Managerial Accounting Report: ABC Model for Bellamy's Australia

This report presents an analysis of the Activity-Based Costing (ABC) model and its application to Bellamy's Australia, an organic food company. The report begins with an executive summary, introduction, and an overview of Bellamy's Australia, highlighting its product offerings and market position. It then delves into the details of the ABC model, explaining its features and benefits, and how it differs from traditional costing methods. The core of the report focuses on aligning the ABC model with Bellamy's Australia's goals, objectives, and corporate strategies, specifically its distribution and export strategies. The report recommends the implementation of the ABC model, suggesting the hiring of an experienced accounting expert and continuous monitoring. Additionally, it suggests using the Balance Scorecard tool for performance management. The report concludes with a summary of the findings and recommendations.

Managerial Accounting
Bellamy’s Australia
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Executive summary
Management of accounting information is becoming difficult day by day for the accountants of
the company. The managers of the company make use of the provision of accounting
information so that they enhance their decision making towards the accounts of the company.
The aim of the report is to suggest the ABC model of accounting to Bellamy’s Australia for the
improving the management of accounting. The report presents the details related to the ABC
model and its features along with this it includes the alignment of ABC model with current goals
and strategies of the company. The outcomes reflect that ABC model is one of the effective
models that can be used by the Bellamy Australia.

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Contents
Introduction......................................................................................................................................3
Overview of company..................................................................................................................3
ABC model and its features.............................................................................................................4
ABC model..................................................................................................................................4
Features of Activity-based costing..............................................................................................5
ABC aligns with goals and strategies..............................................................................................6
The mission of Bellamy's Australia.............................................................................................6
The objective of Bellamy's Australia...........................................................................................6
Corporate strategies of Bellamy’s Australia................................................................................6
ABC model assist in achieving the company’s strategies...............................................................7
Recommendation...........................................................................................................................10
Suggestion for Management accounting tool................................................................................11
Conclusion.....................................................................................................................................12
References......................................................................................................................................13

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Introduction
The aim of the report is to present the details related to the ABC model of accounting that can
improve the management of the accounting information available to the top management
team of the company. The company that has been selected for the analysis is Bellamy’s
Australia. The report is present to the Board of directors of the company by the hired account
who is suggesting the company to implement ABC model. Moreover, it includes the detailed
description related to model and its contribution to accomplish strategies of the company.
Overview of company
Bellamy's Australia is well-known organic companies in Australia that is originated by
Tasmanian family in year 2004 with the motive to offer appropriate nutritious organic products
for their kids. The company offers a wide variety of organic food and formula products for
babies, toddlers and young children with more than 30 products (Bellamy’s organic, 2018). The
company is also recognized as the largest organic infant formula producer.

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ABC model and its features
ABC model
ABC model stands for the Activity-based costing method. It is an accounting technique that
determines activities related to a business and then allocates indirect costs to goods. ABC
systems identify the relationship among the costs, activities and the products and with the help
of relationship it allocates the indirect cost to the goods less arbitrarily than the traditional
method of costing (Investopedia, 2018). This method is generally used by the manufacturing
industry because it helps them in enhancing the dependability of cost data. Therefore, they
produce nearly accurate costs and better classifying the costs suffered by the firms at the time
of the production process (Mitra, 2016). In simple words, it can be said that it is costing
methodology that determines the actions in an association and assigns the cost that is
associated with each resource to all the products and services after considering the
consumption of each. Moreover, this model allocates more indirect cost (overhead) into the
direct cost if we compare it with the conventional costing (Accounting tools, 2017).
ABC method was first defined by Kaplan and Bruns in the late 1980s. ABC is measured as a
modern substitute for absorption costing that permits the manager of the company to
understand the product and customer net profitability (CGMA, 2013). ABC costing provides the
business with effective information so that they can make the value-based and effective
decisions for their business activities. In the ABC method of costing, an activity is generally
considered as any business or event that works as a cost driver. A cost driver in this model is

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also known as activity driver and it refers to an allocation base. This model includes two major
activities measures which are: -
 Transaction drivers: - It involves the number of times an activity occurs.
 Duration drivers: - These drivers measure the time that activity takes to complete (Dale
and Plunkett, 2017).
Activity-based costing method works effectively in the complex environment of the business
where the business involves many machines and products along with the tangles processes that
are not easy for the company to sort out. Most of the companies found that the
implementation of ABC model by the managers helps them making the decisions related to the
accounting.
Features of Activity-based costing
 The cost of the company is divided into two types; fixed and variable cost. ABC model
design a suitable cost system in the company which is essential to offer the quality
information (Weygandt, Kimmel and Kieso, 2015).
 ABC enables the proper distinction between the cost behavior patterns of the company.
 Activity-based costing model provides the accurate details related to the cost that is
associated with the product and service of the company due to which companies make
accurate price decision.
 This method of costing generates an understanding of overheads and cost drives that
contribute to make the activities like costly and non-value adding activities more visible

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to the company. Therefore, the manager can easily reduce and eliminate these types of
overheads and cost drivers (Cooper, 2017).
 The maintain characteristic of ABC model is that it supports performance management
techniques like scorecards and management techniques.
ABC aligns with goals and strategies
The mission of Bellamy's Australia
The mission of the company is to produce wholesome organic food for the children’s including
babies and infants. The company wants parents to provide their offspring a Pure Start to Life
(Bellamy’s Australia, 2018).
The objective of Bellamy's Australia
Every company has both long-term and short-term objectives. Similarly, Bellamy's has both
growth objectives in which they focus on the growth of the business. The objective is to
become focus towards the finest quality, modernization, firming up its brand awareness and
variation of its sales channels (Bellamy’s Australia, 2018). Along with this, the company wants
to form a sustainable functional platform through improvement of its inner systems and
functional processes. This reflects that the overall objective of the company is continuous
growth and expansion of the business.
Corporate strategies of Bellamy’s Australia
The company tried to achieve the objective of a company by following the corporate strategy.
The major strategy that is followed by the company includes effective distribution channel as

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this is the effective way through which the company can support the growth of the business.
Bellamy’s Australia has invested a huge amount in the supply chain as this help them in making
the raw material inventory measured and deliberated one. This strategy helps the company to
continue flexible and quick to respond to the fast-growing market demand for the product.
The multi-channel distribution is one of the effective strategies that are implemented by a
company and this will help the company in achieving the objective of growth and expansion.
Another strategy that is implemented by the Bellamy’s is related to the expansion into the new
exports markets outside of Asia. The company is looking to expand their business for which
they export the products (Bellamy’s Australia, 2018).
ABC model assist in achieving the company’s strategies
The achievement of strategies of the Bellamy’s Australia is done with the help of the ABC model
assistance. This method of managing the accounting information is one of the effective
methods with the implementation of which the company can accomplish their objective.
For distribution strategy
Bellamy's Australia can use the Activity-based costing method with the distribution channel.
The multi-channel distribution is commonly termed as the logistics of the company. Customer’s
satisfaction with the products is totally dependent on the cost of the product that they are
offering to its customers. The improvement in the distribution channel will help the company in
reducing the cost which is one of the ways through which the company can attract new
customers and leads to the customer satisfaction (Miller, 2017). The cost that the companies

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charge from the customers totally depends on the decisions that they make related to the
realization methods of their logistics activities. ABC method alignment with the strategy will
help the business in reducing the logistics cost and to offer the high level of customer service
demanded. Moreover, it is essential to identify the resources used in every single activity
through an efficiency logistics cost examination system. Activity-based costing in the Bellamy's
Australia will lead to the subdivision which is given below: -
The analysis of the logistics cost require the breakdown of the activities and creating a map of
logistics activities for Bellamy's company. ABC uses the concept of the resource driver for the
particular activities that is simply a factor that can influence the cost (Christopher, 2016). The
activity emphasis on most important processes and sub-processes carried out in the Bellamy’s
Australia that includes different business functions. Once the resources related to the activities
Assigning the costs to the cost objects through activiy driver and assigning
the total cost
Idnetifying the cost assciated with the activities through resource driver
Determing the resources consumed in performing each activities
Breaking the processes into activities
Determing and classifying the major logistics processes

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have been imputed, it is essential for the company to determine the factors that can generate
the demand related to the activities for each cost object. Activity-based costing will provide the
help in determining at least one activity driver (Joshi, 2016). This assortment of cost driver is
essential because it affects the level of accuracy of the concluding object cost assessment. ABC
raises the usage quantity of cost driver in carrying out the activity by the unit cost of the driver.
The identification of the cost will help the Bellamy’s in reducing the cost so that they can offer
the products at low prices to the customers which is essential to form a connection with the
new customers.
For exports of products strategy
The export of the products also includes the cost that the company has to bear for exports. The
activities that help the company to achieve the growth include cost which is very high and this
will reduce the profit of the company. Therefore, the use of the Activity-based costing model is
very effective as this model allow the company in reducing the cost of the company. The
allocation of the resources is evaluated with the help of which the company can evaluate the
cost that is linked to a particular activity. The alternative solution for the particular activity
might help the company in reducing the cost (Wu, Wang, and Cheng, 2015). This will help the
company in making the maximum amount of revenue that is essential for the company to
establish a business in the market of Asia.

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Recommendation
The research and findings related to the ABC model reflect that it is a method which every
company implements in this competitive world. The implementation of the ABC method is not
easy to be implemented by the manager of the company. Therefore, it is recommended to the
company to hire an experienced accounts expert who is good at implementation of ABC
costing. Considering the fact that operations of the Bellamy’s Australia are complicated due to
which there is need of the expert who can focus on every activity.
It is also suggested to the company to keep monitoring and evaluating the implementation of
the ABC model in their business as this is the only way through which the company can check
the effectiveness of the business. While monitoring if the account finds the improvement in the
revenue, sales, and reduction in cost then they can treat it a positive sign that ABC model is
working effectively. Moreover, it is recommended to the company while implementing the
Activity-based costing method company should analyze the allocation of the resources
effectively because without that implementation of ABC will not take place effectively.

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Suggestion for Management accounting tool
Bellamy's Australia can make use of the Balance scorecard tool that helps in monitoring the
performance of the company. It helps the company to measure the efficiency of the machine
and labor in compare with the investment that is made by the company. Balance scorecard
technique provides the insight of the financial, internal, organization and customer perspective.
Therefore, the company can make use of this tool of managing the accounting (Hansen and
Schaltegger, 2016).

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Conclusion
In the end, it can be concluded that Activity-based costing method is one of the effective
methods that help the company in the analysis the cost that is associated with every activity
and provide them the assistance to reduce the cost which is essential for the companies in the
competitive world. Similarly, the use of the ABC model by the Bellamy's Australia leads to the
advantage for the company as with the help of this model company will be able to identify the
cost that is affecting their business activities and operations. Along with this, the reduction of
this cost will help the company in achieving the profit and will also lead to customer
satisfaction, retention and attraction.

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References
Accounting tools (2017) Activity-Based Costing [Online]. Available from:
https://www.accountingtools.com/articles/2017/5/14/activity-based-costing [Accessed on 10th
May 2018]
Bellamy’s Australia (2018) Annual Report 2014-15 [Online]. Available from:
http://www.annualreports.com/HostedData/AnnualReportArchive/B/ASX_BAL_2015.pdf
[Accessed on 10th May 2018]
Bellamy’s Australia (2018) Annual Report 2015-16 [Online]. Available from:
http://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_BAL_2016.pdf [Accessed
on 10th May 2018]
Bellamy’s organic (2018) About Bellamy’s Organic [Online]. Available from:
https://www.bellamysorganic.com.au/about-us/ [Accessed on 10th May 2018]
CGMA (2013) Activity-based costing (ABC) [Online]. Available from:
https://www.cgma.org/resources/tools/essential-tools/activity-based-costing.html [Accessed
on 10th May 2018]
Christopher, M. (2016) Logistics & supply chain management. UK: Pearson.
Cooper, R. (2017) Target costing and value engineering. New York: Routledge.
Dale, B.G. and Plunkett, J.J. (2017) Quality costing. New York: Routledge.

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Hansen, E.G., and Schaltegger, S. (2016) The sustainability balanced scorecard: A systematic
review of architectures. Journal of Business Ethics, 133(2), pp.193-221.
Investopedia (2018) Activity-Based Costing - ABC [Online]. Available from:
https://www.investopedia.com/terms/a/abc.asp [Accessed on 10th May 2018]
Joshi, A. (2016) Activity Based Costing (ABC) used in Logistics & Supply Chain Management as
cost optimization & it benefits [Online]. Available from:
https://www.linkedin.com/pulse/activity-based-costing-abc-used-logistics-supply-chain-joshi
[Accessed on 10th May 2018]
Miller, T. (2017) The ABCs of Activity-Based Costing for Logistics [Online]. Available from:
http://www.mhlnews.com/transportation-distribution/abcs-activity-based-costing-logistics
[Accessed on 10th May 2018]
Mitra, A. (2016) Fundamentals of quality control and improvement. New Jersey: John Wiley &
Sons.
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E. (2015) Financial & managerial accounting. New
Jersey: John Wiley & Sons.
Wu, M.F., Wang, S.L. and Cheng, F.T. (2015) Application of Activity-Based Costing Management
System by Key Success Paths to Promote the Competitive Advantages and Operation
Performance. World Academy of Science, Engineering and Technology, International Journal of
Social, Behavioral, Educational, Economic, Business and Industrial Engineering, 9(11), pp.3922-
3927.

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