Report on Activity Based Budgeting System in Management Accounting

This report provides an in-depth analysis of the Activity-Based Budgeting (ABB) system within management accounting, contrasting it with traditional budgeting methods and highlighting its benefits for cost accuracy and strategic decision-making. It explores the core concepts of ABB, emphasizing its role in identifying cost pools and allocating costs to services and products, using Amcor Limited, Australia, as a case study. The report reviews two journal articles to understand the implementation and effectiveness of ABB, discussing similarities and differences in their findings. Ultimately, the report justifies the outcomes of ABB implementation, focusing on how it enhances corporate performance and supports informed managerial decisions. Desklib provides access to this report and other study resources for students.

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ABB Accounting

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Executive Summary
Management Accounting, in general, is correlated with the managerial characteristic of the
Financial Accounting.The ABB system has taken over the traditional budgeting systems in the
firms. Initially, the traditional system of budgeting was used by the organisations which were
not activity based and therefore the real cost of an activity was not available. The activity based
budgeting has been recognized as a concept which will enhance the budgeting process adopted in
an organisation. From the very past years, to gain a competitive advantage over competitors in
the market and to develop new techniques for gaining maximum market share, these systems are
used by the management accountant effectively. Management report provides in-depth
evaluation and analysis of the ABB system of management accounting. It explores the wide
concepts of the ABB system, its advantages and disadvantages to a large extent and focuses on
simple and uncomplicated concepts to achieve the financial goals of the organisation.Moreover,
implementing a beneficial and productive system which is endowed with an expected profit for
the organisation is not an easy task for the management accountant. It involves lots of rethinking
before implementing such big tasks.The report concentrates on the effectiveness of the ABB
system over the traditional system of management accounting. It contemplates the budgeting
model and significantly improves corporate performance. Costing model in this budgeting
system identifies the cost pools and allocates costs to the services and products in support of the
events involved in delivering the services and products to the customer.After the discussion of
the features of the ABB system, the report will finally identify and justify the outcomes of the
ABB system in relation to the Amcor Limited, Australia.

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Introduction& Organisation Background
Introduction
The Management Accounting provides information on the cost of the activities to the
management so that they can perform their operations accordingly and efficiently. The report is
based on the Activity-Based Budgeting (ABB) system which is the effective and common tool of
the management accountingfor the organisations. To explain the ABB system the Amcor
Limited, Australia has been taken as the client firm (Wouters, et. al., 2018).This report
highlights the Activity-Based Budegting, commonly known as the ABB method or system,
which is considered as the important and most used feature of the Managerial Accounting.It
focuses on its concepts, advantages and disadvantages. The report begins with the small
introduction to Management Accounting and Activity-Based Budgeting (ABB) system used in
the organizations. The ABB system implementation in Amcor Limited, Australiahas been done
to calculate the budgetedprofit and revenues of the company. A complete explanation is
provided over the ABB system of management accounting with the help of a couple of journals
taken to review the system in detail.ABB system implementation can offer numerous benefits but
is hard to implement within the organisation. It requires a detailed description of the activities
and their related costs and therefore is a lengthy procedure but it helps in providing an accurate
and exact picture of the revenues earned by the company within a provided timeframe (Noreen,
et. al., 2014).Subsequently, the purpose of the study is provided in context to the journals taken
and the topic is explained at length. The ABB system is explored and explained. Furthermore,
the discussion is done on the differences and similarities in the findings of the respective

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journals.To end with, the outcomes on the research findings of the respective journals has been
provided and the justification for the same is provided.
AboutAmcor Limited, Australia
Amcor Limited, Australia is the large firm of manufacturing sector developing and producing
packaging products. It is a global packaging company headquartered in Brisbane, Australia.It
develops various products for packaging and these products are environmentally friendly.
What is Activity-Based Budgeting (ABB)
The budgeting system generally differs as to which costs are assigned to what object and the
level of the sophistication of the object. Two budgeting systems has been used by the
management accounting over the years, they are traditional budgeting system and activity-based
budgeting system. Activity-Based Budgeting (ABB) system is a much-used budgeting system
nowadays by various firms for analysing and evaluating profitability (Dale and Plunkett, 2017).
This system provides relevant information and is basically used by the managers to make better
decisions for the benefit of the organisation.
For tracking or treating the direct costs, there is no major use of the ABB system, the cost tracing
is simple and is done in a brief period of time as it is based on the cause-and-effect correlation.
The indirect costs are traced or tracked with the help of the traditional budgeting system or by
the ABB system, whichever is more relevant. The interrelationship between the management
accountants and the human resource managers have been of great significance. It is relatively
significant that the companies have effective and efficient analytical tool available for
evaluation. Nowadays, companies are mostly using the ABB system for cost tracking in order to
achieve accurate results, which further helps in making better decisions by the managers.

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Due to the complex products and service, the overheads have increased nowadays and due to
which the traditional budgeting system is not beneficiary in providing accurate costs, therefore
ABB systems are used by the companies in order to get accurate costs.
Amcor is using the ABB approach for cost handling at the Order Handling Department in order
to better serve the customers. Amcor is a large organisation and it basically relies on the ABB
system for accurate calculation method of the cost. For the Amcor, in the ABB system, activities
are divided into 2 groups. First includes the activities that directly involve and second includes
the activities that are not directly involved in handling the orders. These are the 2 activities that
are handling customer services and other processes for Amcor and requires an ABB system for
ensuring accurate cost calculation and estimation (Bennett and James, 2017).
Purpose of the Study of Activity-Based Budgeting
The 2 journals have been selected from the library which will further help in understanding the
importance of implementation of the ABB system for cost accuracy. It is very important for the
system of the company to have an effective analytical tool available. As the users are forced to
look manually and integrate the data, there is a probability that users will definitely choose the
first option that meets their need. Irrespective of, whether or not the option they have chosen is
an optimal alternative. Therefore, there is a lack of accurate results due to incomplete
information provided by the associated people. Additionally, it is advisable that the companies
make each and every attempt for integrating various data and information sources into a solitary
source. Also, if the data is not accurate, decisions made on the basis of this data cannot be
informative and therefore problems arise which has been sought out with the help of ABB
system implementation in the companies (Chenhall, 2012). The purpose of the study of two

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journals is better understanding the ABB system concepts, its use in organisations. The journals
selected are-
#1 A field study on the acceptance and use of a new accounting and budgeting system
#2Developing an organizational perspective to management accounting.
Article #1: A field study on the acceptance and use of a new accounting system.
Purpose of the study - The journal provides a detailed study on the acceptance of a new
accounting system which is the Theory of Constraints (TOC)Systemover the ABB system in the
pharmaceutical industry. The TOC system has been discussed in detail in this article. The
purpose of the study is to understand the reason behind using the TOC System over the ABB
system in the pharmaceutical industry. The main reason behind using this system was that as a
framework it uses the structuration theory for better understanding the change process. This
theory points towards the relationship between the activities by the humans and social structures.
It focuses on connecting the purpose and stagnant concept and the deterministic concept of the
organisation (Krishnan, et. al., 2012).
Generally, the decision-support systems differ in the support amount provided by them in
decision making. The decision making it has been of two types, it is either data-oriented or
model-oriented. The data-oriented decision making retrieves objects of information. It
categorizes the data into pieces and therefore thinks of it as a file drawer.
Data-oriented decisions that are taken depends largely on the judgment of the decision makers
and therefore they are not reliable due to limitations of information processing. It makes the
decision makers overloaded with the data and the information, significantly then they fail to
incorporate the useful and important information (Chea, 2011).
Research Question

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Are the results from TOC system more beneficial for BPharm students?
Article #2: Developing an organizational perspective to management accounting.
Purpose of the study - This journal article is based on the developing an organisational
perspective to the management accounting for Australia. The students of Australia had to go
abroad especially to the UK and America for further studies on Management Accounting
discipline. The issues provided by the management accountants on the implementation of
Performance Management and Activity-Based Budgetinghave been discussed and serves as the
basic purpose of the article. To better understand and the differences between the management
accounting and traditional economics have also been the purpose of the article. The
interrelationship between the management accountants and the human resource managers have
been of great significance. The work of management accountant on analysing the cost of the
operations and activities and providing it with accuracy with effective systems like ABB system
helps the human resource managers to take the strategic decisions on a large scale (Kaspina, et.
al., 2014). The effort of introducing ABB system for providing accurate results in organisations
have been discussed and serves the basic purpose of the article.
Research Question
Do organisational issues affect the development and effectiveness of Activity-Based Budgeting
System?
Similarities and Differences in the Findings of Two Journals
Similarities in the two journals- The two journals are based on better understanding of the
management accounting practices. Both the journals are focused on the activity-based budgeting
system as a new approachfor the management accounting. The focus is on providing accuracy to
the budgeting system with the help of activity-based budgeting method implementation. The

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firms are focusing hard on the changes brought about by the ABB system. Article 1 illustrates in
length the importance of accounting management in the large firm whereas article #2 explains
the importance of the accounting management for providing help in taking strategic decisions for
the human resource managers.
Differences in the two journals-Article 1 emphasis on the importance of the TOC system in the
pharmaceutical industry whereas. The study adds to the accounting literature. This study was
done for examining the adoption and acceptance of the TOC system.
On the other hand, article #2 emphasis on the use of the ABB system in retail organisations for
providing accuracy to their costing system. Article #2 focuses on the theories of the
management accounting as they provide better opportunities for understanding the relationship
between the management accounting and organisation in detail. It also involves the emerging
issues in management accounting. The study focuses on shifting its focus from the orders and
consumers to the activities (Lu, et. al., 2016).
Though the ABB system is very simple, effective implementation of the ABB system is required
with the help of the software. Results provided by the ABB analysis have helped many
companies in taking the strategic decisions at right time and making tremendous profits. The
decision-support systems vary from in the amount of support provided by them to the managers
and other decision-makers of the firm. Data collection in the organisations is basically case based
or survey based. This data is not accurate and therefore decisions or analysis made on the basis
of this data cannot be accurate (Harris and Durden, 2012).Therefore it has become significantly
important that attention is paid to ensuring the measurement and definition of constructs reliable
and valid.

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Outcomes of Management Accountants and Justification
Article 1-Specific Outcomes with justification
 The ABB system is merely a cost-reporting system and has solved the main
problems leading to the accuracy and strategic decision making for the organisation. It is
considered so because it helps in the strategic functions and decision making and
supports the human resource department significantly as they are totally dependent on the
management accounting department for taking the cost-related decisions. The ABB
system helps in finding both the non-value activities as well as the value-adding activities
(Lunkes, et. al., 2013).
 ABB system has changed the approach of decision makers from data oriented to
model-oriented approach.While the ABB system is significantly rooted in the
manufacturing industry, the cost-based businesses are also significantly benefited by the
ABB system greatly. The firms are now approaching the ABB system primarily as a
support for decision-making. Therefore, the companies should focus on including the
important elements while performing the calculations. These important elements include
providing a well-designed interface and relevant data along with appropriate and accurate
analytical tools with automatic system updates. Proceeding with the correct
approach,theABB system can be useful and helpful for the managers in making strategic
decisions (Major, 2014).
Article 2- Specific Outcomes with justification
 Activity-based budgeting is basically compared with contribution method and/or
absorption method.In production, planning and scheduling, the present decision inputs
can be retrieved significantly. Though these activities are very important the value that

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needed for calculations come from the leveraging obtainable information (Oseifuah,
2014).
 ABB is needed for service departments so that the consumed resources can be
then matched with the revenues.For determining the optimal product mix, the ABB is
very important and plays a vital role. According to the study, the information provided
for ABB calculation should not be limited but the relevant nonfinancial data should also
be used for getting better and accurate results. With the combination of internal and
external data as well as financial and non-financial data, accurate results can be achieved
(Lueg and Morratz, 2017).
Overview of the study
The overview of the report for accurate budgeting system the Amcor is using the ABB system.
With the implementation of the ABB system, there has been a significant difference in handling
order types, specifically the costs relating to each other (Schaltegger and Burritt, 2017). For the
Amcor, the most expensive order cost was around 15 400 SEK in contrary to the least expensive
cost of around 130 SEK. The estimates provided have been calculated with the help of the ABB
system and are activities based. ABBimplication has been the important implications for the
organization. The basic reason found out was due to the difference in consumption of activities
(and resources). Introduction of ABB in a service department for Amcor has been of great
importance (Suraeva, et. al., 2016). The ABB approach is a long time-consuming method,
therefore, the companies nowadays are using the new time-driven ABB approach which
consumes less time. It is basically simpler since the requirement for this approach as it includes
only 2 parameters to study with the inference of time of activities.

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Furthermore, Amcor is using the time-driven ABB method as the managers take the time that is
idle or unused for measuring the time spent on activities. ABB is very valuable for Amcor and it
has provided efficiency to the strategic decisions taken by the managers.

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Conclusion
To conclude, the implementation of ABB is not easy and therefore the efforts are to be made by
the organisations in order to implement the system. The ABB software is of great help for the
implementation purpose. The Amcor Limited has been using the ABB approach for a long time
and has gained many benefits with the use of this system. Large-scale ABB implementation in
the organisations has been suggested. The 2 journals selected have helped in understanding the
importance of the various approaches of the Management Accounting and its concepts. The
activity-based costing concept is being used by the manufacturing industries greatly as it helps in
accurately estimating the cost of the processes and significantly helping the management to take
strategic decisions on the basis of the accuracy provided by the ABB system. It not only
provides accuracy in measurements and other scales but also provides a competitive advantage to
the organization over other organizations in the same industry.Finally, to conclude the ABB
system is most commonly used by the manufacturing industry for estimating the costs. The rate
of accuracy is higher for the ABB system and therefore it provided benefits to the HR managers
in their strategic decisions and benefitting the organization overall.

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