Caltex Australia Pvt Ltd: Executive Summary on ABC Model and Tools

This report provides an executive summary analyzing the application of the Activity Based Costing (ABC) model for Caltex Australia Pvt Ltd, a transport fuel supplier. It begins by explaining the ABC model, detailing its features and advantages over traditional costing methods, emphasizing its usefulness in allocating costs to activities and improving cost control. The report then aligns the ABC model with Caltex Australia's current goals and strategies, focusing on optimizing infrastructure, expanding trading and shipping, growing the supply base, and enhancing customer offerings. Recommendations are provided for implementing the ABC model within the company, highlighting the importance of activity-based cost allocation and identifying areas for cost reduction. Furthermore, the report discusses the suitability of budgetary control as another management accounting tool beneficial for Caltex Australia, emphasizing its role in comparing planned and actual performance to identify and address variances, ultimately assisting the company in meeting its objectives.

Caltex Australia pvt Ltd

Executive Summary
The management accounting tools are important in organisation. ABC model is discussed
in the report in relation to Caltex Australia Pvt Ltd so that it may extract benefits out of the same.
Features and importance are discussed of this model in accordance to the goals and strategies of
firm.

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
A) Explaining ABC model and its features............................................................................1
B) Explaining how ABC model aligns with current goals and strategies of Caltex Australia
Pvt Ltd....................................................................................................................................3
C) Providing recommendations about implementation of ABC model.................................5
D) Management accounting tool suitable for company apart from ABC model...................6
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Management accounting tools are beneficial in assisting management to take well-
structured decisions and strengthening internal operations of business. Present report deals with
importance of ABC model in Caltex Australia Pvt Ltd which is engaged in business of transport
fuel supplier. The features of ABC model is outlined in the report. Moreover, company's
corporate strategies and current goals are highlighted. Recommendations are imparted to
implement ABC system in firm for attaining benefits. Furthermore, another management
accounting tool such as budgetary control is explained which is also beneficial for business to
achieve objectives with much ease.
A) Explaining ABC model and its features
ABC (Activity Based Costing) model is effective technique which is helpful in
controlling costs of production in the best possible manner. ABC is a useful costing system
helping company in achieving desired manufacturing by allocating cost of each activity so that
overall expenses can be reduced up to a high extent. In simpler words, expenses are assigned to
each activity on the basis of actual consumption by them in effectual way. ABC model assigns
costs by identifying the same to various overheads and then allocates those expenditures to the
product. Hence, it is helpful as cost is recognised between overheads and manufactured items
and as such, it allocates indirect expenses to products in effective way (Introduction to Activity
Based Costing. 2018). This model is quite effective and better than traditional method as it do
not allocate costs in the manner which ABC model does. It is useful for Caltex Australia Pvt Ltd
to effectively assign costs and achieve production in the best possible manner.
ABC model is quite helpful in manufacturing sector as costs can be ascertained and
reliable figures are obtained with much ease. It classifies expenditures in a better way during
actual consumption and as a result, company can easily ascertain actual costs incurred during
manufacturing process of items in effective way (Plank, 2018). It helps to develop better
corporate strategies because expenses of production are grasped by this model with much ease.
Under ABC model, activity can be considered as a cost driver. It is termed as driver of activity
which effectively drives cost which is incurred in manufacturing a particular product in a better
way. ABC model enhances cost pools that could be utilised for assembling costs of overheads in
effectual manner. Moreover, ABC accumulates several indirect expenditures and as such, it is
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easy to initiate better control over costs. In relation to this, certain features of ABC model can be
discussed below-
1. ABC model is advantageous as it divides overall cost into two types such as fixed and
variable. This help to classify expenditures in respective categories and as such, quality
information is provided to management to effectively formulate suitable cost system in the
company.
2. Another feature of such model is that cost behaviour patterns are effectively
determined. It is possible as total cost is bifurcated into variable and fixed costs in the best
possible way (Zhuang and Chang, 2017). On the other hand, various behaviour patterns such as
volume related pattern, event related and time related patterns. Moreover, diversity related cost
behaviour pattern are attained with much ease.
3. Next feature of ABC model is that relevant cost driver is required to be determined so
that it may be traced to particular product by the overheads. Moreover, cost drivers are
interrelated to cost behaviour pattern in effectual manner.
4. ABC model is helpful as it rectifies information related to costs which may be
inaccurate and as such, it helps to gather and grasp accurate cost information. Moreover, it helps
in allocating overheads on the basis of activity. Senior management can easily take decision
within stipulated time.
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It can be analysed from the above diagram that costs can be determined in effective way
by the implementation of ABC model with much ease. Furthermore, factory overheads can be
assigned to service departments and then it can be allocated to cost pools. Thereafter, grouping
of costs on the basis of activities can be easily done. Moreover, cost drivers are used to make
analysis of product lines and as a result, allocation of overheads can be accomplished under the
ABC system. Thus, it can be said that Caltex Australia Pvt Ltd may be able to allocate costs on
activity basis in a better way (Hoozée and Hansen, 2017).
B) Explaining how ABC model aligns with current goals and strategies of Caltex Australia Pvt
Ltd
A) Identification of mission and objectives
Mission:
The mission of Caltex Australia Pvt Ltd is to strengthen its customer base and expand its
retail business. Aiming to seek transition of 433 franchise sites to organisation owned business
operations and to achieve the same by mid of 2020 financial year in the best possible manner.
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Illustration 1: Allocation of overheads under ABC system Source: accountlearning.com

Moreover, to launch between 50 and 60 foodary sites and nearly 5 to 10 Nashi high street
convenience sites in 2018 by investing at a cost of 100 million which is ahead of roll-out in
future periods.
Objectives:
 To enhance customer experience in more consistent way
 To roll-out brand new platforms
 To achieve better quality by standardising services
 To enhance and simplify the supply chain arrangements
B) Identification of corporate strategies of organisation
The strategies are required to be implemented so that company can attain objectives and
goals in effective manner by implementing well-structured strategies to outreach rivals. It helps
organisation to achieve market share as well. In relation to this, corporate strategies of Caltex
Australia Pvt Ltd are as follows-
1. Optimising infrastructure-
It is one of the focus of organisation to maintain cost-effective operations of supply chain
through optimum infrastructure. This will help to become proactive in responding and adapting
market dynamics and enhancing refinery management. Thus, strategy to expand and pursue new
opportunities in relation to infrastructure (Costabile, Fera, Fruggiero, Lambiase and Pham,
2017).
2. Expanding trading and shipping -
For expanding and developing capabilities and business operations of Ampol. This will
be beneficial for Caltex Australia Pvt Ltd to capture new opportunities and creating value in
delivering items and as such, Asia Pacific region can be explored in a better way. International
expansion will be possible and supply chain could be expand as well.
3. Grow supply base-
For executing strategies to maximise marketing volumes in target market or regions and
to support development of infrastructure in long-term and attaining competitive supply of items.
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4. Fuel retailing offering to customers-
This strategy will help Caltex Australia Pvt Ltd to effectively analyse the market and then
offering fuel site offer to lure customers and increase in spending of consumers in the best
possible manner.
5. Creating new solutions for customers in the market-
Providing new customer solutions as network of more than 900 retail sites are in the
market and weekly customers over three millions. Thus, building new and attractive offers for
potential consumers across multiple channels and locations and enhancing satisfaction level in
effectual way.
C) How ABC model assists in accomplishing firm's strategies
ABC model is quite effectively for Caltex Australia Pvt Ltd to maintain cost level and
attaining reduction of expenses to carry out various manufacturing activities quite effectually
(Etienne and et.al, 2017). It can be assessed from the company's strategies that supply chain costs
can be controlled and better trading could be possible. The costs of trading may be analysed in a
better manner. ABC model is helpful as organisation may be able to allocate cost of overheads
with much ease. Furthermore, company can accumulate cost of infrastructure so that direct
labour costs can be managed in the best possible way. Thus, ABC model will be helpful to
company in allocating costs on the activity basis.
C) Providing recommendations about implementation of ABC model
ABC model is useful for company as costs can be classified on activity basis. In relation
to this, it is required that Caltex Australia Pvt Ltd should implement such model so that benefits
may be extracted as it is engaged in the business of transport fuel supplier and provides delivery
of fuel through complex supply chains in effective way. It is recommended to implement ABC
model as it will provide way to organisation to initiate control upon expenditures. In order to
meet customer's satisfaction, it is required that company produces items and refines through
adequate management so that system can be easily implemented (Keel, Savage, Rafiq and
Mazzocato, 2017). Moreover, it is required to identify those functional areas which will meet out
demands of production with much ease. Then after identifying these areas, it is now required to
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assign main activities that will be able to complete task quite effectually. It will be helpful for
company and as such, activities can be easily aligned in achieving production.
Another recommendation is that Caltex Australia Pvt Ltd should allocate indirect
expenses to functional areas. Then afterwards, suitable cost driver should be aligned under the
functional areas and as such, activities wise statement of costs should be prepared. Now
comparing the statement with value addition on activity wise basis. Lastly, to effectively identify
activities that can be eradicated from the processing and as such, better control can be initiated
on the overall activities of organisation. Thus, these two recommendations are provided to
organisation so that it can be easily implement ABC model of accounting and as a result, senior
management can take benefits out of the same for injecting overall productivity and decreasing
costs in effective way (Angelopoulos and Pollalis, 2017).
D) Management accounting tool suitable for company apart from ABC model
ABC model is effective tool in having clarity about the costs so that it can be controlled
in adequate manner. It can be said that management accounting tools are useful in carrying out
effective financial decision in the best possible way. Hence, ABC system is helpful for company.
However, another management tool such as budgetary control is beneficial for the firm in
carrying out business operations with much ease. Budgets are financial goal which is formulated
and prepared for the coming period in anticipation of expected income to be earned and
expenditures that would be incurred in the future. Thus, budgets are prepared in anticipation of
future activities of business.
Budgetary control is required so that planned performance of firm can be compared with
actual performance of company in the best possible way. When both of them are matched,
management can find out variations if any in actual performance and planned one. Deviations are
analysed and as such, improvement is required to be made so that variations can be removed up
to a high extent. Thus, company's management takes corrective actions in order to eradicate
deviations in effective way. Thus, improvement is initiated by the company and as a result,
variances are removed (MacBeath, 2017).
Moreover, it is called as budgetary control which is a helpful management accounting
tool as variances can be reduced and control can be initiated quite effectually. It will help Caltex
Australia Pvt Ltd to effectively met business operations in desired way. Moreover, it would be
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able to inject its business and as such, trading and shipping will be streamlined in effectual way.
Thus, it can be said senior management and CEO of organisation will be benefited by
implementation budgetary control as a management accounting tool. It would be worthwhile for
the business in meeting out objectives quite effectively.
CONCLUSION
Hereby it can be concluded that there are various management accounting tools which are
beneficial for the management of organisation to implement the same and extract benefits out of
it. In relation to this, ABC model is one such tool helping organisation to assess costs in that way
which do not hamper production and overall productivity can be enhanced with much ease.
Moreover, allocating costs on behalf of activities is another essence of this model. Thus, Caltex
Australia Pvt Ltd may be able to extract benefits out of the same and costs can be controlled
quite effectually.
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REFERENCES
Books and Journals
Angelopoulos, M. and Pollalis, Y., 2017. Activity Based Costing (ABC) as a tool for Lean
Transformation: The Case of the Greek Power Public Corporation (PPC).
Costabile, G., Fera, M., Fruggiero, F., Lambiase, A. and Pham, D., 2017. Cost models of additive
manufacturing: A literature review. International Journal of Industrial Engineering
Computations. 8(2). pp.263-283.
Etienne, A. and et.al, 2017. Cost engineering for variation management during the product and
process development. International Journal on Interactive Design and Manufacturing
(IJIDeM).11(2). pp.289-300.
Hoozée, S. and Hansen, S., 2017. A comparison of activity-based costing and time-driven
activity-based costing. Journal of Management Accounting Research.
Keel, G., Savage, C., Rafiq, M. and Mazzocato, P., 2017. Time-driven activity-based costing in
health care: A systematic review of the literature. Health Policy. 121(7).pp.755-763.
MacBeath, J., 2017. A role for parents, students and teachers in school self-evaluation and
development planning. InMeasuring Quality: Education Indicators (pp. 100-121).
Routledge.
Plank, P., 2018. Introduction. In Price and Product-Mix Decisions Under Different Cost
Systems (pp. 1-5). Springer Gabler, Wiesbaden.
Zhuang, Z. Y. and Chang, S. C., 2017. Deciding product mix based on time-driven activity-based
costing by mixed integer programming. Journal of Intelligent Manufacturing. 28(4).
pp.959-974.
Online
Introduction to Activity Based Costing. 2018 [Online] Available Through:
<https://www.accountingcoach.com/activity-based-costing/explanation>
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