HI5017 - Activity Based Costing (ABC) System in Brambles Limited

This report provides an in-depth analysis of the activity based costing (ABC) system and its application within Brambles Limited, an organization listed on the Australian Securities Exchange (ASX). It explores the characteristics of the ABC model, including its ability to differentiate between variable and fixed costs, and its role in profitability analysis, target costing, and customer profitability analysis. The report further examines Brambles Limited's mission, objectives, and corporate strategies, linking them to the potential benefits of implementing the ABC model. It identifies key activities within the company that could be categorized using the ABC model and discusses the challenges of selecting appropriate cost drivers. The report concludes with recommendations for effective implementation of the ABC system and suggests budgetary control as an alternative management accounting tool, emphasizing its benefits in planning, monitoring, and controlling business activities.

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

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Executive Summary:
In this report, efforts have been made to bring into light the different aspects of the
activity based costing (ABC) system. The purpose of the report is to relate the use of the ABC
system with a business organisation listed on the Australian Securities Exchange (ASX).
Therefore, the organisation that has been considered for meeting the purpose of this report is
Brambles Limited having the ASX code of BXW. It has been identified further that the
enforcement of the ABC model enables the organisations to divide the total costs into variable
costs and fixed costs. Along with this, the management of Brambles Limited could obtain all the
necessary costing information by using the ABC system.

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Table of Contents
Introduction:....................................................................................................................................3
Part a:...............................................................................................................................................3
Part b:...............................................................................................................................................5
Requirement i:.............................................................................................................................5
Requirement ii:............................................................................................................................6
Requirement iii:...........................................................................................................................6
Part c:...............................................................................................................................................8
Part d:...............................................................................................................................................9
Conclusion:....................................................................................................................................10
References:....................................................................................................................................12

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Introduction:
In this report, efforts have been made to bring into light the different aspects of the
activity based costing (ABC) system. The purpose of the report is to relate the use of the ABC
system with a business organisation listed on the Australian Securities Exchange (ASX).
Therefore, the organisation that has been considered for meeting the purpose of this report is
Brambles Limited having the ASX code of BXW. It is founded in the year 1875, when it started
a butchery business; however, with the passage of time, it has shifted to transport and logistics. It
is a specialised supply chain logistics group involved in pooling unit-load equipment and related
services. The report would provide information regarding the different ABC model aspects
including its description, features and process of implementation supported by suitable
recommendations.
Part a:
From the business perspective, ABC is considered as a significant costing approach
aiding the business organisations to identify those activities necessary for running their business
operations. Once such activities are identified, it assigns the indirect costs to the concerned
products or services. Thus, it is evident that ABC model determines the relationship among
costs, products and activities, as it is necessary to allocate indirect costs to the products or
services in an effective manner as opposed to the conventional costing approach (Butler and
Ghosh 2015). However, the business managers are often encountered with certain complexities
in allocating some particular indirect costs to the products or services in this costing system. One
such instance could be identified as the staff salaries, in which issues are faced while assigning
costs to the services rendered. On the other hand, it is noteworthy to mention that ABC model

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supplies the necessary cost information for which it has become popular among all types of
business organisations regardless of their size and industries (Cannavacciuolo et al. 2015). There
are some areas where ABC system plays a major role and they are profitability analysis of
product line, target costing, customer profitability analysis and others. Thus, the ABC model is
applicable for all the business sectors irrespective of their size and nature.
ABC model is deemed to possess certain characteristics and the most significant
characteristics are presented as follows:
 By applying the ABC model, the total costs of the organisations could be broken down
into variable costs as well as fixed costs. Such cost division makes it possible for the
business enterprises to implement relevant pricing strategy depending on their cost
operations and industrial trends (Dopson and Hayes 2016).
 Another significant characteristic of this model is that the firms could compare the cost
behaviour pattern in their overall costing operations.
 The business entities are benefitted immensely from this model, since it relates the cost
behaviour pattern with certain aspects that include time, diversity, volume and other cost
events.
 The ABC model assists in identifying the cost drivers for tracing the costs of overheads
to the products (Edmonds et al. 2016).
 It becomes easy for the managers of the organisations to dictate the patterns of cost
behaviour by using the different drivers of cost.

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Figure 1: Activity based costing model
(Source: Eldenburg et al. 2016)
Part b:
From the above evaluation, it has been found that the ABC model enables the business
enterprises to accomplish their corporate goals and strategies. This section would lay stress on
evaluating the mission, objectives and corporate strategies of Brambles Limited and then they
would be linked with the ABC model.
Requirement i:
Brambles Limited has set out a clear purpose for carrying out its business operations. The
mission of the organisation is to provide fast and timely services to its global customers.
However, it has established three major business dimensions, which include responsibility, safety
and sustainability. Due to this reason, the organisation is dedicated to work in collaboration for
ensuring the growth and value development for its shareholders (Brambles Corporate Site 2018).

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Besides, the organization has certain particular objectives as well. The initial objective is
to ensure the health and safety of its staffs by formulating certain safety standards and principles.
The second objective includes the accomplishment of the business objectives and targets by
working collaboratively. The final objective is to ensure business integrity and mutual respect to
its related stakeholders.
Requirement ii:
Brambles Limited has a group of business activities, which are the significant drivers of
its business operations. According to the significant strategies, the intention of the organisation is
to be the trusted partner of the client choice by developing and delivering services associated
with blasting and civil mining. This is essential for the organisation to increase its productivity,
while making the management aware of the critical risks. Due to this reason, the significant
strategy of the organisation is to work collectively for accomplishing the objective. By using
these strategies, Brambles Limited is able to maintain its competitive position in the transport
and logistics industry.
Requirement iii:
ABC model’s popularity could be observed in few particular industries such as the
manufacturing industry, mining industry, transport and logistics sector and others. In this
context, it needs to be stated that Brambles Limited is a specialised supply chain logistics group
involved in pooling unit-load equipment and related services. Due to this reason, it creates an
opportunity for the organisation to obtain benefits by implementing the ABC model, as its
business goals and objectives could be accomplished (Gitman, Juchau and Flanagan 2015).

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The enforcement of the ABC model in Brambles Limited would categorise the transport
and logistics activities into five main categories. These categories include processing activities,
input activities, administrative activities and support activities for providing support to the first
two activities. By implementing the ABC model, the management of Brambles Limited could
segregate the tasks into activities for managing the costs associated with these assets in the most
appropriate fashion (Greenberg and Wilner 2015).
The implementation of ABC model in Brambles Limited would realise five different
levels of activities, which include unit-level activities, batch-level activities, product-level
activities, facility-level activities and customer-level activities. The unit-level activities occur at
the time during the production of each container in the organisation. The batch-level activities
would be present at the time the organisation would perform the process of production in unit
groups. The product-level activities help in extending support to the manufacturing procedure of
the organisation for particular products and services. In order to benefit the overall process of
production, the facility-level activities would be used (Klemstine and Maher 2014). As a result,
this model would enable Brambles Limited to assist in the categorisation of repetitive as well as
non-repetitive activities of production.
Another function of the ABC system within the organisation is to form association
between the cost drivers and cost activities. The cause and effect association could be developed
with the assistance of the cost drivers and from this association, the cost objectives could be
formulated as well. By obtaining assistance from the resource drivers, the management of
Brambles Limited would be able to gauge the quantity of goods despatched, which is consumed
on the part of each activity. On the contrary, the activity helps would enable the organisation in
gauging the frequency and demand intensity based on the ABC system (Krishnan 2015).

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However, while implementing the ABC system, it is obvious that the cost accountants of
Brambles Limited would be confronted with certain issues in choosing the cost drivers, since
trade-off accuracy needs to be made as opposed to the complexity of the ABC model. Due to
this, all the identical cost drivers need to be grouped in a single cost pool. After the end of this
procedure, the management of Brambles Limited is required to make application of the cost
pools in the product line by applying the cost driver rates based on the number of cost driver
transactions (Klychova, Faskhutdinova and Sadrieva 2014).
By applying the above-mentioned processes in accordance with the ABC system, the
managers of the organisation would obtain all the necessary costing information regarding the
overall manufacturing system. When all the needed costing information is present, the managers
of Brambles Limited would be able to optimise the product costs that would enable in
accomplishing the organisational goals and objectives.
Part c:
The following are the two recommendations that would help the management of Orica
Limited to implement the ABC system:
 Firstly, for assuring effective enforcement of the ABC system, it is advised to the top
management of Brambles Limited for extending support to the organisation. Hence, it is
necessary for the organisation to take into consideration that the cross-functional team for
managing all the aspects associated with the enforcement of the ABC model. Due to this
reason, the higher-level management of Brambles is required to provide all the needed
resources to the cross-functional team for effective implementation of the ABC model
within the organisation (Oseifuah 2018).

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 Two significant influential dynamics are present due to which the top management of
Brambles Limited is suggested to extend support to the enforcement of the ABC system.
When there is no significant support from the management of the organisation, the major
impediment would be the resistance of the employees towards change. In addition, the
staffs of Brambles Limited might not provide adequate importance to the ABC model
when they could not seek support from the top management (Park and Jang 2014).
Part d:
Various alternative management accounting tools are available besides ABC model. Out
of them, Brambles Limited could seek the alternative of adopting budgetary control, as it would
become possible to plan and control different business activities by using this management
accounting tool. By enforcing the budgetary control, the management of Brambles Limited could
plan, monitor and control the various business activities of the organisation (Warren and Jones
2018). Some of the significant benefits of budgetary control are described briefly as follows:
 It becomes possible for the business enterprises to increase the efforts of their employees
for accomplishing their business strategies and objectives (Warren, Reeve and Duchac
2015).
 If the budgeted expenses are more than the actual expenses of the business organisations,
it helps the management to obtain the scope of undertaking remedial actions so that the
situation could be rectified.
 By implementing the budgetary control in the business operations of the organisations,
the management could gain adequate information regarding the previous events, since the
management could formulate effective strategies in presence of this information for

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assuring that such mistakes are not repeated in future (Weygandt, Kimmel and Kieso
2015).
Conclusion:
From the above discussion, it is inherent that the global business enterprise irrespective of
their industry, size and nature are implementing the ABC model in order to improve their overall
costing system. It has been identified further that the enforcement of the ABC model enables the
organisations to divide the total costs into variable costs and fixed costs. Along with this, the
management of Brambles Limited could obtain all the necessary costing information by using
the ABC system. This is because such system would enable the organisation in to formulate
suitable techniques of costing. Along with this, for assuring the suitable adoption and
enforcement of the ABC system, the higher-level management of the organisation needs to
extend support the overall process.
The enforcement of the ABC model in Brambles Limited would categorise the transport
and logistics activities into five main categories. These categories include processing activities,
input activities, administrative activities and support activities for providing support to the first
two activities. By implementing the ABC model, the management of Brambles Limited could
segregate the tasks into activities for managing the costs associated with these assets in the most
appropriate fashion the managers of the organisation would obtain all the necessary costing
information regarding the overall manufacturing system. Based on the above evaluation, it could
be observed that the business enterprises could adopt the budgetary control in the form of
alternative technique of management accounting. This is because it would allow Brambles

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Limited to ensure proper planning and controlling of the overall business functions, activities,
processes and operations.