ABC Model Application and Implications in Management Accounting at NAB

This report provides an analysis of the Activity-Based Costing (ABC) model, exploring its features and applications from a business perspective. It examines the alignment of the ABC model with the goals and strategies of National Australia Bank (NAB), a major financial institution. The report delves int...Read More

Running head: ABC MODEL USE IN MANAGEMENT ACCOUNTING
ABC Model Implications in Management Accounting
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1ABC MODEL USE IN MANAGEMENT ACCOUNTING
Table of Contents
Introduction.........................................................................................................................2
a. Concept and Features of Activity Based Costing (ABC) Model........................................2
b. Alignment of ABC model with the current goals and strategies of NAB:........................4
i) Mission and Objective of NAB:.....................................................................................4
ii) Corporate Strategies of NAB:.......................................................................................5
iii) Role of ABC model in achieving the strategies of NAB:..............................................6
c. Recommendations on ABC Model Implementation in NAB............................................8
d. Suitable Management Accounting Tool for NAB Rather than ABC Model......................9
Conclusion..........................................................................................................................10
References.........................................................................................................................11

2ABC MODEL USE IN MANAGEMENT ACCOUNTING
Introduction
The objective of this recent paper is to offer a brief analysis of the activity based costing
(ABC) model as well as the characteristics described from the business perspective. In attaining
the objective of this report, the model is related with an ASX listed company in order to
enhance the information on management accounting that is presented to the top management
team. The organization that is selected in this report is National Australia Bank (NAB) that is
positioned among the largest financial companies within Australia (Ahmed & Kannaiah, 2016).
This will be evaluated in terms of earnings, consumers as well as market capitalization. Relied
on existing corporate strategies and goals of NAB, the alignment is ensured with this model.
This facilitates the bank’s top management in effective decision making. Moreover, the report
focuses on recommending a management accounting tool for NAB that can support the
managements’ decision making process.
a. Concept and Features of Activity Based Costing (ABC) Model
ABC model can be explained as an accounting method which explains activities carried
out on the company’s behalf and along with that indirect costs are associated with the products
(Almeida & Cunha, 2017). In addition, the model explains interlink between costs, indirect
activities along with product costs with the support of this relationship. Moreover, the indirect
expenses are also associated with the products that are less compared with the conventional
models related with accounting. Conversely, it also turns out to be difficult to align certain costs
by means of ABC model. For example, indirect expenses like the management and office

3ABC MODEL USE IN MANAGEMENT ACCOUNTING
employees’ compensation that are not simple to be allocated to a particular produced well. For
such reasons, the method has attained its niche within the manufacturing as well as industry
sectors (Angelopoulos & Pollalis, 2017). In addition ABC accounting method is useful in target
costing, profitability evaluation associated with product line, costing of products, and consumer
profitability evaluation along with service pricing. ABC accounting method has attained
increased popularity in every business companies as this might result in maintaining better
corporate strategy and focus in a situation the costs are understood and allocated in an
effective way. There are several effective features associated with ABC model that is explained
under:
In ABC model the expenses are segmented into fixed as well as variable costs that are
effective in providing quality information for preparing an effective cost system within a
company (Arora & Raju, 2017). Moreover, the cost behavior patterns can be segmented in a
better manner with proper implementation of ABC Model.
The cost behavior patterns in ABC costing are directly linked with diversification, cost,
volume and organizational events. In addition, within ABC model there must be certain
reorganization of suitable cost driver that can facilitate in explaining overhead associated with a
product. Within ABC model, the cost behavior patterns are explained with the support of cost
drivers in the organizations.

4ABC MODEL USE IN MANAGEMENT ACCOUNTING
Figure 1: Activity Based Costing Model
(Source: Oseifuah, 2018)
b. Alignment of ABC model with the current goals and strategies of NAB:
The concept of ABC models has been recognized in assisting with alignment with the
present aim as well as strategies of the business unit. In order to align with the strategies and
objectives of NAB, it is of vital importance to identify them in the beginning and hence the
significance of ABC model in achieving the goal of the bank (Becker, Wald, Gessner & Gleich,
2015).
i) Mission and Objective of NAB:
The primary mission of NAB is to provide effective resolutions to its customers after
skillfully analyzing their needs. The bank considers earnings to be of vital in order sustain as well

5ABC MODEL USE IN MANAGEMENT ACCOUNTING
as thrive in the financial service sector in Australia. Moreover, it also focuses on the working
environment so as to uplift the confidence and strengthen the morale of its employees. Hence,
it is much more inclined on the way to contribute positively towards development of society
and improve the quality of service provided to its customers (Öker & Adıgüzel, 2016).
NAB foresees itself to gain top position amongst the reputed bank in Australia which
wants to circulate capital and money throughout the market in a smooth manner so as to meet
the requirement of the customers. They have also made great investment towards
development in order to entice people so as to execute its strategies in a proper manner.
ii) Corporate Strategies of NAB:
The various strategies which NAB use as a tool to market its services are as follows:
 The bank focuses mainly on three kinds of services which includes credit card, business
loan and home loan.
 The bank also focuses on its brand awareness to ensure growth and development so as
to gain the advantage of being the first mover in the competitive market (Mahal &
Hossain, 2015).
 It also tries to gain advantage by implementing certain strategies which includes
lowering the interest rate on the loans and even minimizing the fess of withdrawing
from ATMs so that it can maintain a competitive edge over its rivals.
 Moreover, to increase their reach, the bank also has adopted latest technologies by
putting a short explanation of their services as well as products so the potential

6ABC MODEL USE IN MANAGEMENT ACCOUNTING
customers could learn about them easily and customer could assess their accounts in an
effective manner (Onat, Anitsal & Anitsal, 2014).
 In order to entice more customers, the bank follows a new strategy where it provides
credit cards to students and independently working women in very lower rates of
interest.
iii) Role of ABC model in achieving the strategies of NAB:
ABC model is mainly common in the manufacturing sector but its importance also lies
within the service sector (Mahal & Hossain, 2015). It has been usually observed that the
financial institution has no direct costs and most of the expenses are considered within
overheads. Moreover, the financial institute does not have any inventory as service cannot be
stores if remained unsold; a service is consumed as soon as they are produced. Hence, the
traditional method of costing does not work for a bank or other financial institutes. Hence, the
need of ABC models comes in for better management of cost so as to make the decision and
strategies in a better way.
There are three sections in the ABC model namely activity, resource as well as cost
object. In case of the mentioned bank, resource section contains the expenses that are
associated with various functional units such as cost centers. This consortium of such
departments is completed at branches, direct selling agents, corporate office, internet, call
centers, ATM as well as other service departments such as human resource as well as IT
department (Rohani, Azman & Zakaria, 2015). The cost of such departments is computed

7ABC MODEL USE IN MANAGEMENT ACCOUNTING
accordingly. Hence, the costs are allocated to each department as per their service volume.
Therefore, it helps in enhance the cost allocation among the department in future.
The activities section of NAB includes the transactions that are performed by its
customers through various channels. Receiving the application, then interviewing as well as
viewing the credit history of the applicant. Then the process of evaluation of the same is
focused to take the decision of loan transfer. Finally, the disbursement of the loan to the
applicant could be counted with the activity section as all of these are processed within the
bank. After the same, each and every activity are placed with its name and time mentioned. The
batch size is need to e considered as the activities were needed to be taken in batch mode and
hence through the ABC model, the activities performed by each department will be grouped in
accordance (Zhuang & Chang, 2017). As a result of the same, the bank could reduce the ATM
fee for the customers while the same could be done for the loans as well. This might also lower
the cost of adopting latest technologies to enhance the customer support system.
Eventually the cost object section, it can be distinguished in two parts. The primary
section calculates the various transactional costs which have been performed by the customers
using various products through usage of diverse distribution channels. This may even include
the withdrawal of cash using ATM from the saving account. In this case, the cash could be
withdrawal from either savings account or from current account which might have similar effect
for NAB but the bank would need to compute the cost in separate ways. Hence, ABC models
could be helpful for identification of cost and the bank could also follow which accounts are
being followed and accordingly the cost could be allocated to those objects. In such ways the

8ABC MODEL USE IN MANAGEMENT ACCOUNTING
bank could be able to increase the awareness of its brand and even sustain successfully in the
competitive market of Australian banking industry through increasing the competitive
advantage. This may also help the bank to identify the preference of the customers regarding
their cash withdrawal habits and then accordingly the bank may be able to provide them credit
cards at low rate of interest.
c. Recommendations on ABC Model Implementation in NAB
For proper implementation of ABC model within the NAB, it is deemed important for the
upper management to offer required support (Cyplik & Uberman, 2017). In addition, the design
and implementation of ABC model needs to maintain the responsibility within the cross
functional team rather than the accounting department. The banks are necessitated to
maintain a team that will include representatives from all the departments for employing the
data that is gathered from the ABC model. This will include representatives from distinct
departments of the National Australian Bank that includes engineering, marketing; accounting
employees as well as upper management those attain technical capabilities. The company is
required to employ an external consultant having exceptional skills on ABC model and can offer
relevant advice to the team.
The upper level management of NAB requires help in ABC model implementation within
the companies because of several reasons (Jiménez & Afonso, 2016). One of these reasons
includes absence in leadership from higher-level management that makes the managers of the
World Bank to turn out to be resistant towards the cage within the organization. Another
reason indicates that in case the upper management of NAB dies not support systems of ABC

9ABC MODEL USE IN MANAGEMENT ACCOUNTING
model then they can perceive that the model is not that significant and can further reject the
model. For successful designing and implementation of ABC costing system for suitable cost
allocation, it is important that the NAB management must understand the recent cost
accounting system of the bank. Moreover, the cross-functional teams require being involved
within the ABC model implementation in maintaining suitable cost allocation within all the
departments of the company. Considering the same, this might facilitate the bank in employing
the tool for external financial reports of the company.
d. Suitable Management Accounting Tool for NAB Rather than ABC Model
Budgetary control can be explained as an effective management accounting tool in NAB
as the budgets have considerable function in controlling and planning. Moreover, the managers
employ them for monitoring, controlling and planning distinct activities within the
organizational level (Cugueró-Escofet & Fito, 2016). There are several advantages associated
with NAB that can be attained through budgetary control implementation are explained under:
The managers within NAB can link the efforts of the employs working in the bank
towards attainment of a common goal. Budgetary control can facilitate in synchronizing the
activities of bank. The bank might also support in coordinating several efforts in attainment of
the predefined objectives. In case the managers of NAB recognize that the expenses related
with the specific department are higher in comparison to the anticipated budget, it will require
a special management attention as well as action (Geiszler, Baker & Lippitt, 2017).
Maintenance of effective budgetary control can support NAB in attaining relevant
knowledge on the previous experience. In addition, through critically analyzing the success and

10ABC MODEL USE IN MANAGEMENT ACCOUNTING
failure of previous budgets, minimization of the related errors can be maintained along with
evaluating the reasons associated with such performance. Considering the same, the
management of NAB focuses on developing processes so that occurrence of such errors does
not take place in the upcoming years.
Conclusion
The objective of this recent paper is to offer a brief analysis of the activity based costing
(ABC) model as well as the characteristics described from the business perspective. In attaining
the objective of this report, the model is related with an ASX listed company in order to
enhance the information on management accounting that is presented to the top management
team. It can be gathered from the paper that in ABC model the expenses are segmented into
fixed as well as variable costs that is effective in providing quality information for preparing an
effective cost system within a company. Moreover, the cost behavior patterns can be
segmented in a better manner with proper implementation of ABC Model.

11ABC MODEL USE IN MANAGEMENT ACCOUNTING
References
Ahmed, R., & Kannaiah, D. (2016). The considerations for the implementation of an Activity
Based Costing System (ABC).
Almeida, A., & Cunha, J. (2017). The implementation of an Activity-Based Costing (ABC) system
in a manufacturing company. Procedia Manufacturing, 13, 932-939.
Angelopoulos, M., & Pollalis, Y. (2017). Using ABC costing method with in a KPI-based
framework to a Lean transformation of a Greek Public Company.
Arora, A. K., & Raju, M. S. S. (2017). The Effect of Firm's Size on the Adoption and
Implementation of Activity Based Costing. Splint International Journal of
Professionals, 4(7), 36-40.
Becker, S. D., Wald, A., Gessner, C., & Gleich, R. (2015). The Role of Perceived Attributes for the
Diffusion of Innovations in Cost Accounting: The Case of Activity-Based
Costing. Comptabilité-Contrôle-Audit, 21(1), 105-137.
Cugueró-Escofet, N., & Fito, M. (2016). The Impact of ABC Costing Systems to Solve Managerial
Cost Problems: A Real Improvement, a Fad or a Fashion?.
Cyplik, P., & Uberman, R. (2017). Activity Based Costing As A Tool For Effective Use Of
Outsourcing In Supply Chain Management–Case Study. Business Logistics in Modern
Management.

12ABC MODEL USE IN MANAGEMENT ACCOUNTING
Cyplik, P., & Uberman, R. (2017). Activity Based Costing As A Tool For Effective Use Of
Outsourcing In Supply Chain Management–Case Study. Business Logistics in Modern
Management.
Geiszler, M., Baker, K., & Lippitt, J. (2017). Variable Activity-Based Costing and Decision
Making. Journal of Corporate Accounting & Finance, 28(5), 45-52.
Jiménez, V., & Afonso, P. (2016, December). Risk assessment in costing systems using costing at
risk (CaR): An application to the Coffee production cost. In Industrial Engineering and
Engineering Management (IEEM), 2016 IEEE International Conference on (pp. 1315-
1319). IEEE.
Mahal, I., & Hossain, A. (2015). Activity-Based Costing (ABC)–An Effective Tool for Better
Management. Research Journal of Finance and Accounting, 6(4), 66-74.
Öker, F., & Adıgüzel, H. (2016). Time-driven activity-based costing: An implementation in a
manufacturing company. Journal of Corporate Accounting & Finance, 27(3), 39-56.
Onat, O. K., Anitsal, I., & Anitsal, M. M. (2014). Activity based costing in services industry: A
conceptual framework for entrepreneurs. The Entrepreneurial Executive, 19, 149.
Oseifuah, E. K. (2018). Activity based costing (ABC) in the public sector: benefits and
challenges. Management, 12, 4-2.
Rohani, J. M., Azman, N. A., & Zakaria, M. H. (2015). DEVELOPMENT OF ACTIVITY-BASED
COSTING IN FABRICATION COMPANY: A CASE STUDY. Jurnal Mekanikal, 38, 44-52.

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Zhuang, Z. Y., & Chang, S. C. (2017). Deciding product mix based on time-driven activity-based
costing by mixed integer programming. Journal of Intelligent Manufacturing, 28(4), 959-
974.