HA2011 Managerial Accounting Report: Activity-Based Budgeting in Amcor

This report presents an analysis of managerial accounting principles, focusing on the implementation of Activity-Based Budgeting (ABB) within the context of Amcor, a global packaging company. The report begins with an introduction to budgeting and its role in financial management, followed by a description of Amcor's operations, including its flexible packaging and rigid plastics segments, and its financial reporting practices. The core of the report examines ABB, detailing its features such as the identification of cost drivers and activities, and its advantages over traditional budgeting systems, which include improved cost allocation and enhanced decision-making. The report also compares ABB with traditional budgeting systems, highlighting differences in cost allocation, sales recognition, and performance monitoring. Finally, the report assesses the suitability of ABB for Amcor, considering factors such as the company's structure, activities, and the potential benefits and challenges of implementation. The report concludes by summarizing the key findings and recommendations regarding the adoption of ABB in Amcor's financial management practices. The report is based on the HA2011 Managerial Accounting course.

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

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Table of Contents
Introduction..........................................................................................................................2
Description of Amcor..........................................................................................................2
Description of ABB along with its features.........................................................................4
Comparison of ABB with traditional budgeting systems....................................................6
Suitability of ABB in Amcor...............................................................................................8
Conclusion.........................................................................................................................10
References..........................................................................................................................12

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Introduction
A budget is identified as any financial expression for a given set of activities. The focus
of traditional budgeting is identified with resource planning in an organizational unit. Moreover,
the process of budget aims at elimination of wasteful activities and reduction in overall cost
(Mahal and Hossain 2015). Based on the given scenario the assignment is related to evaluation of
the budgeting system. The selected firm for the purpose of implementation of activity-based
budgeting (ABB) has been identified with Amcor which is listed on the ASX. The first section of
the study has described the activities of the chosen company. In the second section the important
features and descriptions of ABB have been duly stated. This section of the report is followed by
some of the other important discourse which highlights how ABB is varying from the traditional
budgeting systems. In the latter part of the study has discussed on the suitability of ABB with the
requirement of firm.
Description of Amcor
Amcor Ltd is considered as one of the pioneers in providing packaging services across
the globe. The main development initiatives facilitated by the company identified with the
specialty cartoons, flexible packaging system, beverage, pharmaceutical and personal care
products. Furthermore, Amcor is listed under ASX with its headquarters situated in Southbank,
Victoria, Australia. In June 2017, the company was depicted to employ more than 30,000
workforces for generating a sale of USD $ 9 Billion based on the operations in more than 40
countries. By referring to its global status, the companies included under several international
indices of markets which includes MSCI Global Sustainability Index, Dow Jones Sustainability
Index and FTSE4Good Index Series. The two main important segments of the company need to
be further considered with the flexible packaging services and rigid plastics. The structure for

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flexible packaging is identified with the development of supplies which are flexible as per the
and fracturing of folding cartons. The four main business units of the company for services
associated to flexible packaging is depicted in Europe, Middle East and Africa. In addition to
this, the service is also available across Asia-Pacific region (Assets.ctfassets.net. 2018).
The rigid plastic services are mainly based across four business units situated in North
America Beverages; North America Specialty Containers; Latin America; and Bericap Closures.
As per the information provided in the annual report of the company on the basis of preparation
of the financial statement is followed with Corporations Act 2001 and the guidelines provided by
AASB. Furthermore, the various types of standards included by the company is directly relevant
with the IFRS as prescribed by IASB. Moreover, the financial position measurement by the
company is followed by several techniques such as evaluating the availability-for-sale financial
assets. The company is also included the methodologies of derivative financial instruments and
non-derivative financial instrument which has considered the liabilities pertaining cash settled
share-based payment arrangement (Amcor.com 2018).
In addition to this, the implementation of AASB 9 for the measurement and classification
of financial assets are based on cash flow characteristics and business model which are needed
by the management for assessment of financial instruments. Starting on 1 July 2018, Amcor
introduced credit loss model in which the losses should be recognized at the time of expected
earnings. The third important criteria are also the discerned with hedge accounting model which
offers greater civility for training to alignment of risk management practices. In 2018, a certain
portion of the financial assets of Amcor was also sold through fair value consideration with the
help of OCI. However, it needs to be noted that the majority of the group’s financial assets they
either held for collecting contractual cash flows or the amortized cash amount. This is directly
relevant to the shareholder value creation model and return of any surplus cash to the

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shareholders on the purchase of shares. Some of the other functions performed by the
management is also identified with potential of credit losses which are in association with AASB
9 expected loss model. In relation to this model, the company has implemented both quantitative
studies have shown the use of historic credit losses related with specific customers with business
processes associated with Amcor (Mahal and Hossain 2015).
In addition to this, the important aspect of preparation of financial statement is also
considered with compliance of AASB 15 revenue from contract with the customers. There are
several arguments which shows that Amcor provided the packaging materials based on the
contracts of several elements and also represented performance obligation for which the revenues
were identified at the point when the customers obtained the packaged goods. This is not only
different in terms of revenue recognition under standard and management but also differentiated
in terms of AASB 15 application. There are a number of arrangements in which multiple
performance obligations are covered with single contract. The group has several licensing
services associated to recognition of revenue and total income (Gurcanli, Bilir and Sevim 2015).
The pricing structure maintained by the company is based on customer receiving rebates
as per the volume of the materials demanded. Therefore, as per the current accounting standard
Amcor has taken major initiatives for disclosure pertaining to material contract. The important
segregation of the different activities for Amcor can be identified with pet care, personal care, e-
commerce and sustainability initiatives (Noreen, Brewer and Garrison 2014).
Description of ABB along with its features
The conceptualization of ABB is recognized with that method of budgeting which is
associated with activity framework by using cost driver data pertaining to variance feedback
process and budget setting. The basic application of ABB needs to be identified with the use of

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cost drivers through activity-based costing which is used to derive budgets. As for the name
suggests, the main importance of ABB is associated with importance on activities rather than
function. In simple terms, the primary features of ABB can be depicted with identification of the
cost drivers and activities associated to business process. The second most distinctive feature of
ABB is recognized with forecasting the number of units for which the units of cost driver is
required for activity level. The third stage is associated with calculation of the rate of cause
driver or the cost per unit of activity. Therefore, it can be implied that ABB is the system
researchers, records and analyses the activity responsible for cause generation in a business. It
needs to be also understood that activity-based budgeting is more than just the concept of the
application of adjustment in previous budgets due to inflation or business development. ABB
also includes the efficiencies pertaining to a business through developing budgets and operations
based on such activities (Waters 2015).
Therefore, it allows for a higher degree of freedom for refinements which are to be
brought in terms of cost planning and focusing on certain activities as per volumes and the nature
of business conducted. The most probable outcome for ABB consists of reducing the activity
levels pertaining to revenue generation which in turn contributes to improving the overall profit.
The managers are also seen to be forced with the detailed knowledge of processes which are
associated to enhance the core structure. Another significant reason for implementation of ABB
needs to be considered with strong link among the goals of parent company. In an ideal situation
the management can implement the system to check the costs associated with the business and
decide whether funds are needed to be allocated to or away from each area. This may result
supporting the business in which the management wants to lay greater importance. This may be
associated with activities such as development of new products or establishing a product in a
new geographic area (Pazarceviren and Celayir 2014).

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The most important negative aspect of ABB has been further identified with the
increasing workload for turning the tracking of activities. There may not be a traditional tracking
system and the costs may be needed to be traced back from the activities. Similarly, the
establishment of such a system can be also a challenging venture as the organizations may find it
easy for rolling out such a budget more easily based on the pilot study. This is associated mainly
with the profits pertaining to single department and monitoring of budgetary processes. Some of
the important benefits of ABB needs to be also considered with putting attention to worried costs
and activities. These are mainly seen with controllability of activity volume. However, there are
some of the questions with these are to be considered during the implementation process of
ABB. Firstly, the management needs to ensure that it is having ample time and manpower to
implement such a system. Secondly, it needs to ensure whether the management is having
adequate resources and technological aspects to consider such a change. Thirdly, ABB is also
identified to be expensive venture. Therefore, the management needs to ensure that the costs are
able to outweigh the benefits. Fourthly, is also important for the management to consider
whether it is able to easily identify the costs and activities for implementation of ABB. Lastly,
the management should decide whether it is able to obtain buy in from the operational managers
(Charaf and Rahmouni 2014).
Comparison of ABB with traditional budgeting systems
The company is an aspect of ABB with traditional budgeting system is done by referring
to different types of secondary sources for budgeting used in manufacturing and
nonmanufacturing companies. In simple terms, there are many literatures which has stated their
interest of not deviating from the traditional budgeting for adapting to the management needs
with the possibility of employing new techniques like ABB. However, the traditional budgeting
has been also criticized with several types of factors such as time-consuming and cost for

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implementation. Moreover, the consequence of traditional budgeting pertaining to flexibility and
responsiveness is also considered as major impediment for changes and transformation into
ABB. Despite of such factors, it needs to be noted that traditional budgets are strategically
framed and rarely seem to contradict with procedures followed by a company (Oseifuah 2018).
An application of both the methods into preparation of financial statements of the
company it was noted that the core structure for certain businesses are depicted with high share
of indirect costs in terms of traditional budgeting. Therefore, there is a need of proper allocation
of the costs in order to bring out a fair assessment of profit through the management’s decision
of implementation of ABB (Rogulenko et al. 2016).
Secondly, there is also a difference in recognition of sales pertaining to both traditional
budgeting and ABB methods. In terms of companies where there exists a large number of
customer segment traditional budgeting is not only cost effective but also less time-consuming
and implementation across several hierarchies of the business. However, at times when there
exist sales pertaining to large segments of customers ABB is seen to be much more appropriate
in nature. The main advantage of ABB over traditional budgeting needs to be also considered
with preparation and monitoring of performance with consideration of different types of costs
such as use of resources and services. In case, the budget preparation is considered as per volume
of sales than the amount necessary for planned use of resources will be more realistic as per the
difference in profitability and total budgeting period. In addition to this, the controlling of speed
max is also greater with the rational decisions and implementation of ABB (Prowle 2016).
The important nature of budgeting costs pertaining to activities are also required to be
based on costs of individual activities which are attributable to the cost objects and multiplication
of total rate of activity costs which are provided to the clients. Due to this, the activities for the
objects are received on the date of its occurrence. Therefore, it can be assessed that ABB requires

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a method which is much more detailed than the traditional budgeting pertaining to production
and sales. The differences are also evident in terms of acquisition cost and efficiency of
resources pertaining to the companies (Segovia 2014). However, the effectiveness of ABB to the
managers can be clearly identified over core structure associated with fixed cost. The ABB
approach is also discerned to eliminate any problems which were occurring due to
incompatibility in the implement a strategy. It is also seen that ABB creates a separate
recognition for added value of the entities. There are several researches which has identified that
will be acts as an important tool of communication for dispersion of information to stakeholders
and shareholders as per decisions made for long-term strategy. The budget drawn in accordance
with time-consuming data is probably the biggest factor for lesser pre-valance on this method.
The theoretical and practical significance of ABB in terms of traditional budgeting is seen to be
much higher in larger corporations over smaller businesses (Hoozée and Hansen 2017).
Suitability of ABB in Amcor
Some of the most distinctive features for suitability of ABB has been depicted in terms of
focusing on activities as fundamental cost objects. Moreover, as per the comparison of such an
approach in terms of previous sections have found that general-purpose accounting statements
which are not tailored to the ABB to consider a hefty fee for adoption of such a technique.
Moreover, needs to be ensured that the organization is having adequate resources and
technological aspects to consider such a change and easily identify the costs and activities for
implementation of ABB. It is also essential obtain buy in from the operational managers
(Siguenza-Guzman et al. 2014).
Given the portfolio of Amcor, it is a global leader in terms of packaging close to 200 sites
situated across 40 countries. It is also seen to be leading in areas of production packaging and
development of wide range of pharmaceutical, medical device, home decor, food and beverages.

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Therefore, given the size of the operations ABB will be highly suitable for both monitoring of
horses of sales revenue and profitability of the entity. Moreover, Amcor is committed to partner
with premier companies across the globe which are seen to depend across French brands of
products pertaining to improving the supply chains. This is nearly done with wide range of
flexible options implemented words packaging, specialty cartoons, services and closures (Cardoș
2014).
Moreover, segregation of the different activities for Amcor can be identified with pet
care, personal care, e-commerce and sustainability initiatives. This calls for the need of
allocation of budgets based on separate activities. Amcor is responsible for converting the raw
materials such as aluminum foil, fiber and polymers into several types of packaging products.
Moreover, the business is identified with two important segments namely rigid plastics and
flexibles (Reichard and Van Helden 2016). Therefore, the operations of flexible across Europe,
Middle East and Africa needs a separate profitability and revenue sourcing process. ABB will be
conducive in identification of sales revenue and other costs associated to global locations.
Moreover, the rigid plastics industry is identified with supply of PET packaging which is again
distributed across several international boundaries such as North America Beverages, North
America Specialty Containers, Latin America, and Bericap Closures (Esmalifalak, Albin and
Behzadpoor 2015). This is again identified with the need of focusing on attractive relative
growth and following multiple parts for Amcor in winning the leadership position, scale and
competitive advantages by following of activity-based budgeting. The differentiated capabilities
of the company are described with consistency among operational leadership, innovation, talent
sourcing and capital discipline (Nnoli, Adeyemi and Onuora 2016).
A significant nature of benefits by the implementation of ABB for Amcor can be
identified with greater shareholder value creation. Amcor’s main generation of cash flows seen

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to be responsible for creating a better customer value. Moreover, the defensive nature of end
market means and year-to-year volatility is identified with the measurements which are constant
with the currencies. The customer relationship of Amcor will be also benefited with the
implementation of ABB. This will be mainly due to greater value proposition across large global
FMCG who will be able to supply various components around the world with more ease with
better cost allocation through budgeting (Romanova et al. 2017). In the previous sections of the
discourse, it was clearly studied that appropriateness of ABB was also relevant with those
organizations which is having large number of customers. Amcor is not only highly regarded by
its third parties and customers pertaining to its innovation initiatives but also it has active patent
of more than 1700 alliances. In the last three years the company was able to on 30 awards
pertaining to its innovative measures and bringing in more functional effectiveness and
attractiveness towards the environment with its packaging initiatives. The company has also
focused on several strong relationships with its FMCG customers through better supply chain
management which will be also benefited with the adoption of ABB (Zhang, Hoque and Isa
2015).
Conclusion
The various sections of the study have identified that the two main important segments of
the company need to be further considered with the flexible packaging services and rigid
plastics. The structure for flexible packaging is identified with the development of supplies
which are flexible as per the and fracturing of folding cartons. The four main business units of
the company for services associated to flexible packaging is depicted in Europe, Middle East and
Africa. In addition to this, the service is also available across Asia-Pacific region.
The rigid plastic services are mainly based across four business units situated in North
America Beverages; North America Specialty Containers; Latin America; and Bericap Closures.

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Amcor’s segregation of the different activities for can be identified with pet care, house decor,
personal care, e-commerce and sustainability initiatives. ABB concept is recognized with that
method of budgeting which is associated with activity framework by using cost driver data
pertaining to variance feedback process and budget setting. The study shows that the most
probable outcome for ABB consists of reducing the activity levels pertaining to revenue
generation which in turn contributes to improving the overall profit. However, negative aspect of
ABB has been further identified with the increasing workload for turning the tracking of
activities. On comparison of ABB with traditional budgeting systems it was found that there are
many literatures which has stated their interest of not deviating from the traditional budgeting for
adapting to the management needs with the possibility of employing new techniques like ABB.
However, the traditional budgeting has been also criticized with several types of factors such as
time-consuming and cost for implementation.

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