HI5017 Managerial Accounting: Woolworths ABC Costing Model Analysis

This report provides an analysis of Woolworths' use of the Activity-Based Costing (ABC) model, examining its effectiveness in aligning with the company's goals, strategies, and objectives. The report details the features of the ABC costing model, including the differentiation between fixed and variable costs, and how it aids in cost driver identification and resource allocation. It assesses how the ABC model supports Woolworths' mission of providing quality products and services at affordable prices, alongside strategies for employee training, customer engagement, and expansion. Recommendations are made for leveraging the ABC model to control costs and improve revenue. The report also explores an alternative management accounting tool, Life Cycle Costing, but concludes that the ABC costing model is more suitable for Woolworths due to its simplicity and cost-effectiveness. The analysis emphasizes the role of ABC costing in achieving Woolworths' objectives and contributing to its future growth.

Woolworths Company
ABC Costing model
Costing analysis tool
Name of the Author

Contents
Introduction.................................................................................................................................................2
Activity based costing model-.....................................................................................................................2
ABC model in accordance with the goals, strategies, missions and objectives of Woolworths...................4
Recommendations-......................................................................................................................................5
Another Management Accounting Tool suitable for the use of Technology One........................................6
Conclusion...................................................................................................................................................6
References...................................................................................................................................................8

Introduction
With the increasing ramified economic changes and complex busienss structure, each and
every organization needs to use effective ABC costing model. This model assists in bifurcation
of the costs of the business in different work process which will increase the overall outcomes of
the business at large. ABC costing is a very effective method that helps in calculating the
overhead cost. It assists in doing the analysis related to minimization of overhead cost without
compromising the quality of the product. It allocates the overall overhead costs in machine
hours that help in proper analysis. It calculates the cost of each and every activity involved in the
production process (Woolworths, 2017).
It is also used in effective allocation of resources in different production operations in the
organization. It basically targets in reducing the total overhead expense belong to an
organization. Below study is related to a retail company, Woolworth. Woolworth has a very
good position in retail market and it provides a variety of products including clothes, homeware
and food items. It is also involved in providing financial services as it has a joint venture with a
bank named Absa. It provides loans, store cards and Woolworth visa card to its employees. It
was founded in 1924 by the name “Walworth’s Bazaar Ltd.” It also involved in selling of
Magazines, DVD’s, Health/beauty products and stationary items. It has its online services too,
where anyone can click and collect the product of their choice. It has been proved a very
convenient option for the customers (Lahiri, 2016).
Activity based costing model-
There are several management related activities in an organization that involves a cost factor. It
helps in tracking all the activities related to resource utilization and overall cost incurring in
creating final output. Manufacturing process involves various jobs and each job has cost and
resources involved (Stout, 2014). Resources are the essential element for carrying out production
activities as resources convers the input into final output. Resources are allocated to a particular
operation according to the cost allotted to them. In these matters, ABC plays an important role
and helps in doing the analysis over the costs (Warner, 2010). It helps to know the actual
resource requirement and actual cost incurred for each activity in the process of creating output.

There is a situation when indirect cost gets increased and it creates a direct effect on the
revenues. It also results in increase the price of the final product and it became necessary to
control such kind of situation. ABC costing is basically helps in such situation by calculating the
minimum cost of production activities. It also helps in analyzing the actual requirement of the
funds in the business. When an estimate has been calculated, then there are a very few chances of
getting out of funds and it also helps in creating options in order to reduce the cost of the
production activities (Flanigan, 2016).
Features of Activity based costing-
ABC costing is an effective method of costing and has been used by various organizations in
maintaining cost effective production process. There ae many benefits and advantages of ABC
costing that actually analyze the costs and resource utilization. It focuses on proper bifurcation of
cost and due to this; it divides cost into two parts (SALONER, 2018).
1. Fixed cost
2. Variable cost
Fixed cost is the cost involved in activities where there are certain elements that creates fixed
cost irrespective of the production process and units produced. This cost remains same and incur
every time, even if there are no production activities going on. There are some examples of fixed
cost like salary of the employees, electricity bill, rent and wages of the labors. Whereas variable
cost is a cost that every time varies as per the production activities and if there are no production
activities then there will be no variable costs. Variable cost differs according to the units
produced. Examples of variable cost are cost of raw material, Resources include in production
and cost of improvement. It helps in clarifying the cost structure and it is beneficial for business
organization.
It also provides support in identify different cost drivers. Cost drivers refer to the factors that
basically attract cost involved in manufacturing activities. With the help of cost drivers, it
becomes easy to maintain a proper record of cost. When an organization try to find an approach
to reduce the cost then it assists in the process in an efficient way and explores ways to reduce
the cost by using planning and creating budgets.

The identification of the different cost drivers and allocating cost of the business in difference
work process assist organization to lower down the overall cost of production and increase the
efficiency of the business.
The ABC model is the most suitable method which is used to make the proper adjustment and
absorption of the cost in the different work process department of organization .
ABC model in accordance with the goals, strategies, missions and objectives of Woolworths
The major mission of Woolworths is to provide the products and services of the best qualities to
the customers all the time with the help of pricing strategies, fresh fruit strategies and human
strategies. This mission statement clearly defines the value of customers in the eyes of
Woolworths. It always wants to provide cheap and affordable products to its customers. They
believe in making customers feel right shopping experience each and every time. They always
want to improve themselves to create something better. Woolworths always want to create a
close contact or a relationship with the customers in order to know the changing tastes and
preferences of them (Dhillon, 2013). It basically helps in providing customized products or
services that can provide the maximum satisfaction to the customers. Woolworths is also
planning to create more outlets in different part of the country to making them more visible and
maintaining a strong position in the market. They are trying to make their food tastier as well as
nutritious (Use of Forward Sensitivity Analysis Method to Improve Code Scaling, Applicability,
and Uncertainty (CSAU) Methodology, 2010). They never compromise on the quality of their
food products as they care about the customers. There are different strategies of Woolworth that
create a big impact on the organizational growth-
1. Providing timely knowledge sessions and training programs for the employees to enhance
their skills and knowledge. It helps in attaining more efficiency from the employees.
2. They always want to provide nutritious and good quality products to their customers on
very affordable prices.
3. They try to create some personal contacts with the customers to know their requirements
and try to find out new ways to improving the product.
4. It is also planning to create more stores in the country that ultimately contribute in the
future growth and development (Cristea, 2017).

How ABC model assist in achieving the strategies of Woolworths?
ABC costing method in very helpful in the strategic management of Woolworths as it has the
features that enable the same in doing proper budgeting and cost analysis of the expansion plans
of the company (Morroni, 2010). It also helps in the smooth implementation and development of
the strategies. It basically identifies the expansion plan and the cost involved the same. As per
the above analysis, it has been concluded that the main motive of Woolworths is to provide cost
effective quality products and services to the customers (Rosati, 2010). With the help of the
costing techniques of ABC costing, indirect cost can be controlled by Woolworths. It never
compromises in the resource allocation to decrease the cost of products and always do proper
distribution of resources asper the requirement. Woolworths has a strategy to continue its
operations with growth by doing social development. It wants to take actions in order to
minimize poverty in the country as it is a major issue that becomes a hindrance in the social and
economic growth of the country. They believe that they will teach poor people so that they can
able to create living on their own and can start their own business. It can make those poor people
a part of their company (Das, 2013).
Recommendations-
ABC costing model can be proved as a very effective as well as beneficial for the growth and
development of Woolworths. It is necessary to create control on all the activities in an
organization that involves cost and resources and ABC costing helps in doing the same in an
effective way. This can also leads in increasing the revenues. It can provide affordable products
and services to the customers. ABC costing method is very simple and easily understandable by
the process cost managers. If Woolworths want to implement the effective ABC costing in its
busienss then it will have to undertake the proper work process which will add value to the
organization. The ABC costing model is most suitable method which add value in bifurcation of
the cost in different work process department in effective manner.

Another Management Accounting Tool suitable for the use of Technology One.
There are some other cost management tools also that can help an organization to create a
tracking on the activities. One of them is Life Cycle Costing. This method can also be adopted
by Woolworths as it is also a very beneficial method that has been used in minimizing the cost
and using the cost effective techniques of production. It basically calculates the expected returns
on the investment and then collates the whole costs to find out its reduction to the present value
(Li, 2015). It mainly does analysis over the procurement and to find out the less costly methods
of installation, operation and maintenance. It can assist Woolworths in all the activities related to
retail as well as online sale of the products and services. This life cycle costing model is the most
suitable method which could be used by organization having high complexity in the recording of
the cost in different work process. After analyzing all the pros and cons of the new costing
model and work process system, it could be inferred that Life cycle costing model is more costly
as compared to the ABC costing model. Another major factor is related to the increased business
outcomes. It will be hard for the organization to use the life cycle costing method if they have no
advance computing system to bifurcate the costing in different work department. It is observed
that Life Cycle Costing is a very effective method that helps in calculating the overhead cost. It
assists in doing the analysis related to minimization of overhead cost without compromising the
quality of the product on the basis of cost drivers and related cost of the business ( Woolworths,
2017).
Conclusion
The main conclusion by this study describes that ABC costing method is the best method for
Woolworths to fulfill the goals and objectives of providing the best quality products and services
to the customers on a very affordable price. This can help the same in keeping a track over the
activities as costs involved in the same. It also provides an accurate calculation of the actual cost
price and selling price. It has also an option available to use Life Cycle costing method, if it
became difficult for them to use ABC costing. It is analyzed that company is planning to create
more stores in the country that ultimately contribute in the future growth and development which

could increase the overall outcomes in effective manner. Now in the end, it could be inferred that
using ABC costing model is the best suitable method which could be used by Woolworth to
bifurcate the cost in its different work department.

References
Cristea, V. 2017. Historical Cost Accounting and International Accounting Harmonization. New
Trends And Issues Proceedings On Humanities And Social Sciences, 3(4), 104-109. doi:
10.18844/gjhss.v3i4.1530
Das, P. 2013. Cost accounting. Shah Alam: Oxford Fajar.
Dhillon, B. 2013. Life Cycle Costing. Hoboken: Taylor and Francis.
Flanigan, M. 2016. Diagnosing and Changing Organizational Culture in Strategic Enrollment
Management. Strategic Enrollment Management Quarterly, 4(3), 117-129. doi:
10.1002/sem3.20090
Lahiri, S. 2016. Cost–benefit analysis of overhead lift use peer coaching. Occupational And
Environmental Medicine, 73(7), 427-428. doi: 10.1136/oemed-2015-103416
Li, X. 2015. Accounting Conservatism and the Cost of Capital: An International Analysis. Journal
Of Business Finance & Accounting, 42(5-6), 555-582. doi: 10.1111/jbfa.12121
Morroni, M. 2010. Production Process and Technical Change. Cambridge, GBR: Cambridge
University Press.
Rosati, K. 2010, The ABC of costing. Sydney: NSW Young Lawyers.
SALONER, G. 2018. STRATEGIC MANAGEMENT. [S.l.]: JOHN WILEY.
Stout, D. 2014. Regression Analysis: Instructional Resource for Cost/Managerial
Accounting. Accounting Education, 24(1), 57-73. doi: 10.1080/09639284.2014.974197
United States. Office of Nuclear Energy, Science, and Technology. (2010). Use of Forward
Sensitivity Analysis Method to Improve Code Scaling, Applicability, and Uncertainty (CSAU)
Methodology. Washington, D.C.
Warner, A. 2010. Strategic analysis and choice. New York [N.Y.]: Business Expert Press.
Available at http://pm.pmi.org/business-analysis-tools?

utm_source=google&utm_medium=paidSearch&utm_term=%2Bbusiness
%20%2Banalysis&utm_content=20325237766&utm_campaign=RPG-Goo-PdS-%2Bbusiness
%20%2Banalysis-b-501018166-20325237766&utm_thm=b&utm_dept=mkt.,
Woolworths, 2017., Annual report., [Online]., Available at
https://www.woolworthsgroup.com.au/icms_docs/188795_annual-report-2017.pdf., [Accessed 14th
May, 2018].