Activity Based Costing of Unilever: A Comprehensive Financial Report

This report provides a detailed analysis of Unilever's financial management and decision-making processes, focusing on activity-based costing (ABC). It begins with an introduction to financial management and its importance for firms like Unilever, which operates globally. The report then explores various costing methods, including unit costing, contract costing, batch costing, operating costing, and traditional costing. It differentiates between fixed, variable, and semi-variable costs. The core of the report delves into costing systems, particularly ABC, comparing it to absorption costing, and highlighting its advantages and disadvantages for Unilever. Furthermore, it differentiates ABC from process, job, and direct costing, providing a comprehensive understanding of costing methodologies. The report concludes by summarizing the benefits and drawbacks of implementing ABC within Unilever's financial framework, supported by relevant references.

Activity based
costing of Unilever

Table of content
 Introduction
 Interpretation, analysis, and evaluation of cost and management
accounting reports
 Costing methods
 Costs
 Costing systems
 Comparison
 Differentiation
 Activity based costing
 Advantages and Disadvantages
 Conclusion
 References

Introduction
Financial management and decision making is an important aspect for each
and every firm as it analysis a path for the organization so that it would be
easier to manage and interpret things. It provides both analytical as well as
conceptual framework for decision making in the firm. Unilever is a firm
that has operating in the UK since a pretty long time and has captured a
considerable share of market since then. The firm is operating in almost
each and every corner of the world.

Interpretation, analysis, and evaluation of
cost and management accounting reports
Cost and management accounting report is an essential as well as integral
part of every organization as it aims at maximizing the profits of the firm
by using various types of tools so as to manage the expenses and revenues
of the business so that it can result in increased profits for the firm thus
benefiting it in the long run.

Costing methods
 Unit costing- It is the cost that is incurred by the firm in
producing one unit of a commodity and the cost includes all the
aspects like production, storage, and selling cost.
 Contract costing- It is a type of costing that is closely associated
with the contract that is mainly between the firm and its
customers.
 Batch costing- It is a costing method that is very helpful when the
firm is producing its goods or services in batches and thus it is
very crucial as well as critical in identifying a particular cost from
all other type of costs that are available with the firm.

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 Operating costing- Operating costs is a type of costing method
that include cost of goods sold and all the operating expenses that
is expenses that are incurred in day to day activities of the
business.
 Traditional costing- As the name itself suggests it is tried and
tested approach that is used by the organizations since a pretty
long time and is very crucial as well as beneficial too for the firm's
that are using it.

Costs
Further there are some important costs that each and every firm possess
and they are also explained briefly below-
Fixed cost- It is a cost that remains constant irrespective of the output
that the company is producing as it remains fixed throughout the working
of the firm.
Variable cost- It is a type of cost that changes with the change in output
and normally it increases with the increase in output and decreases with
the decrease in output.

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 Semi-variable cost- It is a type of cost that is partially fixed and
partially variable in nature that is a portion of this type of cost is fixed
and the remaining portion changes with the change in output of the
firm.

Costing systems and definition of Activity
based costing
The costing system is very essential as well as crucial as it helps different
organizations to allocate their overhead and indirect cost in a correct and
that too in a very precise manner. Unilever firm does a detailed research,
analysis, and evaluation of all the aspects and then allocate its resources
according to the costing system.
There are various other aspects also that are very crucial as well as critical
from the firm's point of view and all of those factors, methods, and system
of costing are explained below in detail with context to the firm that is
Unilever company-
Activity based costing- Activity based costing can be defined as a
method of costing in which each and every activity is assigned costs that
are according to the needs, requirements, and demands of that activity..

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 Absorbing costing- It is a method that is very crucial as well as
critical for each and every firm that is operating in the market
irrespective of the industry in which they are operating.

Comparison with other costing system
Activity based costing Absorbing costing
It is a type of costing that is related
with firstly identifying the appropriate
activity and then allocating the
resources and costs that is required to
perform that task in an efficient as
well as in an effective manner.
It is a type of costing in which various
costs mainly direct and indirect both
are accumulated together in such a
manner so as to improve the
production efficiency of the firm and it
is of very importance as it is directly as
well as closely related with the
production department which is an
integral part of each and every
organization.

Continue...
Activity based costing becomes a
strength of the firm that is Unilever
company when it is used in a precise
and correct manner. Some of the
reasons behind it possess as a strength
of the company is that it is highly
accurate and it is very helpful in
reduction of costs that are not adding to
the profit to the organization.
Absorption costing possess as a strength
to the firm that is Unilever company in
many ways. The main strength is that it
complies with all the set rules and
regulations as well as policies and
procedures and thus it is beneficial for
the company in the long run.

Differentiation
Activity based
costing
Process costing Job costing Direct costing
It is a process or can
be said as a method
of costing in which
costs are allocated
on different types of
activities that are
performed in the
organization
according to the
requirements of that
activity.
As the name of this
method of costing
suggests it is a method
that is implemented in
various steps or can be
said in different
processes and all these
are done towards one
goal and that is to
achieve the objectives
of the organization.
In this type of costing
firstly all the
information about the
job is assessed and that
too in detail and after
that on the basis of the
information costs is
decided after rigorously
analysis all the aspects
related with it.
As the name of this
type of costing
suggests allocation of
costs in this is done
on a direct basis
according to the
needs, requirements,
and demand for
specific goods and
services.

Advantages and Disadvantages of the
business using ABC
Advantages of activity based costing-There are various advantages of
using this type of costing for the firm that is Unilever company and all of
them are explained in detail below-
Disadvantages of activity based costing- There are many advantages of
activity based costing but there are many disadvantages of it too for the
firm Unilever company and they are explained briefly below-

Conclusion
Financial management and decision making is an important part of all the
organizations that are working irrespective of the industry in which they
are operating as in it there is management of revenue and expenses of the
firm so that profits can be increased by minimizing the costs of the
business.

References
Alziyadat, N. and Ahmed, H., 2019. Ethical decision‐making in Islamic
financial institutions in light of Maqasid Al‐Sharia: A conceptual
framework. Thunderbird international business review. 61(5).
pp.707-718.
Bozdo, R., 2020. Public Perception on Reputation and Its Influence on
Decision Making. Mednarodno inovativno poslovanje= Journal of
Innovative Business and Management. 12(2). pp.70-78.
Cruciani, C., 2017. Investor decision-making and the role of the financial
advisor: a behavioural finance approach. Springer.

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