HI5017 Managerial Accounting: Implementing ABC Model at Fortescue

This report analyzes the Activity-Based Costing (ABC) model and its applicability to Fortescue Metals Group, an Australian metal industry leader. It details the features of the ABC model, its alignment with the company's mission, objectives, and corporate strategies, and provides recommendations for successful implementation. The report identifies Fortescue Metals Group's mission to ensure labor and business relations, its objectives for innovation, and its strategies for value creation through technology and efficient supply chains. It explains how the ABC model can assist in achieving these strategies by accurately determining product costs and resource allocation. Furthermore, the report suggests ratio analysis as an alternative management accounting tool, highlighting its benefits in assessing the company's financial position and supporting strategic planning. This document is available on Desklib, a platform offering a wide range of study tools and resources for students.

HI5017 Managerial Accounting
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Table of Contents
Executive summary....................................................................................................................3
Introduction...............................................................................................................................4
A) An explanation of ABC model and its features.................................................................5
b) An explanation of how ABC model aligns with the current goals and strategies.............6
of the company......................................................................................................................6
i) An identification of the company’s mission and objectives...............................................6
ii) An identification of the company’s corporate strategies..................................................7
iii) An explanation of how ABC model assist in achieving the company’s strategies............8
c) Provide at least two (2) recommendations about the implementation of ABC................9
model for your company........................................................................................................9
d) Apart from ABC model, suggest one other management accounting tool suitable for
your company and justify it.................................................................................................10
Conclusion................................................................................................................................12
References................................................................................................................................13
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Executive summary:
Fortescue Metals Group is an Australian metal industry. It has taken fourth largest place in
the global economy. It is a public limited company with it’s headquarter situated in East
Perth, Western Australia. Company has revenue of US $8.447 Billion and Net income of US
$2.093 billion.
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Introduction
This report has introduced that the Fortescue Metals Group is one of the renowned
company situated in Australia. This report has discussed about ABC model and its
successful implementation in the company. The mission aims and objectives of the
company has been focused and discussed in detail. The strategies used by the company for
its growth and development has also been clearly stated and discussed. Strategies ahs been
used in implementation of this model in the industry. Company has been recommended
some more strategies in order to promote its growth and development. One more
management accounting tool has been discussed in this report.
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A) An explanation of ABC model and its features:
This type of procedure aids the organization to complete many activities by itself. It aids
the accounting of the company and helps to determine the cost incurred and its allocation
in the business to the merchandise offering. The price which is distributed shows the
deviation in the cost and the activities of the company. The organisation also has some
hardships in distributing the work and the salaries to the employees. The main point
behind this is the procedure which not made for the manufacturing sector. The ABC model
of cost and management accounting has some of the points and events which are drawn by
some future determined goals. The day to day activities of the company which include the
manufacturing and developing the merchandise. There are various activities which are
there in the method of ABC model and the cost-based accounting. These are at the
operational level, functional level and the consumer level and these tasks also relate to the
merchandise level and the company’s sustainable activities. The method of ABC Model and
cost accounting is well known to be the most applicable and trustable as compared to the
other methods of accounting. The various decision which relate to the organisation can be
seen as a correct picture by this ABC model (Pascoe, 2014).
Features of the ABC model:
 It aids in determining of the actual cost of the merchandise.
 It aids in the planning process of the company.
 It also aids in determining the tasks which are not profitable to the organisation and
hence can be seen and decision can be taken accordingly.
 It does not club the cost of the organisation as one, but it clubs the activities of the
company as one whole (Cowie, et. al, 2015).
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b) An explanation of how ABC model aligns with the current goals and strategies of the
company.
i) An identification of the company’s mission and objectives
The company has set up its mission and objectives to ensure its future growth and
development. It aims to endure united bargaining. This can be achieved by the company
with the help of proper administration and ensuring that the standards set by the company
are truly complied with. To deliver 'High quality cost viable solution' for whole
manufacturing Industry on 'One stop shop' foundation. The mission of the
Fortescue Metals Group is to guarantee a sound and steady relationship between both the
labor and the business in its industry. This develops a sense of assurance and veracity
among the stakeholders. The objective of the company is to treat both the business and
the labor on equal basis (Lu, 2015). To enforce a positive relationship between labor and
the business. It is the responsibility of the company to educate the people who have stake
in the company relating to the upkeep and the execution of the agreements and ensure
growth and the development in the company. To overdo purchasers’ outlooks through
constant modernization and invention. The mission of the company is to support and at the
same time promote the advancement of women in its metal industry. Enhance the specific
and the commercial association in the company. The focus is to educate by promoting
continuous environment for learning. Contribution of Best of Products & Services with
Modern and fashionable technologies for Shoppers’ ultimate pleasure. To provide
guidance, control and path in the manufacturing sector for the global industrial progress of
nation (White, et. al, 2014).
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ii) An identification of the company’s corporate strategies:
The company has adopted the strategy of using innovation and creativity in the company as
per minds of the consumer. Fortescue Metals Group uses innovative technologies and
methods in order to produce high quality metals in the industry. The company also
produces specialized products using the creation and the innovation. The company delivers
those products needed by the customers and these products are resistant to corrosion.
With the technique of innovation, the company is trying to reduce the weight of the
components used for the vehicles. Value can be created in the company by focusing on the
needs of the consumer. Company should provide extraordinary technical services and
marketable aid. The company shall invest in those products and innovations which will
increase its sales in order to serve the customers. In order to enhance value in the
company, it has adopted supply chain which worked effective and efficient as has resulted
in increasing its operations efficiency. In order to preserve the natural resources, the
company has used strategy of energy and management of water at the same time land
management (Lynch, 2014).
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iii) An explanation of how ABC model assist in achieving the company’s strategies.
The ABC model helps the organisation in achieving the plans set up by the top level of
management. It is an effective method of determining the cost of the merchandise made
and the resources which are required to make the merchandise. The ABC model uses the
cost in a fruitful way such that the cost the tasks are clubbed with the outcomes. This
model tells how the merchandise has to be developed so that the most cost friendly
manner is taken to develop it. By using the ABC model, it becomes very light for the
organisation to develop new merchandise. And by this the product is in front of the eyes of
the organisation so that the company does the planning accordingly and makes new future
plans for the merchandise and fulfil the objectives set up the top level of the management.
The ABC model is also the best determined way to study and make a best offering which is
both cost friendly and profitable to the company like the Fortescue Metals Group (Lee,
2017.).
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c) Provide at least two (2) recommendations about the implementation of ABC model for
your company.
Value of ABC as a cost planning
This method has successfully act as a substitute for traditional costing systems. This stem of
accounting has helped the management of the company in upgrading their existing
systems. With the help of this system the managers are the managers get relevant and
accurate information on time. The forecasted information generated based on the cost
drivers is firstly recorded with the help of ABC system. The next stage is information gets
updated using this system. This is done under this system as the main aim of the system is
to support the continuous development in the working of the company. The degree of
accuracy in this system is much more than the traditional system. This model of costing is
reliable for the manufacturing concern companies not the companies which provide
services. So, Fortescue Metals Group should focus on implementing this model in the
company (Ferguson and Pündrich, 2014.).
Ensures accuracy
There are many times when high overheads are incurred on the products. This causes small
changes in the price of the product. But, overall such small changes make a large
difference. With the use of ABC model in the company it becomes easy and simple to
envision the cost and understand all the activities going on in the company. With the help
of use of such method of costing areas can be sorted out which are consuming much time.
It will also help the internal management which is responsible for the decision-making
activities in the company to analyze and examine all the related spending of the company
and all the related undirected cost can be analyzed correctly and accurately. The inputs are
converted into outputs based on the constraints set by the company. It will help the
company to eliminate such activities which does not add value from the point of view of
the company (AUSTRALIA, 2018).
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d) Apart from ABC model, suggest one other management accounting tool suitable for your
company and justify it.
There are various more ways which are acceptable by a company like the Fortescue Metals
Group other than ABC model and one of the best can be the Ratio Analysis. Ratio Analysis is
a method which is used to assess the financial position of the company, the current tasks of
the company. The procedure is also the spine of the plans made and developed for the
growth of the company. The financial study can be assessed with the aid of the analysis of
the ratios and can be best chosen by the top level of the management. Ratios are widely
used as the easiest mathematical way of planning with the numbers. It is discussed by the
deviation of the mathematical manners and is named as ratio analysis.
The study of the ratios is the best planning method used by the help of the ratios of various
activities. The easy study able form of the accounting helps in gathering the data the study
and determines the objectives. The ratios of the main body are the management of
accounting and its analysis.
There are various ways of examining the ratios: -
Ratios can be studied in the below studied ways: -
1. Proportionates:
Proportions are basically the equal of the products achieved the sum of the
denominators. For example, the fast ratio can be determined by 3:6:1 which actually
means that the price of the current assets is $360, and the Price of the current liabilities
is $100.
2. Percentages:
In this manner the number comes out to be in a percentage which is in the form of the
variable. It is practised by dividing a number by the other and then the product is
multiplied by 100. For example, GP ratio is 30%. It is determined by the total of the
profit and the turnover. It shows that the sale is also of $200 which provides $60 as the
GP to the business enterprise.
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3. Time, price, days and multiplier:
In this manner the sum takes the denominator which is taken by dividing one product
by the other. For example, the stock turnover ratio is 10 times. The denominator of it
while selecting the closing or the average stock is 100 days. It is easily the time of the
received amount from borrowers (Roche and Mudd, 2014).
In the Fortescue Metals Group, the administrative accounting tool which can be selected is
the ratio analysis as it the mathematical study of the units and the expressions which
display the production of the organisation and it gives a well verse study of all the aspects
and makes it easy for the organisation to study according to the market and the society and
its requirements the Fortescue Metals Group. The variables are understood by determining
the benefits of the production of the merchandise by the company. It is also usable the
analysis of the ratios is not that easy it is very hard and sophisticated and the metal
production can be processed faster by producing the metals as per the requirements and
the specifications and it will increase the productivity and the profitability of the Fortescue
Metals Group Limited (Fortescue, 2017).
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Conclusion
It can be concluded from the above report that Fortescue Metals Group in order to protect
and improve its position in the market and enhance its level of productivity and profitability
need to adopt some advanced system of costing method that is the activity-based costing
model adopted by the company. This has helped the company in achieving its profitability
benefits in the areas of decision making, estimating, accounting and many more. Company
has achieved the benefits of upgradation in the implementation of the system. This system
is simple and incurs less cost for its implementation. So, company should adopt this tool of
cost accounting as it has helped company in achieving success.
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References:
 Australia, W., 2018. Environmental Protection Authority.
 Boiral, O., 2016. Accounting for the unaccountable: Biodiversity reporting and
impression management. Journal of Business Ethics, 135(4), pp.751-768.
 Cowie, J., Taylor, L., Felsner, B., Stramare, A. and Hardie, G., 2015. Use of
Instrumented Revenue Vehicle to Manage 40 Tonne Axle Load Operation at
Fortescue Metals Group Ltd. IHHA2015, Perth Australia, June.
 Ferguson, A. and Pündrich, G., 2014. Does industry specialist assurance of non-
financial information matter to investors?. AUDITING: A Journal of Practice &
Theory, 34(2), pp.121-146.
 Fortescue, S., 2017. The Mining and Metals Industry and Globalization. In Explaining
Post-Soviet Patchworks (pp. 136-163). Routledge.
 Lee, K.H., 2017. Does size matter? Evaluating corporate environmental disclosure in
the Australian mining and metal industry: A combined approach of quantity and
quality measurement. Business Strategy and the Environment, 26(2), pp.209-223.
 Lu, L. ed., 2015. Iron Ore: Mineralogy, Processing and Environmental Sustainability.
Elsevier.
 Lynch, A., 2014. Fortescue metals group ltd v commonwealth: The mining tax,
discrimination and federalism.
 McHattie, L., 2013. Advances in mining engineering to enable information mobility
for ‘intelligent mining’. In World Mining Congress, Montreal, Quebec, Canada.
 Pascoe, M., 2014. Fortescue Metals Group rumoured to be reviewing possible
Cloudbreak mine closure. The Sydney Morning Herald. vol. 27.
 Roche, C. and Mudd, G., 2014. An overview of mining and the environment in
Western Australia. In Resource Curse or Cure? (pp. 179-194). Springer, Berlin,
Heidelberg.
 White, A.J., Smith, R.E., Nadoll, P. and Legras, M., 2014. Regional-scale
metasomatism in the Fortescue Group volcanics, Hamersley Basin, Western
Australia: Implications for hydrothermal ore systems. Journal of Petrology, 55(5),
pp.977-1009.
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