Managerial Accounting: Activity Based Costing System - Nanosonics

This report provides a detailed analysis of activity-based costing (ABC) and its application to Nanosonics Ltd, a company specializing in infection control and decontamination products. It defines ABC, highlights its features, and discusses its alignment with Nanosonics' corporate strategies and objectives, including improving patient safety, innovation, and environmental conservation. The report also explores alternative costing systems, offers recommendations for ABC implementation, and emphasizes the importance of evaluating the model's impact on the company. The analysis covers how ABC can accurately assign costs to various activities, aid in pricing decisions, and support technological transformation strategies, ultimately enhancing the company's efficiency and profitability. This document is available on Desklib, a platform offering a wide range of study tools and solved assignments for students.

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ACTIVITY BASED COSTING FOR NanosonicsS Ltd.
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EXECUTIVE SUMMARY
Activity-based costing is the most popular management and costing system that most
companies are deploying currently. The feature of the system that makes it attractive to most
organizations is discussed. Its alignment with the company’s activities is also put at question
whereby the system full fits the company. The report also covers the alternative system that
could be used in place of activity-based costing. Recommendations of the systems
implementations are not left behind.

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Table of Contents
Introduction.................................................................................................................................................4
Activity-based costing and its features........................................................................................................4
Definition.................................................................................................................................................4
Features of activity-based costing system...............................................................................................5
How activity-based costing aligns with corporate strategies and objectives the Company.........................5
The mission..............................................................................................................................................5
Corporate Objectives of the Company....................................................................................................6
Corporate strategies................................................................................................................................7
How activity-based costing is in alignment with the company’s corporate strategies and objectives........9
Recommendations for activity-based costing implementation.................................................................10
Alternative costing system........................................................................................................................10
Conclusion.................................................................................................................................................11
References.................................................................................................................................................12

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Introduction
Panasonics Limited is a developer and distributor of infection control and
decontamination products and related technologies. The company has subsidiaries which act as
branches. The company does not only medicinal products but also manufactures trophon EPR
ultrasound disinfectors and its accessories (Askarany, Yazdifar and Askary 2010). The company
is located in Australia though it is located in other countries like North America, Europe, and
others. The company’s main activity is production and sale of medical products. The objectives
and strategies aiming at achieving the set objectives which have been discussed to shed some
light on the nature of operations are there in the company. With such complex business, the
company requires the most efficient and effective management and costing system. The report
describes activity-based costing system and how it aligns with Nanosnics’ strategies as well as
objectives. An alternative model that could be used in place of activity-based costing is also
described (Baldvinsdottir, Mitchell and Nørreklit 2010). The report does not fail to address
upcoming issues in the implementation of this system. Recommendations on implementation are
also described.
Activity-based costing and its features
Definition
Activity based costing is an approach to the costing and monitoring of activities. The
resources consumed are traced, and final outputs are assigned a cost. The activity-based model
assigns more overhead costs into direct cost, unlike traditional costing models which assign
drivers to attach activity costs to the outputs (Borry, Cornel and Howard 2010). ABC system
appreciates the relationship between cost, activities, and products and from this relationship,

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indirect costs are assigned to products. The method applies best in the manufacturing sector. This
is because some costs such as salaries and administrative cost incurred by a company are hard to
assign.
Features of activity-based costing system
Activity-based costing has many outstanding features against traditional systems. These
features include;
Activity-based costing differentiates cost into the variable cost and fixed cost which is
not the case with traditional costing systems. This separation is to provide ample information for
construction of cost structure. AB C costing distinguishes between cost behavior patterns (Dale
and Plunkett 2017). Cost behaviors patterns are volume related, diversity-related, events related
and time-related. The appropriate cost drivers are identified to ensure track on the overhead to a
product. The cost drivers determine the cost behavior pattern.
How activity-based costing aligns with corporate strategies and
objectives the Company
The mission
The main mission of the organization is to improve the safety of patients, clinics, their
staff and the environment by transforming the way infection prevention practices are understood
and conducted and introducing innovative technologies that deliver improved standards of care.
All these are to ensure the world and its population is free from all preventable infections (Drury
2013). The company also wants to add value to its shareholders, business and more importantly

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to the health care. Bringing in the most effective medical products is the dream of the client
organization. Innovation and development of new products and technology are what keeps the
company in business. Therefore developing the modest equipment and products is the backbone
mission of this company. Environmental conservation is also another mission that this
organization is working towards. The company wants to transform our environments into their
safest form possible from infections.
The company has strived to uphold this mission which made it the winner of
environmental solutions award (Elhamma and Zhang 2013). The final company’s mission is to
attain sustainability regarding both financial performance and the value added to the
environment. The company is striving towards maintaining its achievements and maybe improve
more. The shareholders’ value is no left back where shareholder proceeds will increase with
improved financial performance. Other basic missions of the company are to fully satisfy their
staff as well as the customers.
Corporate Objectives of the Company
The main objective of the client organization is to ensure its customers have the best
experience. This is achieved by establishing the company’s offerings as new standards of care in
the whole universe and provides the customers a convenient, seamless and consistent experience
with both and brand. The company also works on the innovation of its products. The
management of the company wants to bring out the best innovations of its products regarding
quality to address the unmet customers’ demands (Elhamma and Zhang 2013). Creating an ideal
operational structure is also the company’s objective. The company wants to employ an
operating structure that addresses the numerous company’s activities. The structure should focus

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mainly on processes and designed to a positive experience for the customers. People
engagement is also on the list of objectives. The company wants to be attractive to the best
people and retain and empower them to be productive to in fulfilling the company’s objectives.
The company also wants to create sustainable value for shareholders. The Company want to
create value by delivering high growth returns and make significant contributions to social good.
Corporate strategies
The need for innovations implies technological transformation. The company has been
working on improving their technology by incorporating modern and more efficient ones. With
new technology, it will be in a better position to develop and improve the existing products. With
the nature of business, innovations and development are the main determinants of success (Fatah
2013). New technology, therefore, will help the company achieve its objective of value creation
and quality customer experience. More value to both financial performance and value towards
customers will be achieved as a result of more advanced products which satisfy customer’s
demand.
The organization management team want to incorporate new and more effective
operational model. This model is expected to improve the company’s efficiency in its activities.
With this model, the company will be relieved the burden of assigning a cost to this activities and
also to the final products. The new system is to provide enough information to help the company
work on the quality of the products with the real cost in mind (Garrison et al. 2010). Nanosonics
Company will be in a position to make its next step in its operational success. This system will
also help the company uphold its mission of ensuring staff satisfaction.

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The company is planning on allying with distribution outlets. These alliances are aimed at
boosting the company’s sales and revenues generated. Merging with other organizations whose
main business is distributing medical products will not only widen the market share but will also
act as a product promotion initiative. The company dream of creating more and more value to
both shareholders and the customers will become a reality (Greiler et al. 2012). With a certain
market to supply the products to, the company will have more time and resources to focus more
on innovations, development, and production of quality products. Allying is a great advantage to
the company in a huge way. This is why this strategy is the more emphasized.
It produces with the motive of making the environment better. This strategy is a huge
stride towards achieving goodwill from the society. The company’s environmental solutions
award made it more attractive to more investors and made it familiar to new prospective
customers. This strategy will also focus on improving the quality to solve the upcoming
environmental problems. With more investors investing in company implies huge capital base.
This capital base will help the company to fund the development projects. The research will also
be more effective due to huge financial backup and availability of relevant resources (Horngren
2009).
In a bid to widen the market share and add value to the company’s shareholders; it is
working on more new distribution centers. These new distribution centers aim at increasing the
number of sales as well as improve on revenue generation. The distribution centers will also
make the products accessible to the customers thus satisfying market demand for products.
Opening in new locations will also aid the company to gather a variety of information from

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varied culture and exposure to more future problems (Kaplan and Norton 2008). This exposure
will equip the company with a set of the issue to address hence satisfying consumer’s demands.
With a fully satisfied staff and labor force, the company will company guaranteed better
services from the team. This is the reason behind the company’s strategy to improve the work
teams working environment and conditions (Kiani et al. 2009). With company relying on its
employee’s innovation for its success, more dedicated labor is not an option. As satisfied labor
will be more willing to share their opinions or ideas which could translate into huge innovations.
The strategy to treat workforce with the same value as they are will greatly boost the company’s
performance.
How activity-based costing is in alignment with the company’s
corporate strategies and objectives
The Company is a busy company given that its main business lies between two
industries, that is, marketing industry as well as production industry. This can only mean that the
company’s activities are extremely many. As a result, the company requires a surely effective
costing and management system (Kugler and Verhoogen 2011). Activity-based costing is the
answer to the company’s needs. With this system, the company can accurately assign a cost to
these activities. The cost of producing the medical products is also accurately evaluated. With
this data, the company is in a better position to price its products and evaluate the profit.
The technological transformation strategy can be greatly boosted with the incorporation
of activity-based costing and management system. The cost that is expected to be in a cure can

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be predicted using this model (Yang 2008). The real value of this strategy in terms objective
achievement and upholding the company’s mission can then be evaluated to assess the
importance of this strategy.
The company needs to change the management and costing systems which can cope with
the company’s activities. Activity-based costing is the ideal system for this strategically move.
Unlike the current systems, activity-based costing system is more effective when it comes to a
large number of activities going on in a company (Yang 2008). Therefore with ABC costing, the
business operations will be more efficient, accurate and effective.
Activity-based costing is a decision-making tool which makes ideal for financial
management. The company has to make decisions on what innovation to make, where to locate
new business and so many decisions. With activity-based costing, the company can evaluate
each option to identify the most profitable or the one that will accommodate the company’s
strategy and performance goals.
Recommendations for activity-based costing implementation
Activity-based costing system impact on the company needs to be evaluated to avoid
situations of failure of the model. It should evaluate the compatibility of the model with its
mission and objectives. The limits of the model and the impacts of this model should be pointed
out to employ the best solutions (Kiani et al. 2009). They also need to train their staff and
relevant worker on how to use the model before it is incorporated. This will play a great role in
avoiding unnecessary losses as a result of mishandling the system. Equipping the staff with skill
and the required experience will also ensure efficiency and effectiveness of the system.

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Alternative costing system
The Company can also deploy cost of quality technique. Cost of quality is a tool that
focuses on the difference between the costs incurred during production, selling and supporting
services and the cost if there were no failures. This tool mainly focuses on maintaining a high-
cost effective operation in the firm. The company is in the best position to use this tool given the
nature of its business (Kiani et al. 2009). This tool will advantage the quality level of amp
products which will, on the other hand, increase its customer’s loyalty. With the cost of quality,
the company’s management is in no position to make an uninformed decision.
Conclusion
Activity-based costing features are seen to fill in the empty gap in Nanosonics’
management. With the regard, it is in alignment with most company’s strategies and objectives
the company should incorporate the system into its management for easy management and profit
maximization.

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References
Askarany, D., Yazdifar, H. and Askary, S., 2010. Supply chain management, activity-based
costing and organisational factors. International journal of production economics, 127(2),
pp.238-248.
Baldvinsdottir, G., Mitchell, F. and Nørreklit, H., 2010. Issues in the relationship between theory
and practice in management accounting. Management Accounting Research, 21(2), pp.79-82.
Borry, P., Cornel, M.C. and Howard, H.C., 2010. Where are you going, where have you been: a
recent history of the direct-to-consumer genetic testing market. Journal of community
genetics, 1(3), pp.101-106.
Dale, B.G. and Plunkett, J.J., 2017. Quality costing. Routledge.
DRURY, C.M., 2013. Management and cost accounting. Springer.
Eastman, C.M. ed., 2012. Design for X: concurrent engineering imperatives. Springer Science &
Business Media.
Elhamma, A. and Zhang, Y.I., 2013. The relationship between activities based costing, business
strategy and performance in Moroccan enterprises. Accounting and Management Information
Systems, 12(1), pp.

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Fatah, A.M.A., 2013. An empirical study of the use of cost accounting systems in the Libyan
agricultural firms (Doctoral dissertation, Universiti Utara Malaysia).
Garrison, R.H., Noreen, E.W., Brewer, P.C. and McGowan, A., 2010. Managerial
accounting. Issues in Accounting Education, 25(4), pp.792-793.
Greiler, M., Deursen, A.V. and Storey, M.A., 2012, June. Test confessions: A study of testing
practices for plug-in systems. In Proceedings of the 34th International Conference on Software
Engineering (pp. 244-254). IEEE Press.
Horngren, C.T., 2009. Cost accounting: A managerial emphasis, 13/e. Pearson Education India.
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Kaplan, R.S. and Norton, D.P., 2008. Mastering the management system. Harvard business
review, 86(1), p.62.
Kaplan, R.S. and Norton, D.P., 2008. Mastering the management system. Harvard business
review, 86(1), p.62.
Kiani, B., Shirouyehzad, H., Khoshsaligheh Bafti, F. and Fouladgar, H., 2009. System dynamics
approach to analysing the cost factors effects on cost of quality. International Journal of Quality
& Reliability Management, 26(7), pp.685-698.

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Kugler, M. and Verhoogen, E., 2011. Prices, plant size, and product quality. The Review of
Economic Studies, 79(1), pp.307-339.
Yang, C.C., 2008. Improving the definition and quantification of quality costs. Total Quality
Management, 19(3), pp.175-191.

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