HI5017 - Activity Based Costing Report: AMP Limited Financials

This report provides an analysis of Activity Based Costing (ABC) and its application to AMP Limited Financials. It outlines the features of ABC, evaluates its alignment with the company's strategies and goals, and suggests implementation recommendations. The report also explores an alternative management accounting tool, the cost of quality tool, as a substitute for ABC costing. It further includes tables and charts depicting AMP Limited Financials' performance trends and financial position, demonstrating how ABC can aid in evaluating the real cost of IT transformation, expansion strategies, and investment decisions, ultimately improving cost management and performance trends. The report concludes with a recommendation for implementing ABC costing, emphasizing the need for employee training and expertise.

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ACTIVITY BASED COSTING FOR AMP LIMITED FINANCIALS
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ACTIVITY BASED COSTING FOR AMP LIMITED FINANCIALS
Executive summary
ABC is a costing technique that assigns cost to the products. The report is all about the
application of this technique in operations of amp limited Financials Company. The tool is
described and its features are outlined. The alignment of the technique to the strategies and goals
of the company are evaluated. The tool is in alignment with the company’s strategies which
makes it ideal for the company. An alternative technique is also discussed. The alternative
technique is the cost of quality tool. This tool enables the company to evaluate the quality of
costs incurred and it can be used in the place of ABC costing

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Table of Contents
Executive summary.....................................................................................................................................3
Introduction.................................................................................................................................................3
Activity based costing and it’s features.......................................................................................................3
Features of activity based costing...............................................................................................................4
How activity based costing aligns with the strategies and goals of amp limited financials.........................4
Mission of amp limited financials............................................................................................................4
Objectives................................................................................................................................................5
Corporate strategies of AMP limited financials.......................................................................................5
How activity based costing aligns with the strategies and goals of amp limited financials.........................7
Recommendation on implementation of activity based costing in amp limited financial company............9
Alternative management accounting tool.................................................................................................10
Conclusion.................................................................................................................................................10
References.................................................................................................................................................11
Tables and charts…………………………………………………………………………………………………………………………………..12

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Introduction
Amp Limited Financials is a financial company which provides superannuation and
investment products, insurance, financial advice and banking products. From the company’s
objectives, it is evident that the company is involved in a lot of activities. A need to employ a
costing tool which is effective especially in accounting for all this activities is important in a bid
to ensure success of company (Kaplan and Porter 2011). Activity based costing best fits this
company. The report therefore is to show the compatibility of the tool with company’s need. The
tool plays a great role in establishing the real cost incurred which on other hand is vital in
evaluation of profits. The tool is of great help in decision making process.
Activity based costing and it’s features
Activity based costing is an accounting method in which firm’s activities are identified
and then indirect costs are assigned to the products of the firm. Basically activity based costing
looks at the relationship between cost, activities and products. From this relationship, the method
assigns indirect costs to the product (steven bragg, 2017).
Features of activity based costing
According to Kolar, the following are some of the key features of ABC costing technique
(Nguyen and Aiello 2013).
In ABC method, total cost is divided into two types, that is, fixed cost and variable cost.
The division of total cost is important in providing quality information to design a cost

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system.The method also distinguishes the cost behavior patterns. In ABC costing, Cost behaviors
patterns are volume related, diversity related, events related and time related. The appropriate
cost drivers are identified to ensure track of the overhead to a product. The cost drivers
determine the cost behavior pattern.
How activity based costing aligns with the strategies and goals of amp
limited financials
Mission of amp limited financials
The mission of amp financials is to provide insurance and protection of property. This is
derived from the general mission of helping people. This was the main reason behind its
formation in 1849. With time the company has grown and expanded its mission (Dale and
Plunkett 2017). Currently, amp aims at providing financial solutions, banking services, life
insurance, manages funds superannuation among other services. The company is the largest
Australian retail and corporate superannuation provider.
Objectives
The advice and banking sector of the company provides financial planning and advice,
superannuation services for businesses and selected banking products. These products are
distributed through a network of self-employed financial planners.
The insurance and superannuation sector provides superannuation, personal risk
insurance products and self-managed fund administration, support and design. The network of
self-employed financial planners is responsible for the distribution of these products too
Amp’s customer solutions focuses on helping companies meet customers need, handle
marketing efforts and take offers to market.

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Amp through a team of investment professionals across the world also invests in equities,
fixed interest, infrastructure, property, diversified funds and multi- manager funds. The amp
capital is one of Asia Pacific’s largest investment managers.
Corporate strategies of AMP limited financials
The company has been working relentlessly to strive the best performance and also to
widen its market share. With the help of its CIO, Ryman, the company has been employing
several strategies to ensure its business has grown to a whole new level.
The company’s focus is on improving its technology. This technological transformation
is to be achieved by installing a new operating model. Replacing the technology will help the
company to be updated and also improve its efficiency in service delivery which is the main
business of the company (Hilton and Platt 2013). IT transformation is the specific area of focus
in technological advancement. According to Ryman, a small innovation in IT systems will add
great value to AMP’s customers and business.
The company is working on alignment between projects, technology and business teams.
The aim of building business team is to enforce harmony in work to create successful operations.
A close monitoring on projects’ progress will help the company stick to expansion goals and also
ensure quality service delivery (Eastman 2012). The business teams imply variety of ways to
solve problems. Ryman encourages this business teams to look at the problems facing the
company differently focusing on open technologies as well as cloud platforms and applications
(Verhagen,Bermell-Garcia, van Dijk and Curran 2012).

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Amp is also planning strategic alliances with Japanese bank, Mitsubishi UFJ and banking
corporation. This is in a bid to widen its market share, mergers are also expected to stabilize the
company’s business whereby the number of insured customers is expected to increase.
Amp wants to strategically tilt investment to higher growth business. This will lead to a
general growth in the company. The main priority is on expanding Australian wealth
management market. Amp is the major market share holder in Australia in superannuation,
advice, SMSF retirement income. Investing in Australian wealth management will improve the
company’s competitive advantage. The investment will also allow Australia get more advice.
Amp bank is also integrating debt and cash flow management strategies into goal based
offers. This is an opportunity for the company to interact more with its customers
Amp wants to focus more on cost management. Amp wants to employ a cost effective
model that will see its annual profit increase in 2018.
The last strategy that amp is currently deploying is expanding internationally. Amp wants
to open up branches all over the world. By expanding internationally, the company will increase
its market share. A huge market share will ensure steady profits. The main area of expansion is
the capital wealth. Amp wants to expand to regions where its expertise is in demand. (alfred,
2017)
Performance trends and financial position of Amp Company
Below are tables and charts that clearly depict the performance of amp limited financials.
The following chart shows the yield available on a range of investments both now and in
December 2009.

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Source: Bloomberg, REIA, RBA, JLL, AMP Capital
Source: JLL, Bloomberg, AMP Capital
The following is a table of how the company performed between financial year 2017 and
2016. (Amp newsroom 2017)

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Operating earnings (A$ million) FY 17 FY 16 %
change
Australian wealth management 391 401 (2.5)
AMP Capital 156 144 8.3
AMP Bank 140 120 16.7
Australian wealth protection 110 (415) n/a
New Zealand financial services 125 126 (0.8)
Australian mature 150 151 (0.7)
Total 1,072 527
How activity based costing aligns with the strategies and goals of amp
limited financials
Activity based costing will help the amp’s management evaluate the real cost of
transformation. Since amp is focused to transform its IT system, a better understanding of how
much should be allocated for this project is important (Lin, Zhong, Chen, Li,Song, Guo and Fu
2017). Activity based costing model will fully equip the management with the necessary
monetary information to avoid failure of the project, maybe due to miscalculations. The

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information will also help the company’s auditors evaluate the viability of this project. The value
it will add to customers and the company’s business can also be evaluated using the ABC
costing.
By deploying activity based costing, the company can easily identify the market gap in
other countries so as to make the best expansion decisions. Amp expansion strategy is very
critical. If a wrong decision is made while implementing this strategy, the company may incur
heavy overhead costs (Lange, Chang, Suma, Newman, Rizzo and Bolas 2011). To avoid this, the
company needs to employ the most effective costing model. With ABC model, the company
will be in a position to evaluate viability of any opportunity to expand .The model will also help
the management give priority to the best available location for expansion. The area with high
demand for the services offered by amp should be given the first priority. This will give the
company an advantage when it comes to the acceptance of the business in the new locations. An
informed decision on where to expand the business to also plays a great role in maintaining a
steady performance in terms of profit and revenues.
The strategy to tilt investment needs a factual back up. Amp needs to evaluate the real
cost of increasing investments in Australian capital wealth (Tavana, Yazdaniand Di Caprio2017).
The exact cost needs to be evaluated so as to ascertain by what level the investments should be
increased. Activity based costing comes in here. The management may deploy this model which
is will effectively and accurately help in these evaluations. Using this costing tool, the company
will be making enlightened investments to avoid making loses. The returns of these investments
can also be estimated correctly so that there is a brighter picture of what the company is
resolving to do.

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With cost information, amp is able to evaluate if periodical performance. Each sector’s
profits are easily identified (Taticchi, Tonelli and Cagnazzo 2010). The cost trends can be easily
traced. Cost trends are important in every company as they play a great role in designing its
objectives. Cost information equips the management with actual areas where cost needs to be
modified so that the company will be operating cost effectively. Activity based costing models
also helps the company identify what actions lead to what outcomes. This information is helpful
guide on what the company should do and what actions should be avoided.
Activity based model is of great importance to the company to ensure a steady growth
and profit. ABC costing does no help in decision making process but also helps the company
maintain its performance trends. By evaluating the cost information the company is in a position
to improve or at least maintain its revenues (Shander, Hofmann, Ozawa, Theusinger, Gombotz
and Spahn2010). This is achieved as the company only engages itself in productive activities
which are easily identified from their past outcomes. Necessary adjustment is also made on
previous moves made by the company so as to leap more from the same moves. With this model,
the company either maintains its performance or improves.
Recommendation on implementation of activity based costing in amp
limited financial company
Since ABC costing is a new tool that is being introduced in the company, employees of
the company especially the cost managers need to have a wide knowledge and skills on the same.
The company needs to equip its workforce with the necessary skills (Garrison, Noreen,Brewer,
and McGowan 2010). This can be done by hiring services of a specialist whose main job is to
pass down the relevant knowledge and skills concerning the model. The managers and auditor as
well as other stake holders need to be trained on the same model. Before the company fully

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absorbs this accounting tool, it can be used as an alternative method. This is to provide the
company’s team with ample experience on the same. With enough experience, the workforce
will be in a position to efficiently and effectively make maximum use of the tool.
Amp limited financials need to evaluate the compatibility of this model in
accomplishment of company’s goals and objectives. Before absorbing activity based costing as
an accounting tool in this company, a close examination of how best it fits to the company’s
operation should be conducted (Drury 2013). This is to avoid situations whereby the tool fails to
meet the expect demand. In situations where an accounting tool fails to meet the accommodate
firms’ operations, the firm is susceptible to injurious errors that might even lead to heavy losses
in terms of money and market share. Therefore it is very important not to blindly adopt any tool
before its suitability is examined.
Alternative management accounting tool
Amp 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 (Ding, Zhou and Akinci2014). This tool mainly focuses in
maintaining a high cost effective operation in the firm. Amp is in the best position to use this tool
given the nature of its business. This tool will advantage the quality level of amp products which
will on the other hand increase its customer’s loyalty. With cost of quality, the company’s
management are in no position to make uniformed decision.