Managerial Accounting Assignment: Standard Costing for Orica Limited

This report delves into the intricacies of standard costing, utilizing Orica Limited, an Australian-based multinational company, as a practical case study. The report begins with an executive summary and introduction, providing background information on Orica Limited, its history, operations, and financial performance. The core of the report focuses on defining standard costing, outlining its key features, and examining its role in planning and control within Orica Limited. The analysis includes an assessment of whether standard costing is a suitable approach for Orica Limited, considering factors like the company's diverse market presence and complex operations. The report explores how standard costing aids in making authentic forecasts, evaluating business performance, and developing price and production policies. It also highlights how this process enables the comparison of actual costs with standard costs across various cost elements, identifying areas for improvement and strategic enhancements. The document concludes with a summary of the findings and key insights related to the application of standard costing within a real-world business context.

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 study we are focusing on the discussion of various aspects of standard costing.
For fulfilling this purpose we have taken into consideration Orica Limited. This company is
based in Australia. The organisation has over 11,500 employees and contractors. The ICI
house now known as the Orica house was one of the tallest buildings in (East Melbourne),
during the year 1950. This building was one of the very first tall high-rise building in the city
of Australia's cities. It is one of the few post-war office buildings in recorded in the (Victoria
Heritage Register). It could be concluded from the above discussion that, standard costing
helps the management in making authentic forecasts and also gives the structure for
evaluating business performance. The process of standard costing acts as the guiding medium
for the management in developing "price and production policies" . This process would give
Orica Limited a stable and feasible tool for comparing the "actual costs" and "standard costs"
based on various elements of costs individually. It also points out areas where correction is
required and how far the enhancement would be needed by the company in the long run.

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Table of Contents
Introduction:...............................................................................................................................3
Description of Orica Limited:....................................................................................................3
Description of Standard Costing and its Features:.....................................................................6
Ways through which standard costing facilitate planning and control activities in Orica
Limited:......................................................................................................................................8
Discuss whether the standard costing is suitable to Orica Limited:.........................................10
Conclusion:..............................................................................................................................12
References:...............................................................................................................................13

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Introduction:
In this study we are focusing on the discussion of various aspects of standard costing.
For fulfilling this purpose we have taken into consideration Orica Limited. This company is
based in Australia. The organisation has over 11,500 employees and contractors. The ICI
house now known as the Orica house was one of the tallest buildings in (East Melbourne),
during the year 1950. This building was one of the very first tall high-rise building in the city
of Australia's cities. It is one of the few post-war office buildings in recorded in the (Victoria
Heritage Register). The company runs its business across hundreds of countries and deals in
the supplying of commercial explosives for mining, oil and gas industries and so on.
"Minova" is a member of "Orica group" and its products and services involve the following
items- steel bolts and plates, glass-fibre reinforced polymer bolts, injectable chemicals and
foams, mesh, resin capsules, cementitious grouts and coatings, pumps, soil anchoring
systems, ballast bonding polymers, accessories and engineering services. Here we discussing
the explanation and characteristics of standard costing. how it impacts the planning and
controlling processes of the above mentioned company and whether it is suitable for Orica
Limited or not.
Description of Orica Limited:
Orica Limited was founded in the year (1874) and the initial name of this company
was (Jones, Scott & Co.), which functioned as a supplier of explosives at the time of
"Victorian Gold Rush" and it was bought by (Nobel Industries). Later on, this company got
merged with a couple of British chemical manufacturers and was given the name of (Imperial
Chemical Industries). In the year 1928 this company which was functioning in Australia and
New Zealand got integrated to amass and correlate all the "Australian interests" of (ICI Plc).

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In July 1997, (ICI Australia) became an autonomous "Australasian" business after the
parent organisation, ICI Plc, dispossessed "62.4 percent" of its shares in this business. As a
result, the ICI Australia needed to change its name to the present name off the company on
(2nd February, 1988). In the year 2010, Orica broke away from (Dulux Group) and focused
on channelling its activities towards "mining, infrastructure and construction industries". In
(November 2014), the organisation declared the sale of its chemical business to "Blackstone
Group". The deal got completed on (2nd March, 2015) and it was given the name "Ixom"
under which it is functioning at present.
Orica Limited is a multinational organisation, the headquarter is located at Victoria,
East Melbourne in Australia. There are several key personnel who have the responsibility of
running the organisation, they are- (Malcolm Broomhead) "Non-Executive Director and
Chairman" and (Alberto Calderon) "Managing Director and CEO". The organisation earned a
revenue of "AUD $ 1.5 billion" in the year 2016, the net profit after tax which contributed to
the shareholders earnings on (30 September, 2016) was $ 343 million. Orica Limited is also
co-sponsor of "Orica-Scott" (men's and women's) professional cycling team. However, Orica
Limited declared that in 2016 that they are leaving the co-sponsors spot by the end of the
calendar year 2017. Orica Limited deals in commercial explosives used in mining, gas, oil
and construction industries. It also engages in the supply of sodium cyanide for the extraction
of gold. It specialises in ground support services related to mining and tunnelling works. The
organisation has over (11,500) employees and (contractors), who give valuable service to
customers across (100) countries. It has been enlisted in the "Australian Securities Exchange
(ASX)". Orica Limited has also suffered from fatal accidents in the recent years.
Orica Limited is a member of (Dow Jones Sustainability Index), the Australian SAM
Sustainability Index and the FTSE4Good Index. These indexes give a "benchmark" and are
useful for examining the history of investments for sustainable organisations and funds. Orica

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Limited publishes a yearly sustainability report, which states the activity against major
sustainability standards. In the year 2014 this organisation was recognised as the leader in
"Natural Capital Decoupling". This takes place when a company is able to grow financial
without affecting the nature on a large scale.
Orica Limited functions in various types of markets and industries, which includes-
(surface metal, surface coal, underground mining, underground construction, oil and gas,
quarrying) and so on. This organisation functions in three business fields:
Blasting- The company is the largest supplier of commercial explosives to (mining,
quarrying, and construction markets) and so on.
Product and services- (contracted services, initiators, boosters, bulk explosives, packaged
explosives, data, reporting and analytics supplementary services, seismic systems).
The name of the brands for these "packaged explosives" are- (SentalTM, FortelTM,
ApexTM, AmexTM, ImpactTM, SimexTM, PowergelTM and EurodynTM). (PowergelTM) was U.S.
registered trademark for "Hercules Inc"in 1967, it is now it is owned by Orica Limited.
"Minova" is a member of "Orica group" and its products and services involve the following
items- (steel bolts and plates, glass-fibre reinforced polymer bolts, injectable chemicals and
foams, mesh, resin capsules, cementitious grouts and coatings, pumps, soil anchoring
systems, ballast bonding polymers, accessories and engineering services). It also supplies
sodium cyanide for gold extracting and other products and services involve- (analysers, pro
service, sparge, training) and so on. The ICI house now known as the Orica house was one of
the tallest buildings in (East Melbourne), during the year 1950. This building was one of
thevery first tall high-rise building in the city of Australia's cities. It is one of the few post-
war office buildings in recorded in the "Victoria Heritage Register".

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Description of Standard Costing and its Features:
Standard costing is accounting method, which few of the manufacturers utilise in
order to find out the contrast or changes between, the "actual costs" of the products which
were manufactured and the costs which should have been incurred for these commodities.
The cost which should have been incurred for the actual finished products could be termed as
standard costs (Shakur et al. 2015). Standard costing would possibly be combined with the
budget of a manufacturer for the purpose of profit planning and budget controlling. This is
done for an "accounting year" and include the product costs, such as- (direct material, labor
and manufacturing overhead) (Bargerstock and Shi 2016). Because of this method, the
accounting done for "inventories" and the "cost of goods sold" associate the "standard costs",
which should have been utilised to make the actual finished product.
If an organisation would incur more than the standard costs for (direct material, labor
and manufacturing overhead) the business would fail to meet the projected earning level.
Thus, it could be cited that the occurring changes would attract the attention of the
management to the shortcomings related to production or greater input expenses. In order to
rectify this the management could either fix the problems or charge higher for selling these
goods (Brown, Stella and Simons 2018). After all, the external financial data requires to
reflect the "historical cost principle", the standard costs in the stockpile and the cost of goods
sold would be required to be adjusted for the changes. After all, maximum of the
manufactured products would have been sold, maximum of the changes would be reported to
the operating statement as a part of the cost of goods sold (Dale and Plunkett 2017).
The features of Standard Costing are discussed below-
 A budget always comprises a standard costs, after all, it not possible to incorporate in
it the very same actual cost of a product on the same day the budget has been finalised
(Eisenberg 2016). As, the main implementation of budget is to compare it with the

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actual outcomes in the successive periods, the standards utilised within it keeps on
reflecting in the financial reports through the budgeted period.
 If a company has a contract with its client, under which the client is required to pay
the company its due charges and in addition to this a profit, which is termed as "cost-
plus contract". In this case the service providing company requires to utilise actual
costs, as per the conditions mentioned in this contract (Rohde et al. 2018). In such a
situation standard costing is invalid.
 If the it consumes too much time to get the total of actual costs into cost-pools for
allotting the stockpile, then the accountant requires utilising a basic overhead
application use rates and then adjusting them as per requirement in order to keep them
near to the actual costs.
 It is a very simple task to print a report that points out the balances at the end of the
accounting period in the inventory. If this is multiplied by the price of each product
and just like that an ending inventory valuation could be generated (Farkas, Kersting
and Stephens 2016). The outcome would not match with the actual cost of inventory.
Furthermore, it would be necessary to amend the standard costs periodically, if the
actual costs are frequently varying.
 The standard cost system assumes that the prices do not vary in the short run. In that
way, the accountant could depend on these rates for the coming months or even for
the full financial year, before they are required to update these costs. In such a
situation where the life cycle of the products are very short and constant
enhancements are driving down the prices, a standard cost could become obsolete
within a couple of months.
 A number of changes that has been reported under the standard costing process would
propel the management to undertake wrong decisions in order to generate favourable

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changes. Suppose, a company is buying raw materials in larger amounts in order to
enhance the "purchase price variance", although this raises the investment in the
stockpile. Identical situation could occur, if the company engages itself in longer
production period in order to enhance the "labor efficiency variance" (Ganorkar,
Lakhe and Agrawal 2018). Although it is a better thing to generate smaller amounts of
the finished products and opt for lesser labor efficiency in return.
Most of the companies prepare budgets, however, few of the manufacturing
companies utilise standard costing for generating the costs of different commodities. So, it
could be cited that standard costing would be able to help these companies in the future as
well. The main feature of standard costing is that it provides a bar for the management, which
would help them in comparing their actual performances against it so that they would be able
to maintain as well as correct themselves even if they make any mistakes ((Kaplan et al.
2017).
Ways through which standard costing facilitate planning and control activities in Orica
Limited:
Standard costing is a very useful tool, which would allow Orica Limited to be
successful in their respective field of functioning. This tool would help Orica Limited in
reaching their desired outcomes and would help them in planning the necessary course of
actions in a step by step manner. Firstly, the planning occurs while building up the required
strategies. After this process is over, the planning moves on to a much broader process of
realisation of the desired outcomes by executing the steps appropriately formed when the
strategy was prepared. Lastly, planning process would help Orica Limited in focusing upon
financial parameters as well as, the constraints so that they would not cross their budget limit
(Kabir 2017).

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Orica Limited has a huge number of employees. These employees are required to
function in a chain process so that the activities of the organisation would run smoothly and
would not get interrupted (Wilmot et al. 2018). The employees of Orica Limited need to
understand and share the plans of the company with all the employees, which requires a
proper communication system among all of them. It is not always to understand the
connection between strategic planning and daily corporate activities, when it comes to
delivering goods and services to the customers. However, strategic planning formed with help
of the standard costing allows these tasks to be completed without any hick ups.
Standard costing allows Orica Limited to form the necessary rules and regulation
which are going to help them in functioning in a proper way. This process allows this
organisation to set its core value the way it should be by allowing the management to focus
on- employment, compensations, promotions, quality, services and so on (Kerfai, Bejar
Ghadhab and Malouche 2016). Orica Limited follows standard costing method and this tool
helps them in producing the finished products by maintaining its quality by incurring lesser
input costs. This company is a public company and the standard costing process allows them
to pay the dividends to its shareholders in a feasible manner.
Standard costing would allow Orica Limited to eliminate any deviations from its pre-
planned strategies if anything not goes according to the plan, because this accounting tool
would help the management to bring budget under their control. Alongside the management
of Orica Limited the accountant of this organisation is also a very important individual as the
recovery from an unwanted situation would depend on the skill set of this employee and how
they would utilise standard costing tool (Mahal, and Hossain 2015). Along with these facts
the internal control of the organisation and evaluation of the financial reports regarding its
authenticity by the CEO's and CFO's of Orica Limited is now becoming a trend in the
multinational companies.

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These reports would help Orica Limited to control its budget as well as internal
corporate environment and would help the executives to paying more attention to their
respective duties within the company. In most of the multinational corporations there is a
position given to a trustworthy individual whose responsibility is to maintain control over
management accounting process such as- budgetary control and this person is helped by other
personnel's (Mertens and Meyer 2018). The primary tool utilised by them is standard costing
which would allow them to control every phase of cost related matters as well as it would
help them in controlling other tasks which are necessary for Orica Limited.
On the other hand, the responsibilities which are to be carried out by the "Chief
Financial Officer" (CFO) of Orica Limited is generally- "external reporting", "treasury
functions", "general cash flow" and "managing the financing activities" (Parker, and Boyns,
2018). In Orica Limited if the same person is carrying out a dual role as the CFO and the
controller or comptroller, standard costing would help them in organising and carrying out
these responsibilities appropriately without any mistakes (Brennan et al. 2016). In Orica
Limited if there would be an internal audit group assigned with the responsibility of
supervising the treasury and the accounting departments, following the process of standard
costing for proper running of both units would very essential.
Discuss whether the standard costing is suitable to Orica Limited:
Standard costing helps the management in making authentic forecasts and also gives
the structure for evaluating business performance. The suitability of this accounting tool for
Orica Limited is depicted below:
 The process of standard costing acts as the guiding medium for the management in
developing "price and production policies" (Shi 2016). Suppose, it would be able to

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help the management in the area of "inventory pricing", "product pricing", "profit
planning" and so on.
 This process would give Orica Limited a stable and feasible tool for comparing the
"actual costs" and "standard costs" based on various elements of costs individually
(Shigaev 2015). It also points out areas where correction is required and how far the
enhancement would be needed by the company in the long run.
 Standard costing would help the employees and the management of Orica Limited in
staying aware of any unnecessary expenditure in the company (Steyn 2017). This tool
of accounting also helps in making the decision of who deserves incentives and other
rewards in the company starting from workers as well as, top-level employees by
judging their efficiency.
 The process of standard costing helps in developing more compressed, suitable and
impactful budget for Orica Limited (Taber 2015).
 This process helps the management of Orica Limited in deciding which employee is
best suited for which responsibility and also helps in maintaining the functionality of
various departments of this organisation (Swanson et al. 2016).
 Standard costing allows the management of Orica Limited by helping them follow the
golden principle of "management by exception" very easily and more impact-fully
(Wegmann 2018).
 This tool of accounting helps Orica Limited by allowing them to utilise their
employees, machinery and resources more efficiently (White, Anitsal and Meral
Anitsal 2015) and experience the advantages of being economic soundness, efficacy
and better productivity.
 Standard costing system makes the budget controlling more impactful for Orica
Limited (Wilson and Wolak 2016). This costing technique follows a systematic step