HI5017 Managerial Accounting: Implementing ABC Model at Chorus Ltd

This report provides a detailed analysis of the Activity-Based Costing (ABC) model and its potential implementation within Chorus Limited, a telecommunications service provider. It defines the ABC model, outlines its key features, and explains how it aligns with the company's current goals and strategies, including its mission to explore the telecommunications market, maintain networks, and maximize profit. The report identifies the company's mission, objectives, and corporate strategies, demonstrating how the ABC model can assist in achieving these goals by managing service costs and improving decision-making. Furthermore, the report offers two recommendations for implementing the ABC model within Chorus Limited, based on research findings, and suggests benchmarking as an alternative management accounting tool, justifying its suitability for the company. The report concludes by emphasizing the benefits of the ABC model and benchmarking for enhancing cost management and strategic alignment.

HI5017 Managerial Accounting
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Contents
Executive Summary.........................................................................................................................3
Introduction......................................................................................................................................4
a) An explanation of ABC model and its features..................................................................5
b.) An explanation of how ABC model aligns with the current goals and strategies of the
company.......................................................................................................................................6
i) An identification of the company’s mission and objectives....................................................6
ii) An identification of the company’s corporate strategies:.......................................................6
iii) An explanation of how ABC model assists in achieving the company's strategies:..............7
c) Provide at least two (2) recommendations about the implementation of ABC model for your
company based on your research findings...................................................................................8
d) Apart from ABC model, suggest one other management accounting tool suitable for your
company and justify it.................................................................................................................9
Conclusion.....................................................................................................................................11
References......................................................................................................................................12
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Executive Summary
ABC model indicates the Activity-based costing which is one of the accounting methods that
identifies the activities that a company performs and then convert indirect costs to products.
Activity-based costing provides cost volume and profitable relationships. In this report, it defines
the ABC model and it features which are used in accounting method and can be adopted by
Chorus company which is providing telecommunication services. ABC model has assigned the
strategies of the company and estimate cost of each service provided by the company. Report
assignments have different goals of the ABC model that is used in the company. This report also
explains the objectives which the company want to achieve. There are 2 recommendations which
are used in the implementation of ABC model. In this assignment, there is one other tool of
management accounting which is suitable for the company.
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Introduction
Activity-based costing is a method that is used to identify information and costs of services
provided by chorus limited to improve business processes. In the activity-based costing, one can
analyze activities, processes, and cost of the products and calculate the total cost of them. In this
report, there is a discussion about the ABC model and the features which are used in the ABC
model. There are different goals of activity-based costing which are used to achieve the
objectives of a company. This report includes various goals like to analyze the inaccurate cost
information and to help the management in the decision-making process. Abc model explains the
strategies and various objectives of the company. The company gets different benefits while
using the activity-based costing method.
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a) An explanation of ABC model and its features.
Activity-based costing is a method of accounting management that is used to identifies overhead
costs to activities and then gives them to objects. Activity-based costing is a way to gives
indirect, factory overhead expenses to products or departmental sections that involve in
generating these costs during production.
ABC costing is basically a type of accounting method which focuses on analyze activities or
production processes which are used to process a job. In the activity-based costing, the work is
done by individual activities and these individual activities are combined together with some of
the similar processes into a cost pool and all the combined activities are relates to a single
activity cost driver (CGMA, 2018).
The features of activity-based costing are discussed as below:
 In this activity-based accounting method, the overall cost is divided into 2 parts i.e. fixed
cost and variable cost which is important to give actual information to maintain a suitable
cost system for a company.
 Activity-based accounting maintains a proper distinction which is made by the cost
behavior patterns.
 Cost behavior patterns are the patterns used in the activity based accounting which are
related to volume, diversity and time.
 Cost behavior patterns are dictated by the cost drivers.
 Identifying an overhead of a product is done by actual cost driver.
 In the variable costs, short-term variable costs are given to the products which are based
on the volume related cost drivers.
 In ABC method first we analyze the cost of the resources, then we have to allocate that
cost to some specific product
 To determine direct material and direct labor is also the challenging one.
 ABC method is based on the arbitrary method rate and it is typically used to calculate
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 The indirect cost of product cost.
 ABC model provides the useful cost information and reduces or control the cost which is
unproductive. It also helps in decision making and achieves the strategical and
operational activities (ORACLE Help Center,2012).
b.) An explanation of how ABC model aligns with the current goals and strategies of the
company.
i) An identification of the company’s mission and objectives
The main objective of chorus limited is to explore its market in telecommunication services and
maintaining and repairing and maintaining the existing networks and earn maximum profit. The
ultimate goal of the ABC model is to manage the servicing cost and to serve the economy. Its
objective is also to maintain the policies and guidelines which are adopted by the company. Its
main objective is to analyse properly the ABC model and discriminate the items which are more
useful and use those important firstly. Its main attention is to determine the cost at each level
(Chorus limited, 2018).
The main objectives of the company are:
1 To promote telecommunication services.
2 Serve consumers with best service networks.
3 To work with the policies of ABC model
4 To earn the profit, and to find the cost at each level.
5 To reduce the cost of overhead expense.
6 To maintain and repair infrastructure of tele- networks (Chorus limited, 2018).
ii) An identification of the company’s corporate strategies:
The strategy of the company is to achieve the goals in an effective and efficient manner. The
strategy is to communicate the goals of the organisation, members so that they implement them
in a right manner. Chorus limited is a highly reputed company so its main strategy is to attract
the customers by reducing the price of the services and by maintaining its quality also. ABC
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model helps in reducing the cost of services provided by them. The main strategy is to attract the
maximum customers by advertising or any other mode (Chorus limited, 2018).
Its main strategy is to determine the cost of each activity. The main focus is on the allocation of
cost should be on the right path. The material cost, labour cost, overhead cost should determine
exactly to reduce the final cost. Its main strategy is also to attain the maximum benefit with the
help of the management. The strategy is also to maintain the relationship with the employer.
They have to maintain the relationship of the product with their cost to determine the accurate
cost of the product.
iii) An explanation of how ABC model assists in achieving the company's strategies:
ABC model is basically dealt with manufacturing product or providing services to final
consumers so Chorus limited can adopt this concept in order to achieve its goal. its main strategy
is to minimise the cost by reducing the overhead expenses of the company. Chorus limited has
main strategy is to achieve the maximum profit by proper functioning of the management. Its
main strategy is to reduce the cost of the services so that it can increase the consumer base and it
will also attract new customers. If the cost of the service reduces per unit of an item then it also
helps in to lead the scale of economies. ABC model assists in finding the cost at each level so it
helps to companies to achieve the maximum goals. ABC model also gives the information about
the fixed and the flexible cost so it also helps the company in allocating the cost.
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c) Provide at least two (2) recommendations about the implementation of ABC model for
your company based on your research findings.
Meaning of ABC model
ABC is a model under which cost has been assigned on the basis of nature of activities
performed for producing any goods or providing any services. The ABC model had started in the
United States during the year 1980s and 1970s because traditional costing system fails in
determining the value or cost of particular good or services where organisations involved in
producing multiple goods or providing different services. Consequently, the managers are
making decisions from the inaccurate data which is very costly and time-consuming. ABC model
helps in separating the cost by their frequency of occurrences such as fixed cost, variable cost,
and factory overhead cost.
The Activity Based Costing Process Flow
1. Identify Cost: The first one step is to determine the cost which needs to be allocated. This is
the most important and complex step of cost allocating process. Since we do not want to waste
the time and this process is time-consuming because allocating cost to each product takes time.
2. Load secondary cost pools: this cost generally includes computer services and administrative
salaries and other costs as well.
3. Load secondary cost pools: This cost mainly includes research and
development, procurement, distribution and advertising
4. Measuring activity drivers: In this step activity driver accumulate information regarding
activity and allocate it to second activity pool from first activity pool.
5. Formulating reports: it involves conversion of results or outcome identified during
implementation of ABC model in report.
Reasons as of why company implement ABC model
1. Good Management
2. Accurate Calculating costs
3. Ensuring customer profitability
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4. Evaluating investments in new technologies
5. Improving product quality
6. Managing costs
7. Supporting other management innovations
8. Better performance measurement
d) Apart from ABC model, suggest one other management accounting tool suitable for
your company and justify it.
ABC Model: ABC refers to Activity-based costing, that gives costs of products according to
activity. It allocates both cost and activities according to demand for products or particular
service. This model defines how an organisation manufactures the products and creates the costs
of products on the basis of activities (Mahal & Hossain, 2015). It examines the cost of every
activity i.e. costs should be in direct or indirect.
A management accounting tool apart from ABC model is Benchmarking i.e. discussed as
follows-
Benchmarking:- This is an important method or can say a process in an organisation where
different activities and performance of that companies are compared. After comparison, the
companies improve the activities according to need. It also compares policies, products, services
and other company's methods in a standard form. There are some conclusions of this process as
follows:
 Improvement in performance according to plan.
 Comparing the performance of target areas.
 Recognition the chances for development.
 Identify other areas for enhancement.
Take an example of benchmarking like there are many types of benchmarking in any company or
organisation i.e. internal and external. The cost account is a type of internal benchmarking that
includes the performance of an organization that was done in past and gives ideas to develop
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future performance. Also set values for improvement like if costs accountants study the costs
levels i.e. both static and adjustable for past few years, then they use another production process
to find out an average of costs using a benchmark. It will help to improve existing performance
in contradiction of benchmark. This is known as internal benchmarking.
Another kind of benchmarking is external benchmarking, where one company compare it selves
with another. It is used to find out an average of sales and more goals for justice in comparison
with other companies.
Benefits of benchmarking:-
For any organization or company, It is an important factor that they gain benefits from the
process which they used. So here are some benefits using benchmark tool-
 Increase quality of a product or service
 Improves profits and sales
 Decrease labour costs
 Equate performance between different units with own company
 Improve new development areas
 Increase new methods for processes for products
 Identifies the competitor organization plans and products and services
 Analyse the difference between strengths and weaknesses
 Knowing about new morals and inspires the employees
 Helps to understand customer requirements and fulfilled them.
So it is a very beneficial tool for any organisation or company to measure performance and
calculate cost services with other companies. It can also help in manage the accounting by using
different methods and processes according to performance and will help to recover financial
status. Hence it is a useful tool for management of cost accounts and their activities in an
organization.
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Conclusion
The report indicates about the ABC model of accounting which is a type of accounting method
used to reduces the overhead costs and convert it into the cost of the production or cost of
providing services. The assignment shows the various features of ABC model like the ABC
model have 2 forms of variable costs short term and long term costs. These two are different in
their own way. Next, we discussed the various strategies and goals of ABC model which are
used by the company to improve the business. The assignment shows the discussion about the
company's corporate strategies and the factors of ABC model by which the accurate goals are
achieved by the company. The report also shows the other management tool rather than ABC
model which is a benchmarking. It is also a tool to improve the business strategies.
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References
 ORACLE Help Center,2012.Understanding Managerial Accounting and Activity Based
Costing [Online] ORACLE Help Center. Available
at: https://docs.oracle.com/cd/E16582_01/doc.91/e15079/undrsngmangractbasedacnt.htm
#EOAAC00387 [Accessed on 22 May 2018]
 My Accounting Couse,2018. What is activity-based costing? [online] My Accounting
Couse. Available
at:https://www.myaccountingcourse.com/accounting-dictionary/activity-based-
costing[Accessed22 May 2018]
 Oney Atters,2018. Activity Based Costing[Online] Oney Atters. Available
at:https://accountlearning.com/activity-based-costing-meaning-features-objectives-
implementation/ [Accessed: 22 May 2018]
 CGMA, 2018. Activity Based Costing(ABC)[Online] CGMA. Available
at:https://www.cgma.org/resources/tools/essential-tools/activity-based-costing.html
[Accessed:22 May 2018]
 Kannaiah, D., 2015.Activity Based Costing (ABC): Is It a Tool for Company to Achieve
Competitive Advantage. International Journal of Economics and Finance, Vol. 7, No.12,
pp. 275-281
 Mahal I., & Hossain, A., 2015. Activity Based Costing An Effective Tool For Better
Management. Research Journal of Finance and Accounting, Vol. 6(4), pp. 66-73
 Goetsch, D.L., & Davis, S.B., 2014. Quality Management for Organizational Excellence.
Upper Saddle River, NJ: Pearson
 Adler, R., 2013. Management Accounting. Routledge.
 Chorus limited ,2018. About us. [online] Chorus Limited. Available at:
https://www.chorus.co.nz/who-is-chorus [Accessed 22 May 2018]
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