HI5017 Managerial Accounting: ABC System Implementation at Integral

This report provides a comprehensive analysis of the Activity-Based Costing (ABC) system and its potential implementation within Integral Diagnostics Ltd, an ASX-listed healthcare service provider. It explores the characteristics of the ABC system, its alignment with the company's strategies and goals, and the challenges and benefits of its adoption in the healthcare sector. The report also considers alternative management accounting tools, such as budgetary control, and their potential advantages for Integral Diagnostics Ltd. The analysis includes a discussion of cost allocation, the role of cross-functional teams, and the importance of top management support for successful implementation. Ultimately, the report aims to provide valuable insights for improving cost management and operational efficiency within the company.

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:
The study has included the important discourse associated to ABC system and its
enforcement from different perspective of company. The satisfactory criterion for this
system have been implemented in ASX listed company named Integral Diagnostics Ltd. The
existence of highly valuable and enhanced management accounting approach this company
is ideal for the assessment purposes. The main findings show that it particular reference to
the selected company, there is a system will be having a significant role in tracing the
business activities which need special attention and evaluation. Based on the analysis, it will
be conducive in adopting budgetary control as an alternative to ABC which will ensure
overall efficiency in terms of cost and process optimisation for the company.

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

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Introduction:
Some of the important discourse in the report have comprised of relevant
information associated to ABC system and its enforcement from different perspective of
company. The satisfactory criterion for this system have been implemented in ASX listed
company named Integral Diagnostics Ltd. The existence of highly valuable and enhanced
management accounting approach this company is ideal for the assessment purposes. The
company is considered to be a healthcare service provider which is seen to specialise in
several areas of medical specialists, general practitioners and providing diagnostic imaging
services with the allied health professionals and patients across Australia. There have been
several efforts this company to align the ABC system with management’s goal and
strategies. The main form of recommendation has been seen to enforce suitable accounting
technique comprising of departmental needs (Weygandt, Kimmel and Kieso 2015).
Answer to Part a:
An important aspect of costing method under the basic concept is identified with
conducting the business operations in which the products are assigned in terms of indirect
costs. Additionally, the emphasis is placed on relating the activities for apportioning and
indirect costs with reduced subjectivity as compared to the conventional system. However,
managers find it intricate to apportion only few aspects of costs with the help of it is a
system. Due to this, the costing method has gained popularity among several industrial and
manufacturing sectors. Additionally, there is a possibility of using ABC system for product
costing, service pricing and target costing (Öker and Adıgüzel 2016).

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As for the consideration of this discussion, it can be stated that there are certain
special characteristics which are incorporated with the ABC system. These are stated as
follows:
 Separation of costs into FC and VC under ABC system have enabled corporate
entities in sustaining a suitable system of costing thereby integrating all the essential
information related to costs
 Distinctive characteristics of the cost behaviour patterns is evident with ABC
 The cost behaviour pattern is directly linked with volume, diversity and timeliness
 The main requirement of the system is depicted in recognising the activity pool and
cost drivers which is conducive in tracing the overhead expenses
 Ensures that the cost accountants are well versed in depicting the cost behaviour
pattern along with the cost drivers (Keehan et al. 2015)
Figure: Pictorial representation of ABC system
(Source: Gertler and Karadi 2015)

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Answer to Part b:
It can be identified that with the assistance of ABC, the organisations are able to
better align their strategies and goals as per the costing impediments. For ensuring such
alignment, the basic needs are listed as follows:
Requirement i:
The main mission of the Internal Diagnostics Ltd has been depicted in assimilating
the main factors which work towards achievement of particular strategies and objectives.
Based on the company’s value and mission statement, it is depicted to provide inclusive
radiology services by referring from the allied health specialists and doctors. In order to
further ensure the use of such services the company uses several platforms such as clinical
outcomes, business efficacy and several other factors leading to patient care. Therefore, it
can be stated that mission statement of Integral Diagnostics Ltd have aimed at fulfilling the
needs of the customer by providing them superior services in the most cost-effective
manner. Additionally, profit is seen to be significant in terms of organisation for maintaining
the different aspects of sustainability. The main importance of improvement in the work
ambience is associated with raising the confidence and morale among the staff. This has
been taken into consideration as it leads to improved performance and attainment of
business goals and objectives (Mossialos et al. 2016).
Requirement ii:
The company’s descent to develop several corporate strategies and an innovative
manner which has adhered to all the business objectives as discussed below:

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 The primary corporate strategy has been depicted in offering several types of quality
services to the rural patients across Australia in such a way that the profit can be
increased in these areas along with reducing business cost
 The next important criterion has been depicted with providing necessary assistance
to the rural communities which will promote the development of a good brand
image for Integral Diagnostics Ltd
 The third perspective needs to be further observed with initiating all the cost-
effective techniques and ensuring an increased profit margin
 This stage is followed by taking the necessary measures for ensuring that the newly
opened centres helps in providing increased earnings and contribute to positive
future growth
 The last outcome can be seen with valuing the evidence-based medicine is in the
best way possible (Foley and Manova 2015)
Requirement iii:
Based on the depiction of the ABC system, the model can be widely implemented in
the manufacturing area however there are certain features which cannot be left unnoticed
especially in the healthcare sector. It has been identified that the healthcare service
provider is not seen to possess any DC, as an alternative the costs are segregated with
overhead expenses. Therefore, the adoption of such a costing method will allow the
company to enjoy some benefits which will fulfil the business objectives and strategies
(Warren and Jones 2018).
There are several systems in ABC which deals with resources and cost object of
sections. With particular reference to Integral Diagnostics Ltd, the resource section has been

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segregated several departments. Some of the most evident segmentations have been
shown as follows:
 Selling channel like online portal and direct selling
 Corporate office
 Shared form of service departments like HR and IT
 Call Centres
In order to compute the indirect cost, it is essential to explain the various dimensions of
shared services. It needs to be noted that the departmental service volumes are
considered with several departments. In addition to this, the varied nature of branches of
organisations is responsible for grouping the activities on which costs are dependent.
Henceforth, it can be stated that ABC is responsible for increasing overall scope for cost
assignment among all the branches due to which, the advertisement costs can be
predicted from beforehand (Edmonds et al. 2016).
The different types of cost object may be explained with business transactions and
operations which are relevant to the selected company in carrying out the selling
procedures. Due to this, the various perspective of organisation may be considered as
conducive in purchasing the wholesale equipment’s, service rendered to the customers
and order receipt. After the proper justification of transaction separation, ABC system is
duly implemented in the company’s accounting structure. After this stage, the naming of
the activities will be done by putting them against each other. This is considered with the
significant nature of that size and performing activities in batch mode. The several
considerations taken by ABC system as per departmental needs are based on group
activities. There is a system will be further conducive for the company in reducing the

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additional cost burden pertaining to the patients and implementation of innovative
technologies (Lu, Won and Cheng 2016).
In this system, it is feasible to separate the cost objects into two sections. The first
division of the cost object is related to calculate the additional cost incurred by the
patients for providing different services thereby including channels of distribution. This is
depicted in form of sale of radiology services and diagnostic imaging services. The
evaluation of the patients need to be several additional costs for various services. Despite
of these factors the cost should not be computed as per combination of radiology services
as opposed to the diagnostic imaging services. In case, it is a system is adopted it will be
able to assist in rendering service across two activities. Therefore, the organisations need
to develop a considerable aspect of brand awareness for ensuring competitive advantage
and business sustainability (Yildiz 2014).
Answer to Part c:
The company’s top-level hierarchy needs to extend its support in this particular case.
This is important for overall implementation of ABC. Once the approval is made, it is the
obligation of cross functional team develop and implement the modern rather than relying
on accounting department. By referring to the particular case, the team needs to be framed
comprising of unifying members from individual departments and using the data derived for
ABC system. In addition to this, the external specialists can be appointed for ensuring
successful enforcement of this system (Chugh 2016).
There have been certain rational to include the viewpoint of top management in
supporting the system. This is mainly due to the fact that the subordinates and managers

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may not demonstrate sufficient interest in accepting to the change. In case the top
management is not able to support the change with an augmented effort then the adoption
of such a system may be unsuccessful. The second important aspect is seen with the fact
that employers may not understand the value of this system if the top management does
not support. In order to make sure that there is successful implementation of this costing
method, the management of Integral Diagnostics Ltd should take into consideration the
development of an in-depth knowledge about the present costing system which are
inherent within the organisation. Moreover, the cost allocation needs to be done in a
suitable way which will ensure that the role of cross functional teams is also worth
mentioning as much as it is important to mention the success of top management (Maelah
and Yadzid 2018).
Answer to Part d:
The important evaluations made in the model would be conducive in providing
immense benefit for the selected company if it implements this costing method. Despite of
this, several other management accounting tools are available which will be able to meet
the interest of organisation. Some of these tools include budgetary control method. This is
important as it can be of use benefit in conducting the planning of business processes from
beforehand. In addition to this, the managers of Integral Diagnostics Ltd will be having the
scope of utilising such a budgetary measure for controlling, monitoring and planning of
several activities which take place during the normal business course (Mohamed, Kerosi and
Tirimba 2016). There are different types of other benefits depicted with the budgetary
control method which needs to be understood as follows:

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 After the implementation of budgetary control, the management of the company is
more integrated in actions for fulfilment of common objectives. Furthermore, the
budgetary control ensures that synchronisation of activities will be conducive in
meeting the standards set along with the targets during the start of financial year.
 The various types of budgetary control techniques are further conducive in
understanding the corrective actions in case the amount established for a particular
department during the beginning of the period is more than at the end of FY.
 Some of the other help of budgetary control is depicted in terms of its easy knowing
about the previous events in which areas were committed. This allows information
to be re-evaluated and ensure that search stakes don’t reappear. Therefore, it needs
to be understood that the budgetary control is able to set for the appropriate
strategy for setting of the suitable strategy which will allow the company in dealing
with unexpected contingency and rectification of mistakes made in the past
(Gesimba, Alvar and Mante 2014)
Conclusion:
The study can be concluded by stating that the incorporation of ABC system
allows in terms of segregating the cost components in terms of variable cost and fixed cost.
In addition to this, based on this method, corporate entities are able to maintain a
sustaining a suitable system of costing thereby integrating all the essential information
related to costs. Distinctive characteristics of the cost behaviour patterns is evident with
ABC. The cost behaviour pattern is directly linked with volume, diversity and time. The main
requirement of the system is depicted in recognising the activity pool and cost drivers which
is conducive in tracing the overhead expenses. It can be further seen that the model can be

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widely implemented in the manufacturing area however there are certain features which
cannot be left unnoticed especially in the healthcare sector. It has been identified that the
healthcare service provider is not seen to possess any DC, as an alternative the costs are
segregated with overhead expenses. Therefore, the adoption of such a costing method will
allow the company to enjoy some benefits which will fulfil the business objectives and
strategies.

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