance of the organizations which any value-addition to the development
of the products or services rendered to the retailers and consumers for final consumption. The
Domain Group was formed by the Fairfax Media in 1999 as a subsidiary as an online digital
portal for the customers for promotions of properties and real-estates wherein the clients could
promote and advertise their properties for sales and rental basis. This online portal got registered
on the Australian Stock Exchange in 2017 but still, the parent company owns nearly 60 percent
of the shares of the company. This report would focus on the benefits and features of the ABC
costing method which could be essential to understanding the influence of the implementation of
the ABC costing method in any organization. (Kaplan, 1987)
Features of ABC costing method
The ABC costing method proved beneficial for many organizations during the last three decades
since its development in the late 80’s and provided essential information to the organizations and
top management executives related to different costs associated with the processes in the form of
activities of all the functional departments in the organization. The organization would be able to
identify the inclusion of different resources in all the activities and their contribution to the
development of the product or services in the organization. Some of the essential features of
ABC costing method would be as follows:
The main feature of the ABC costing method is to support in the division of the total costs in
their individual's forms and different categories like fixed costs, variable costs or overhead costs,
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and direct costs or indirect costs. The ABC costing method would be beneficial in the
identification of the processes in the form of activities in all the functional departments in
association with the utilization of the resources in the execution of those respective activities
corresponding to the cost involved in the accumulation of the resources and execution of all the
activities in the organization. The ABC costing method would be supportive in providing in-
depth analysis of all the costs incurred in the execution of all the activities in functional
departments so that they could modify the activities and reduce the total costs of the final product
or services produced in the organization.
The ABC costing method would be supportive in improving the performance and productivity of
the processes or activities executed in the organization by making investments in improving the
quality of the production of the production processes and installation of new machinery and
equipment after proper analysis of the relevance and importance of those respective activities in
the production of the final product or services in the organization. This would ensure that the
organization is able to eliminate all those activities or processes which are non-productive in
nature and incurred costs which do not contribute to the production process or development of
the final product in the organization. The organization would be able to identify the possible
overhead costs that are not visible directly in the production processes but hampers the overall
cost of production and productivity of many functional departments in the organization.
(Staubus, 1971)
The ABC costing method is very supportive in the strategic decision-making process of the
organization by identification of the cost-drivers and motivators that influence the overall total
costs of the final products or services along with all the functional departments of the
organization. This means that all the factors influencing the total costs or individual costs of
production would be identified and the top management executives have proper analysis of all
such factors in order to make alterations in the current production systems or methods and
processes included in the production system in order to make reduction in their current costs
incurred so that they could improve their total profit margin and enhance their sales revenues in
an effective manner.
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Alignment of corporate goals and strategies with ABC model
• Domain Holding Group mission and objectives
The mission and objective of the organization are to become the pioneer in production and
supply of relevant information of the advertisements related to the property and real-estate
products on their online portal and induces more and more customers towards making the
purchase of the products and services. The objectives of the Domain Holding Group is to ensure
they remain competitive in the online portal market and maintain their current market position
and market share thereby enhancing their current profits and sales revenues in positive manner.
The biggest competitor of Domain Holding Group is REA Group which is currently owned and
managed by the rival company of Fairfax which is News Corp Australia. The current market
penetration of Domain Holding Group is nearly 90 percent and stands in the second position in
the online portal business after REA Group. The Organizations aims to become the largest
supplier of the relevant and crucial information to the customers and cater to maximum market
share of the Australian economy with their products and services in an efficient manner.
• Domain Holding Group’s corporate strategies
The Domain Holding Group focuses on hiring the best suitable candidate for enhancing the
productivity and performance of all the individual functional departments that would contribute
to the growth and development of the organization. The organization is using extensive
marketing strategies in order to induce the advertisers in using their online portal for promotions
and advertising of their products and services with the maximum coverage of the country. The
online portal Domain Holding Group encourages usage of high-end technology and information
systems that would provide additional support in achievement of the goals and objectives of the
organization. They have invested heavily in installation of new improved technology that would
be supportive in data analysis and analytics purpose in order to make data more relevant and
important for the clients that are advertising on the online portal. The organization is currently
focusing on the residential real-estate which is the major contributor for the sales revenue and
profitability of the organization with 47 percent which is equivalent to nearly $86.1 million as
per the half-yearly financial report presented for the current financial year. They are focusing on
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improving and increasing their current client base by increase in the listings and maximization of
the total agents operating through the online portal. (Mocciaro, 2012)
• The assistance of ABC model in achieving Domain Holding Group’s
strategies
The ABC model would be very influential and beneficial for the Domain Holding Group’s
strategies in order to identify the fixed and variable costs involved in all the functional
departments operating in their different offices across the country. The relevance of the fixed and
variable costs incurred by the organization would be helpful to identify all the overhead costs
and hidden costs that would be resulting in the increase in the total costs of the organization but
their overall contribution in the growth, development and profitability of the organization would
be zero. The organization is intending to implement the ABC model since they would be able to
curb the unnecessary functional activities and make arrangements for optional activities that can
be either outsourced, curbed directly or any substitute can be implemented without hampering
the quality and quantity of the production of products or services for the clients and customers.
(Peter, 1999)
2 Recommendation for implementation of ABC model
The two recommendations for implementation of the ABC model for Domain Holding Group
would be to identify the total costs and time involved in the implementation process since the
ABC model and framework is a time consuming and costly process. The organization needs to
evaluate the availability of all the essential information systems and technologies that require
being inclined with the ABC framework in order to derive the expected results in terms of
reduction in the total costs of production of the services catered by the Domain Holding Group.
The organization need to ensure that they are ready to invest the essential resources specifically
human resource in the implementation of the ABC model since they would be responsible for
gathering the data from all the functional departments in relation to all the activities and
associated time taken for execution of those activities in an effective manner. The employees
hired for the implementation of the ABC framework would require conducting extensive market
research and data collection process in all the functional departments of the organization so that
they could identify all the overhead and hidden costs that would be incurred without any
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knowledge by the organization resulting in reduction in the total sales revenue and profitability
of the organization.
Alternative management costing tool for Domain Holding Group
There are different management costing tools developed and implemented by different
organizations operating in different sectors based on their nature of operations and requirements.
The organization operating in different domains or sectors would require specific costing
methods among some like job costing, product costing, process costing matrix costing and time-
driven ABC costing method to name a few. The best suitable management costing method
beneficial for the Domain Holding Group would be time-driven ABC costing method that would
be providing additional benefits than the traditional ABC costing method in accordance with the
calculation of time factor influencing the production and other functional activities in the
organization. The time-driven ABC costing method is the advance version of the traditional ABC
costing method since it involves the time-factor associated with the transmission of the resources
in the activities in order to execute the functional and production activities for the final
development of the product or services and relates the cost factor with the time to provide
essential information related to the costing and time taken by the resources in completion of the
activities in an effective manner. The time-driven ABC costing method has the ability to incline
with the newly developed information systems and technologies providing an edge for the
organizations to implement and derive positive results. (Velmurugan, 2012)
Conclusion
The ABC costing method is very beneficial and influential in many organizations thereby
supporting in the identification of all types of costs that would be hampering the total costs and
production capability of the organization. There are many organizations across all the sectors that
are benefitted from the implementation of the traditional ABC costing method which helped in
the overall identification of the hidden costs and makes optimum utilization of the resources
thereby enhancing the productivity and performance of the organization.
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References
Kaplan, Robert S. and Bruns, W. Accounting and Management: A Field Study Perspective
(Harvard Business School Press, 1987) ISBN 0-87584-186-4
Staubus, J. Activity Costing and Input-Output Accounting (Richard D. Irwin, Inc., 1971).
Mocciaro, A. (2012), Bringing Strategy Back into Financial Systems of Performance
Measurement: Integrating EVA and PBC, Business System Review, Vol 1., Issue 1. pp.85-102
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2154117
Peter F. Management Challenges of the 21st Century. New York:Harper Business, 1999.
Velmurugan, S. "The Success And Failure of Activity-Based Costing Systems." Journal of
Performance Management 23.2 (2010): 3-33. Business Source Complete. Web. 15 Mar. 2012.
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