Managerial Accounting Report: Activity Based Costing at JB Hi-Fi

This report provides a comprehensive analysis of the Activity Based Costing (ABC) model, evaluating its features, characteristics, and implementation within the context of JB Hi-Fi, a major Australian retail organization. The report aligns the ABC model with JB Hi-Fi's mission, objectives, and corporate strategies, demonstrating how it can improve the company's management accounting approach. It explores the role of ABC in achieving the company's goals, including cost minimization and profitability enhancement. The report includes recommendations for the effective implementation of the ABC model, emphasizing the importance of senior management support and cross-functional teams. Additionally, it briefly discusses budgetary control as an alternative management accounting tool. The analysis covers cost allocation, cost drivers, and the potential benefits of ABC in the retail sector, such as improved cost estimation and brand awareness. The report aims to provide a practical understanding of ABC's application in a real-world business setting, offering valuable insights for students and professionals in managerial accounting.

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

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Executive Summary
The objective of this report is to analyze different aspects of the implementation of Activity
Based Costing (ABC) model in JB Hi-Fi. The first part of the report involves in evaluating the ABC
model along with its features. The next part of the report shows the role of ABC model for
achieving the goals and objectives of JB Hi-Fi. The next part provides recommendations about
the implementation of ABC model. The last part shows the alternative approach of
management accounting in JB Hi-Fi.

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Table of Contents
Introduction.....................................................................................................................................3
a) Explanation of ABC Model and its Features................................................................................3
b) Alignment of ABC Model with the Goals and Strategies of JB HI-FI............................................5
i) Mission and Objectives of JB Hi-Fi............................................................................................5
ii) Corporate Strategies of JB Hi-Fi...............................................................................................6
iii) Role of ABC Model to Achieve the Strategies of JB Hi-Fi........................................................7
c) Recommendation about the Implementation of ABC Model.....................................................9
d) Alternative Management Accounting Tool for JB HI-FI...............................................................9
Conclusion......................................................................................................................................10
References.....................................................................................................................................12

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Introduction
The main aim of this report is to conduct an analysis and evaluation of the different
aspect of Activity Based Costing (ABC) Model that includes its features, characteristics,
implementation and others from the business perspective. In order to meet the objective of
this report, ABC model is linked with one of Australian Security Exchange (ASX) listed companies
that is JB Hi-Fi Limited as it is largely helpful in improving the management accounting approach
of the top management of the company. JB Hi-Fi is a major Australian retail organization of
consumer goods. The company was established in the year of 1974 (jbhifi.com.au 2018). This
report has taken an honest attempt to align ABC model with the objectives and strategies of JB
Hi-Fi in order to bring improvements in the system of management accounting. The report also
provides recommendation for the effective implementation of ABC model within the
organization.
a) Explanation of ABC Model and its Features
ABC model is considered as a specific costing method that involves in the identification
of the performed activities as a part of the business operations and then, allocate the indirect
costs to the products (Öker and Özyapici, 2013). More specifically, ABC model puts emphasis on
the relation among activities, costs and products so that the indirect costs can be assigned to
products with the help of this relation less arbitrarily as compared to the traditional costing
model. However, it often becomes difficult for the managers to assign some specific costs with
the help of ABC model; indirect expenses such as the salaries of office staffs can be considered

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as example as it is difficult to allocate this cost to manufactured goods. For this reason, ABC
model has gained popularity in the manufacturing and other industrial sector. Apart from this,
the significant use of ABC model can be seen in target costing, product line probability analysis,
product costing, customer profitability analysis and service pricing (Plank 2018). ABC model has
become popular in almost all of the business organizations.
It needs to be mentioned that ABC model has some specific features and they are
discussed below:
 The application of ABC model segregates the organizational costs into Fixed costs and
Variable costs; and this segregation helps the business organizations in the
development of appropriate costing system by providing them with quality cost
information (Dale and Plunkett 2017).
 ABC model helps in distinguishing the patterns of cost behavior in the business
organizations (Ríos-Manríquez, Colomina and Pastor 2014).
 Direct linkage of the pattern of the cost behavior can be seen with volume, diversity,
time and event related to costing (Öker and Adıgüzel 2016).
 Under the process of ABC model, the requirement is to identify the cost drivers so that
the costs overheads can be traced to the products (Rbaba’h 2013).
 Under ABC model, the cost accountants become able to dictate the patterns of cost
behavior with the assistance of cost drivers (Hardan and Shatnawi 2013).

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Figure 1: ABC Model
(Source: Elhamma and Zhang 2013)
b) Alignment of ABC Model with the Goals and Strategies of JB HI-FI
According to the above discussion, ABC model provides major assistance in the
alignment of the existing goals and strategies of the companies with the costing system. In
order to align the mission, objectives and strategies to the costing system, the initial
requirement is to identify them. They are discussed below:
i) Mission and Objectives of JB Hi-Fi
It needs to be mentioned that JB Hi-Fi has a specific mission statement that drives the
business organization towards achieving the goals and objectives. According to the mission
statement of JB Hi-Fi, the mission of the company is to deliver a specialist rage of high quality of
Hi-Fi and recorded music to the Australian customers at the lowest price (jbhifi.com.au 2018).
From this mission statement, it can be clearly understood that the main aim of the company

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lies in satisfying the needs of their customers with the help of high quality of products at the
most affordable range. As per the company, it is crucial for the business to gain profitability in
order to ensure the sustainability of the business. At the same time, the management of JB Hi-Fi
puts emphasis on the development of specific working environment that will assist in
strengthening the confidence and morale of the employees so that they can perform well for
achieving the overall goal and objectives of the business (jbhifi.com.au 2018).
ii) Corporate Strategies of JB Hi-Fi
The following discussion shows the major corporate strategies of JB Hi-Fi:
1. One of the major corporate strategies of JB Hi-Fi is to target the high growth segment of
the home entertainment markets of Australia in order to gain greater profitability while
minimizing the overall cost of the business (jbhifi.com.au 2018).
2. The next major objective of JB Hi-Fi is to make the aspect ensure that the recently
opened stores of the company mature rapidly so that they can earn higher profitability
for the company.
3. Another major strategy of the company is to bring improvements in the overall
efficiency and profitability of the existing stores of the company (jbhifi.com.au 2018).
4. One of the most important strategies of JB Hi-Fi is to open new stores all over the
Australia with the help of cost minimization so the overall profitability of the company
can be increased.
5. The next major strategy of JB Hi-Fi is to open new format stores like the Music and DVD
superstores all over the Australia.

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iii) Role of ABC Model to Achieve the Strategies of JB Hi-Fi
All over the world, the popularity of ABC model can be seen in the manufacturing
sector, but the significance of this model in the retail sector cannot be ignored due to its
different types of features. It needs to be mentioned that there is not any direct cost for the
retail companies as most of the costs are considered as overheads. Thus, with the
implementation of different strategies of ABC model, the management of ABC model can
become majorly beneficial for achieving the organizational goals and strategies (Carli and
Canavari 2013).
There are three sections in the ABC model; they are activity, resources and cost
objectives. In case of JB Hi-Fi, expenditures related to different departments are included in the
resource section. These departments can be grouped into different segments like the corporate
office, various branches, selling channels like direct selling agents, call centers, online portals
along with shared service departments such as human resource department, information
technology and others (Tsai et al. 2015). There is a need for describing these shared services for
cost computation. The costs are transferred to the other departments based on the service
volume of the departments. Apart from this, the branches of the company can also be grouped
by their costs. Thus, it can be seen that the ABC model broadens the future scope of cost
allocation for each branch that helps the company in the estimation of their advertisement
costs (Mahal and Hossain 2015).
In the business operations of JB Hi-Fi, the costing activities are described based on the
business operations and transactions that the company performs in order to sell their different

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types of products. Thus, in case of JB Hi-Fi, these activities can be the purchase of products on
wholesale basis, receiving the orders, selling the products to the customers, after sales services
and others (Popesko 2013). Thus, after the definition of all these transactions, they are required
to be segregated into activities in the ABC model. The next step involves in naming and timing
each of the activities and then they are placed against each of them. In this process, batch size
is required to be considered for the carried out activities in the batch mode. Hence, in the ABC
model, the grouping of the activities is done in accordance with the departments. As a result of
this, JB hi-Fi would be able to reduce the burden of extra costs from the customers along with
the adoption cost of the new technology (Charaf and Bescos 2013).
The cost objective part can be segregated into two parts. The initial section involves in
the computation of the extra cost that the customs have to pay for different products while
using different distribution channel. This can be in the form of selling televisions and software.
It can be observed that the customers have to pay same amount of extra cost like service costs
for both the products (Vogl 2013). However, the requirement is to compute the costs
separately as the selling proportions of television are more than the selling proportion of
software. The application of ABC model provides JB Hi-Fi in ascertaining the mostly used
products between television and software. This aspect is majorly helpful in creating brand
awareness for the company so that the company can get the sustainable competitive
advantage.

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c) Recommendation about the Implementation of ABC Model
For the effective implementation of ABC model in JB Hi-Fi, it is recommended for the
senior management of the company to provide their support. After that, the cost-functional
team of the company should be accountable for the designing and implementation of ABC
model, not the accounting department. Thus, JB Hi-Fi is required to develop a team that will
have members from each department in order to use date that generated from the ABC model.
In addition, the company is required to seek help from the external experts for the effective
implementation and use of ABC model (Oseifuah 2018).
There are two reasons for which the senior management should support the
implementation of ABC model. First, the management of JB Hi-Fi would be resistant towards
accepting the change in the absence of top level management. Second, in case of the absence
of support from the senior level management, the employees of the company can consider ABC
model of less importance. Thus, for the effective implementation of ABC model, it is required
for the management of JB Hi-Fi to gain understanding about the existing costing system of the
company. For the suitable allocation of costs, the company is required to include the cross-
functional team in the ABC model implementation process (Oseifuah 2018).
d) Alternative Management Accounting Tool for JB HI-FI
Apart from ABC model, Budgetary Control can be considered as another management
accounting tool in JB Hi-Fi as budget is considered as a major part in the planning and
controlling process of the company. In addition, the managers of JB Hi-Fi use them to plan,

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monitor and control different types of activities in the organization (Otley 2015). The following
discussion shows the major benefits of the implementation of budgetary control in JB Hi-Fi:
 In the presence of budgetary control, the management of JB Hi-Fi has the option to
integrate the efforts of the employees towards the achievement of the common
objective. All the activities of JB Hi-Fi can be synchronized with the help of budgetary
control for the achievement of the overall objective of the company (Osadchy and
Akhmetshin 2015).
 The techniques of budgetary control help the management in taking specific actions in
case it can be seen that the expenses of a specific department exceeds the budgeted
amount.
 In the presence of techniques of budgetary control, the management of JB Hi-Fi can
gather the knowledge from the past events so that it can be used for minimizing the
errors in future. Thus, the management of JB Hi-Fi gets the chance to develop effective
strategies to the not repetition of these mistakes (Otley 2015).
Conclusion
From the above discussion, it can be seen that ABC model helps the business
organizations by differentiating the fixed and variable costs so that required costing related
information can be provided for the designing and implementing the required costing services.
From the above discussion, it can be observed that with the implementation of ABC model, JB
Hi-Fi can identify the specific business activities that are required to be provided with more
emphasis. Based on this analysis, JB Hi-Fi becomes able in assigning the costs to those activities

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that the customers need the most. From the above discussion, it can also be seen that JB Hi-Fi
can also use budgetary control as the alternative management accounting system to increase
the cost efficiency of the business.