Managerial Accounting: Applying ABC Model in Independence Australia

This report provides a detailed analysis of the Activity Based Costing (ABC) model and its potential application to Independence Australia, an Australian social enterprise. The report elucidates the features of the ABC model, including its focus on identifying activities, production processes, and job costing. It explores how the ABC model can be aligned with the goals and strategies of Independence Australia, emphasizing its role in cost reduction and improved decision-making. The report also offers recommendations for effective implementation of the ABC model, highlighting the importance of senior management support and the formation of a cross-functional team. Furthermore, it discusses budgetary control as an alternative management accounting tool, outlining its advantages in cost control and financial strategy development. The conclusion underscores the benefits of the ABC model for Independence Australia while acknowledging the importance of proper implementation strategies.

Running head: MANAGERIAL ACCOUNTING
Managerial Accounting
Name of the Student
Name of the University
Author’s Note

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Executive Summary
Different parts of this report provides discussion about different aspects of ABC model like the
explanation of the ABC model, its features and its role to achieve the organizational goal and
objectives. It can be seen that the implementation of ABC model in Independence Australia will
lead to cost reduction so that the company can achieve its objectives and goals.

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Table of Contents
Introduction......................................................................................................................................3
a) ABC Model and its Features.......................................................................................................3
b) Aligning the ABC Model to the Goals and Strategies of Orica Limited....................................4
i) Mission and Objectives of Orica Limited................................................................................5
ii) Corporate Strategies of Orica Limited....................................................................................5
iii) Role of ABC Model in Achieving the Strategies of Orica Limited.......................................6
c) Recommendation.........................................................................................................................7
d) Alternative Management Accounting Tool.................................................................................8
Conclusion.......................................................................................................................................9
References......................................................................................................................................10

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Introduction
Activity Based Costing Model (ABC model) refers to a specific costing model that helps
the business organizations in the identification of the costing activities and assigns them on each
activity with resources to all the products and services. ABC model helps the business entities in
the organizational costs (Estampe et al. 2013). The main objective of this report is to conduct an
analysis and evaluation on the various aspects of ABC model for the organizational success. For
the purpose of this report, Independence Australia is considered. Independence Australia is an
Australian organization that provides services to the people with disability
(independenceaustralia.com 2018). For this reason, it is considered as a major Australian social
enterprise. Most of the manufacturing business entities tend to adopt the ABC model, but it is
equally applicable in the service industry and this report sheds on this fact.
a) ABC Model and its Features
ABC model is considered as a major managerial accounting tool that helps the business
organizations in tracing the overhead costs to the activities and then involves in the process to
assign them to the cost objects. On another word, ABC model provides the organizations a way
for allocating the indirect and overhead costs to the products and services (Charaf and Bescos
2013). There are three major focus areas of ABC model; that is the identification of activities,
production process and process a job. The strategy of ABC model group these processes together
with the similar processes into the cost pools that can be related to the activity cost drivers. The
next process involves in the analysis and assignment of predetermined overhead rate and assigns
it to the individual jobs or services. In spite of the fact that ABC model involved many steps in

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order to be completed, most of the business organizations prefer to adopt the strategy of ABC
model due to its accurate way to assign the indirect costs (Prowle 2016).
In this aspect, it needs to be mentioned that there are some major features of ABC model
and they are discussed below:
o One of the major features of ABC model is that it helps the business organizations to
identify the specific costs that the business entities want to allocate and it is considered
as the most critical process under this costing model (Oseifuah 2018).
o The creation of cost pools is the next major feature of ABC model. In this process, the
major costs are allocated under the cost pool that can be directly related to the products
and services of the companies (Mahal and Hossain 2015).
o The presence of ABC model helps the business organizations in the creation of cost
pools for those specific costs that are closely aligned with the products and services of
the business organizations. For this reason, the organizations can obtain different cost
pools for different products and services (Oseifuah 2018).
o ABC model helps the business entities to measure the activity drivers with the help of
the collection of data on the costing activities (Mahal and Hossain 2015).
o Most importantly, the implementation of ABC model helps the management of the
companies in the generation of report for the management of the companies (Oseifuah
2018).

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b) Aligning the ABC Model to the Goals and Strategies of Orica Limited
For the achievement of the organizational goals and objectives, ABC model provides
great assistance to the management of the companies. The mission, objectives and strategies of
Independence Australia are discussed below:
i) Mission and Objectives of Orica Limited
The mission of Independence Australia is to bring improvement in quality of life by
providing the required resources, power and encouragement so that they can make the correct
choice about their well-being and life style. For this reason, Independence Australia is
considered as a major social enterprise in Australia (independenceaustralia.com 2018).
The major objective of this organization is to provide the people with the choice to live
with disability or other personal needs. For this reason, the main aim of the company is to
provide these people with all the required resources and other aspects so that they can live their
lives in their own way (independenceaustralia.com 2018).
ii) Corporate Strategies of Orica Limited
Independence Australia has five major corporate strategies and they are discussed below:
o The strategy of the company is to ensure individual customer focus with the help of
supportive engagement and involvement (issuu.com 2018).
o The next strategy is to be a partner of choice by offering empathetic, responsive and
quality solutions.
o Another major strategy is to influence positive thinking, policy and practice within and
across the sector so that visible difference can be implemented (issuu.com 2018).

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o The next strategy is to leverage the social enterprise capabilities in order to support the
core charitable purpose.
o The last strategy is the implementation of effective governance to ensure the fulfillment
of its core purposes (issuu.com 2018).
iii) Role of ABC Model in Achieving the Strategies of Orica Limited
Large popularity of ABC model can be seen in the manufacturing organizations all over
the world. However, the importance of ABC model in the service industry or organizations
cannot be ignored. It needs to be mentioned that there is not any direct cost in the service
provider companies, thus the majority portions of the costs are treated as overheads. In addition,
these organizations do not hold stocks of their provided services as the services are produced at
the time of delivery. For this reason, these companies can obtain some major benefits from the
application of ABC model (Adioti and Valverde 2013). The same aspect can be seen in
Independence Australia as the company is a service provider.
Costing activities, resources and cost objectives are the three major section of the ABC
model. for Independence Australia, the resource section refers to the expenses of the different
departments of the company like the cost centers. The examples of some of these departments
are corporate office and other departments like human resources department, finance department
and others (Stefano and Casarotto Filho 2013). The costs from these shared-service departments
are computed by describing them on the basis of service departments, volume, associated costs
and others. Thus, the management of Independence Australia can increase the future scope of
cost allocation with the help of ABC model.

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Under the process of ABC model, the management of Independence Australia is required
to define all the business transactions of theirs so that they can be segregated into the activities
with the help of this costing model. The next process involves in deterring the name of the
activities and the time they have taken to be completed so that they can be placed in the costing
model (Aldogan, Austill and Kocakülâh 2014 ).
In relation to the part related to the cost object, the company is required to segregate them
into two parts under the ABC model. In the first section, the company will be required to make
the computation of the different transaction costs involved with their services so that they can be
placed in different kinds of services of the company (Popesko 2013). In this context, it needs to
be mentioned that the company will be able to save cost on the process of their service
generation with the help of ABC model as this model will provide the management of the
company with all the required information about their costing activities.
c) Recommendation
Some specific aspects are required to be there in Independence Australia for the effective
implementation of ABC model. The following discussion shows the recommendations about
them:
o The support from the senior management and the board of directors of Independence
Australia is one of the major success factors for the implementation of ABC model. For
this reason, the recommendation for Independence Australia is to make sure that there is
full support from the senior management and the board of directors so that the managers
can get all the required resources for the correct implementation of ABC model. At the
same time, the implementation of ABC model will appear to be an important fact for the

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employees and other staffs of the companies in case they observe the support from the
senior management as well as board of directors of the company (Aldogan, Austill and
Kocakülâh 2014 ).
o Business organizations are required to take into consideration the fact that it is not the
responsibility of the accounting department to ensure the correct implementation and run
the ABC model as the cross-functional team of the company is accountable for all the
aspects of ABC model. For this reason, the recommendation to Independence Australia is
to develop a cross-functional team by taking members from all departments for the
effective implementation and functioning of ABC model (Popesko 2013).
d) Alternative Management Accounting Tool
There are many alternatives of ABC model as the managerial accounting technique for
Independence Australia and one of them is Budgetary Control. Budgetary control is a major
management accounting technique in which the actual income and spending of the companies
are compared with the budgeted income and sending so that any deficiencies in the planning and
controlling process can be identified (Arnaboldi, Lapsley and Steccolini 2015). Independence
Australian can be majorly beneficial from the implementation of budgetary control and the
advantages are discussed below:
o Well-defined plans are the roots of budget. In the presence of budgetary control,
different departments of Independence Australia will be able to know the amount they
are required to spend as per the income of the company (Dooren, Bouckaert and
Halligan 2015).

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o The management of Independence Australia will be able to control the business costs
and to eliminate the wastage of resources. This aspect will be majorly helpful to
increase the efficiency of the company (Arnaboldi, Lapsley and Steccolini 2015).
o The management of Independence Australia will be able to develop effective financial
strategy in case the actual expenses of the company exceed the budgeted expenses.
o With the implementation of budgetary control, the management of the company will be
able in establish coordination between different departments as the cross-functional
team will consist of members from different departments (Dooren, Bouckaert and
Halligan 2015).
Conclusion
From the above discussion, one aspect is clear that ABC model will be majorly helpful in
developing an efficient costing model for Independence Australia as the management of the
company will be able in controlling various costs of their businesses with the help of this costing
model. Apart from this, this costing system will deliver the required costing information to the
managers so that they can make correct business decisions. However, the support from the senior
management is required for the company along with the development of cross-functional team
for the correct implementation of ABC model. However, it can be seen from the above
discussion that the management of Independence Australia can adopt budgetary control as the
alternative managerial accounting technique.

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References
Adioti, A.A. and Valverde, R., 2013. Time-driven activity based costing for the improvement of
it service operations. International Journal of Business and Management, 9(1), p.109.
Aldogan, M., Austill, A.D. and Kocakülâh, M.C., 2014. The excellence of activity-based costing
in cost calculation: case study of a private hospital in Turkey. Journal of Health Care
Finance, 41(1).
Arnaboldi, M., Lapsley, I. and Steccolini, I., 2015. Performance management in the public
sector: The ultimate challenge. Financial Accountability & Management, 31(1), pp.1-22.
Australia, I. (2018). About Us . [online] Independenceaustralia.com. Available at:
https://www.independenceaustralia.com/about-us [Accessed 23 May 2018].
Australia, I. (2018). Statement of purpose . [online] Independenceaustralia.com. Available at:
https://www.independenceaustralia.com/about-us/corporate-snapshot/statement-of-purpose
[Accessed 23 May 2018].
Australia, I. (2018). Strategic Plan 2015-18. [online] Issuu. Available at:
https://issuu.com/independenceaust/docs/ia_strategicplan_2015-18 [Accessed 23 May 2018].
Charaf, K. and Bescos, P.L., 2013. The role of organizational and cultural factors in the adoption
of Activity-Based Costing: The case of Moroccan firms. Accounting and Management
Information Systems, 12(1), p.4.

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supply chain performance evaluation models. International Journal of Production
Economics, 142(2), pp.247-258.
Mahal, I. and Hossain, A., 2015. Activity-Based Costing (ABC)–An Effective Tool for Better
Management. Research Journal of Finance and Accounting, 6(4), pp.66-74.
Oseifuah, E.K., 2018. Activity based costing (ABC) in the public sector: benefits and
challenges. Management, 12, pp.4-2.
Popesko, B., 2013. Specifics of the activity-based costing applications in hospital
management. International Journal of Collaborative Research on Internal Medicine & Public
Health, 5(3).
Prowle, M., 2016. The changing public sector: a practical management guide. Gower.
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bibliometric review. SpringerPlus, 2(1), p.80.
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sector. Routledge.