HI5017 Managerial Accounting: Viva Energy REIT and the ABC Model

This report analyzes Viva Energy REIT's application of the activity-based costing (ABC) model within its managerial accounting practices. It explores the company's business profile, strategies, and how the ABC model aligns with its goals. The report details the features of the ABC model, its role in achieving strategic objectives, and provides recommendations for its implementation. Alternative management accounting tools, such as the balanced scorecard technique, are also discussed. The analysis emphasizes the company's focus on cost allocation, performance improvement, and shareholder value. Desklib offers a range of study tools and resources to help students understand similar complex topics.

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Managerial Accounting

Viva Energy
Executive Summary
The system of management accounting has undergone immense change. New and varied
techniques came to the forefront. Going by the changes and development in the nature of cost
accounting, the organization even underwent a major change in the selection of costing methods
and technique. In this report, Viva Energy REIT listed on the ASX is selected for the purpose of
the study. The ABC model is studied in the light of Viva Energy RET and the benefits derived
through it is studied in an in-depth manner followed the alternate method of cost accounting.
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Viva Energy
Contents
Introduction.................................................................................................................................................3
Business profile and strategy.......................................................................................................................3
Explanation of ABC model and its features:................................................................................................3
Catering of ABC model with current goals and strategy of the company....................................................6
Explanation of how ABC model assists in attaining the strategies...............................................................6
Recommendations for the implementation of ABC model for the company..............................................7
Other management accounting tool for the company................................................................................7
Conclusion...................................................................................................................................................8
References...................................................................................................................................................9
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Viva Energy
Introduction
Viva Energy REIT can be thought of as an enterprise whose main business is to deal with the
property by hiring it and then making certain investments. There are about 425 service outlets of
the company across the whole of Australia and its states. The company’s headquarters is situated
in Docklands, Australia. The company can be described as a real estate business company. And
as mentioned earlier, the company has 425 service outlets in the whole of Australia. The
company has been interested in the fuel refining and retailing sectors. When it comes to refining
and retailing it needs immense stress upon the cost allocation and structure. Cost allocation is an
important consideration and hence, the system of ABC will lead to better practice in terms of
allocation (VIVA Energy RIET, 2017).
Business profile and strategy
The working atmosphere of the company is such so the employees have a hunger for
achievements. Responsibility is a different matter but the company has there to instill faith in the
employees and to make them think that the company is their own and so to innovate something
new and flourish the business. Structure of the company has been its rate of performance. The
company believes in the result so intellect and activeness are the key binders for the company
where employees are rewarded as per their contribution and also the company has been attentive
towards safety and has been seen to follows the policies strictly (VIVA Energy RIET, 2017).
Policies and the laws of the company are the foundation pillars of the company with a very
traditional type of strictness which has honesty and integrity written all over it where respect
giving to each other is prevalent no matter what community they are from. The working
standards offered to every employee is the same with safety and profitable atmosphere the key to
success to expand their horizons and contribute as much as possible.
Explanation of ABC model and its features:
Activity-based costing can be defined as the one which has been seen to give and manage all the
segments of a production unit separately. The traditional method used to invest all the money in
the name of production unit without knowing the actual investing segments which have been
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Viva Energy
using the money positively, but this is not the case with this method. The activity-based costing
methods divided the manufacturing process into different unit according to their dominance and
needs after proper analysis and then funds the u8nits to work together to form the products of the
company as and when needed (Marsh, 2009).
Not only manufacturing unit but any special program undertaken or any event can also be added
to activity-based costing method. The extra costs are then detected after analysis and then the
related operation is terminated or wrapped up. Transaction drivers and duration drivers may also
be seen into action on the basis of the manufactured product (Parrino et. al, 2012).
It can be understood from the above explanations that the expenses are not given in one hand by
the ABC system and this helps to eliminate the extra costs by detecting the worthless operation
that is included as an individual task.
The line of attack under Activity-Based Costing:
• Cost Allocation
• Fixed Cost
• Variable Cost
• Cost Driver
• Cost Driver Rate
Steps for implementation of ABC system:
• Classification of the proper operations and their respective segments.
• The connection between the individual segments and the expenses that they have been eating
up.
• Allocation of funds to the operative segments.
• Calculation of activity rates based on the unit of measurement.
• Assignment of costs to the cost objects using the rates of activities determined.
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Viva Energy
• Preparation of management report and further study and discussions on the same
The overall know expenses that are taken up by a single manufactured product are easily
detectable. The problem arises when the indirect expense is to be taken into account to prepare
records because they are used by several units for they own different production and the common
operation which they follow parallel is termed as cost drivers (Lee et. al, 2015). The main aim of
the activity-based costing is to makeover the indirect expenses in the form of direct expenses as
much as possible which will increase the performance rate and the efficiency to measure the
same.
• ABC model can enhance the management accounting information available to its top
management team.
The ABC system is seen to create a bridge between the offered product, customer benefits and
the cost of the product which helps the company to understand their working reviews. Plans are
made according to the system so that the operations undertaken by the company can be rated as
per their performance and if any changes were required. It also sees that the expenses of the
customers are worth it and if any product manufacturing has to be eliminated which is not
worthy of it (Robinson & Last, 2009).
Times have changed and technology has taken over because of which the labor workforce of the
company has been replaced by the equipment workforce for the sake of better and faster
production. The expenses which are common in all the production units are being paid more
attention and this is the place where the activity-based costing comes into action to improve the
performance rate of the company and the undertaken operation by division and proper analysis
which is also a boon to the customers of the company (CIMA, 2016).
The process is very important for highlighting the operations that are not at all cost-effective and
the ones that are under scaled and not seen due to the products that are suffering the loss in the
market. Tenders and challenges are easily met by the company as the performance rate accuracy
increases (Horngren, 2013). The above process can be held responsible for the easy detection of
losses. This helps to move these saved expenses to the section where the company has been
earning profits and generating revenue. Saving of the expenses on a personal level is possible if
department wise costs are listed and analyzed (William, 2010).
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Viva Energy
Catering of ABC model with current goals and strategy of the company
The report has selected the company of Viva Energy REIT. The opting and the implementation
of the ABC system in the company will be discussed thoroughly.
Mission Statement:
Increase in shareholder value by using the experience that the company is having and taking
control of the group scale process. Further the company focus on performance, people, and
partners. It has a disciplined activity that leads to proper allocation of cost and activities.
Identification of corporate strategies
Increasing the strength of the financial statements along with positivity ion manufacturing unit
and extra cost elimination has been the attention of the company currently. Strategic plan
execution precisely has been crucial in positive deflection of the company in these mentioned
areas. The strategy followed by the company as per the records is stated below:
The company focuses on the point that every single inch of money invested by the shareholders
is put in such a way that the shareholders get back the maximum benefit thus attracting others as
well. Taking the business in a direction where a bunch of profit can be attained along with the
benefit of the customers also is the focus of the company (Barnat, 2014).
Explanation of how ABC model assists in attaining the strategies
International alterations and up-down in the real estate was a turning point for the business and
the financial statements of Viva Energy REIT projects the situation. The company has been
focusing on grabbing chances and cutting expenses. The total revenue generated is then carried
on to deduct the extra costs so that the profit amount can be seen. The strategies are updated so
as to keep the profits consistent (CIMA, 2016).
Adoption of the activity-based costing has been a boon to the company for cutting off the extra
expenses. Updating the strategies with time has been done in accordance with the ABC system.
All this summons up to show that the company has been efficient in the use of these techniques
(Shim & Siegel, 2009).
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Viva Energy
Recommendations for the implementation of ABC model for the
company
The difficulties to maintain the business in a wise way without any complex situation is hard for
Viva Energy REIT which has shown impressive play to cut the costs effectively and increase the
performance respectively. After seeing all the records and the undertaken steps, it can be said
that the company must continue its real estate business and focus more on the performance rates
and the analysis on the recorded data which are the foundation pillars of the company.
The company is operating smartly but it is still advised to keep checking the operations
undertaken and to analyze the costs that may be hidden to a longer lifespan. The new undertaken
are already cleared loopholes must the current prevailing expenses and venture must also be
treated in the same manner with cautions (Deegan, 2011).
Other management accounting tool for the company
The market has been altered many times and collapsing situation has risen but the company has
stood tall to all those which shows the experience and wisdom. It so has happened that the
company has undertaken many accounting techniques in this time span that has helped it to
survive (Deegan, 2011). The management of the company has been efficient enough to put all
the tools at the right place and the implementation has been perfect and in accordance with the
policies of the company as shown by the results.
The balance scorecard technique is one which can be implemented to see the strategy’s
profitability in the market. Financial matters are paid more attention to doing all the evaluations
but this process also takes into consideration the non-financial figures that may impact the
performance of the company. Learning and growth, business processes, customers, and finance
are the sectors around which the balanced scorecard revolves (Barnat, 2014).
It can happen sometimes that the company has its management right and all the employees are
working up to the mark but then also the company graph is deflecting to the negative side. This
situation arises when the key points and strengths of the company are not taken into
consideration and there is a failure to understand the data precisely or the reviews by the
customers are not catered to or not paid attention to (Houston & Brigham, 2009). These can
easily impact the financial statements which can be undone by the balanced scorecard technique.
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Viva Energy
Conclusion
The performance rate of the company has been impressive and so it can be assumed that the
company is following the right principles along with the constant adoption of activity-based
costing and it can be said that in the upcoming years the company has chances to flourish much
more than now. The non-financial indicators have also played a major role in the detection of
financial faults which has to be appreciated. The working of the management and the
implementation of the ABC system has been a boon to Viva Energy. But there are still more
techniques which can be opted for in the future for better success.
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Viva Energy
References
Barnat, R. (2014) Strategic Management formulation and implementation. Available from:
http://www.strategic-control.24xls.com/en205 [Accessed 23 May 2018]
CIMA. (2016) Enterprise risk management and budgetary control: a management challenge
[online]. Available from:
http://www.cimaglobal.com/Thought-leadership/Research-topics/Budgeting-and-planning/
Enterprise-risk-management-and-budgetary-control-a-management-challenge/ [Accessed 23 May
2018]
Deegan, C. M. (2011) In Financial accounting theory. North Ryde, N.S.W: McGraw-Hill
Horngren, C. (2013) Financial accounting, Frenchs Forest, N.S.W.: Pearson Australia Group.
Houston, J.F. and Brigham, E.F. (2009) Fundamentals of Financial Management. Cincinnati,
Ohio.
Lee, J., Park, M., Lee, H.S., Lee, K.P. and Hyun, H. (2015) Application of Activity-Based
costing (ABC) for Modular Building Construction Indirect Costs Calculation at the
Manufacturing Stage. Korean Journal of Construction Engineering and Management, 16(4),139-
145. doi: 10.1158/1078-0432.CCR-17-2219
Marsh, C. (2009). Mastering financial management. Harlow: Financial Times Prentice Hall.
Parrino, R, Kidwell, D. and Bates, T. (2012) Fundamentals of corporate finance. Hoboken, NJ:
Wiley
Robinson, M. and Last, D. (2009) Budgetary Control Model: The Process of Translation.
Accounting, Organization and Society, NY Press
Shim, JK. and Siegel, JG. (2009) Modern Cost Management and Analysis. Barron's Education
Series
VIVA Energy RIET. (2017). VIVA Energy RIET Annual report and account 2017 [online].
Available from: https://www.vivaenergyreit.com.au/Investors/?page=presentations-webcasts
[Accessed 23 May 2018]
William, L. (2010) Practical Financial Management. South-Western College.
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