Strategic Alignment: Implementing ABC Model at Resmed Inc.

This report provides an evaluation of the Activity Based Costing (ABC) model and its features, discussing its alignment with the current goals and strategies of Resmed Inc. The report highlights the benefits of implementing the ABC system, including cost reduction and increased productivity, and recommends its adoption. It also suggests the implementation of Supply Chain Management (SCM) to maintain proper inventory and improve production and distribution efficiency. The analysis aims to provide insights into management models that can help Resmed Inc. enhance its operational effectiveness and achieve its strategic objectives.

MANAGERIAL ACCOUNTING
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Contents
Executive Summary............................................................................................................3
Introduction.......................................................................................................................4
A. ABC Model and its Features........................................................................................5
B. Alignment of ABC Model with current goals and strategies of the company................7
1. Mission and objectives of Resmed Inc..................................................................7
2. Corporate strategies of Resmed Inc......................................................................7
3. Role of ABC model in achieving company’s strategies...........................................8
C. Recommendations regarding the implementation of ABC Model for the Resmed Inc..9
D. Another suitable management accounting tool suitable for Resmed Inc...................10
Conclusion........................................................................................................................12
References.......................................................................................................................13
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Executive Summary
In this project, the evaluation of Activity Based Costing (ABC) model and its features have
been discussed. After evaluation of company’s strategies, the benefits of implementing the
system for Resmed Inc. are mentioned. After implementation of ABC model, the company
would be able to reduce its costs and increase its productivity. Managers will be able to
manage the company efficiently. Another system that is Supply Chain Management (SCM) is
implemented by the company will help it to maintain proper inventory and will be able to
produce and distribute its goods efficiently.
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Introduction
The project aims to explain the Activity Based Costing Model of assigning of indirect costs
and its features and how the ABC model aligns with current goals of the Resmed Inc. This
projects further recommend the company for the adoption of this system and another
management tools that the company can implement to improve its functional efficiency.
The method that has been selected is Supply Chain Management (SCM) which will help the
management of the company to manage its inventory in the most effective manner, which
will reduce costs and increase efficiency. The aim of the project is to evaluate management
models for the Resmed Inc. and recommend those models which will help the company to
improve its operations.
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A. ABC Model and its Features
Activity Based Costing (ABC) Model is a process of allocation of costs of indirect activities to
the products in proportion in which they have been incurred. This includes activities such as
ordering, quality check, setting up, wages, machinery expenses, etc. This method is an
upgrade of traditional costing method which was simpler but less accurate. In a traditional
system the companies used to assign their cost in an arbitrary manner based on raw
material use, workers used, etc. On the other hand, the ABC model assigns overhead costs
in the proportion in which they have been incurred (Aithal and Kumar, 2016).
Features of ABC Model
 This model divides total cost into two types fixed and variable costs which provide
eminent details to plan an appropriate cost system. The fixed costs are far easier to
assign as they are fixed while variable costs do vary with output but are simpler to
trace (Moisello, 2012).
 This system has a number of cost behavior patterns which helps I proper assigning
the costs of production. These systems are based on volume, events, diversity and
time.
 A cost driver is a component of activity that is responsible for changes in cost. In ABC
model cost drivers are used for assigning costs to different products produced by the
Resmed Inc. (Aithal and Kumar, 2016).
 This method is an evolved version of traditional costing method. Instead of assigning
costs in an arbitrary manner that is equally distributing the cost of production in all
the products it assigns costs in the fraction in which they have been incurred
(Wilkinson, 2018).
 The total cost of production which was previously assigned in an arbitrary manner
previously is now assigned in a scientific manner that is based on actual costs
incurred rather than generalizations This assignment adds to the credibility of the
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costing model and gives an accurate measurement of cost to the managers (Aithal
and Kumar, 2016).
 This system uses deeper insights for assigning the cost to the products it obtains
information at different levels to assign costs to the products who were accountable
for the costs and helps to maintain costs in books with the products for which they
were incurred and thus representing the true financial position of the company
(Wilkinson, 2018).
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B. Alignment of ABC Model with current goals and strategies of the company
ABC Model aligns with the goals of the company -
1. Mission and objectives of Resmed Inc.
The company is committed to delivering innovation, value and quality products for its
consumers. The company plans to achieve these objectives by building and
strengthening their relationships with their suppliers. The company will achieve its
mission goals by delivering value to its consumers and to deliver them value company
has to build better relations with its suppliers.
Its objectives are developing its capabilities to support the products being produced and
at the same time to meet the needs of the future (Thiam, 2018). To connect the product
development teams with the consumers to deliver the innovative products that will be
able to satisfy the needs of its users and to strengthen its relationship with the
consumers to meet the shared business goals that are delivering users value. With all of
this to ensure continuous improvement in its products to deliver the consumers utmost
value.
2. Corporate strategies of Resmed Inc.
The company has identified three prospects of growth in its future (Thiam, 2018)-
First one is to achieve core market growth. The company plans to achieve this by
increasing home sleep testing and expanding their contact with physicians, improving
healthcare information systems and its systems of care management.
Second is growth in related products and other markets, in homecare ventilation for
COPD, other respiratory disorders and also to expand in other markets which are India,
China, and Latin America.
Third, the company will cover new business opportunities; it will help the company to
expand its business base. It's planning to expand into other fields of medical technology
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and overall wellness by increasing its investment in heart failure therapy, snoring, heart
failure monitoring.
3. Role of ABC model in achieving company’s strategies
ABC Model will help the company to associate its overhead costs with the products that
have been produced. This will help the company to know the where the costs have been
incurred and to carry out product analysis (Kumar and Mahto, 2013). This will help the
managers to properly manage the costs of the products and to reduce them as the
Resmed Inc. wants to deliver value to its consumers, it can increase the value of its
products by lowering its costs that can be done by managing its overheads. To achieve
core market growth, the company will have to deliver better quality products at lower
costs, ABC model will help the company to manage costs and its product lines and thus
the company will be able to achieve market growth. The company is interested in
expanding in new markets and related products. As expansion in new will require the
company to produce its goods at low prices to compete with existing manufacturers,
ABC model can help the company (Stoehr, et. al., 2015). As ABC model can help the
company to run its production efficiently money saved out of it can be used to expand in
related products. The company also plans to expand in new products, this will require
investment and produce the products at low costs. ABC model can help the firm to
produce these products at low costs and to raise money by showing to investors how
efficiently company carries out its production. Thus, ABC model can help the company to
achieve its strategies and help the Resmed Inc. to grow (Stoehr, et. al., 2015).
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C. Recommendations regarding the implementation of ABC Model for the Resmed Inc.
First, by adopting ABC Model of cost allocation, Resmed Inc. will be able to save on its
production costs by effectively managing its cost of production. Managers of the company
after they adopt ABC model of cost allocation will be able to associate overheads to the
products where they have been actually incurred (van Harreveld, et. al., 2015). This will help
the managers to know about the costs being incurred by different products. This will paint a
better picture for the managers about the costs relating to different products. Further, the
managers can carry out an inquiry about the costs being incurred and can also eliminate
production of the goods which are not profitable. It will also help them to divert the
resources from inefficient products to efficient ones. Thus, they will be able to reduce their
production costs (Wilkinson, 2018).
Secondly, it helps to maximize the return on investment. there are certain products which
are giving more returns on per unit of investment and there are others who are giving
returns almost close to the cost. With the help of ABC model, it is being analyzed about the
costs which are associated with the products is being incurred management (Kumar and
Mahto, 2013). These decisions regarding the investment should be made for expansion of
production facilities are to be taken by management. Along with these investments which
are necessary but will have the lowest returns are to be evaluated. This helps the
management of the firm to earn high returns on their investment which will maximize their
shareholder's returns (Aithal and Kumar, 2016). The will also help them angers to make
better decisions regarding future investments and future possibilities of production
expansion. As the same time managers can make calculations regarding the availability of
raw materials and how if a particular raw material if not available could affect the profit-
making capacity of the company. Thus, managers can increase the profit-making capacity of
the company.
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D. Another suitable management accounting tool suitable for Resmed Inc.
Supply Chain Management (SCM) is another technique that can be used by the
management of the Resmed Inc.
Supply Chain Management (SCM)
SCM is the technique that consists of wide range of activities from planning, controlling to
executing flow of products. This includes activities such as acquiring raw materials,
production and distribution of goods and services to final consumers. The SCM aims at
streamlining this process and making sure all these functions are carried out in most cost-
effective manner. It does this by planning the demand for raw materials and of the final
goods produced, production planning, managing the inventory, storage of final goods and
their transportation. Resmed Inc. who use this system carry out this process by using
advanced computer algorithms that can regularly manage all of this after receiving the
commands from the management. SCM process is complex and requires a lot of investment
to set up and maintain but because of its efficient and effective system of inventory
management, it is able to recoup its costs and also give returns over and above the amount
invested in this system (Wilkinson, 2018).
At Resmed Inc., this process will help the company to manage the production and
distribution of its medical equipment. As the company operates in more than 100 countries,
to ensure timely delivery of its devices it needs to build better inventory management
systems. This will help the company to make timely delivery of its devices and also provide
after sale services if required, quickly. The consumers are interested in buying those
products which are easily available. Thus, any company which needs to sell its products
needs to ensure timely delivery of its goods and to maintain proper inventory levels so that
demand for goods can be met as and when required. This requires better management of
the inventory of the company. As the inventory of the company depends on production
department the company must ensure that goods are produced as per their demand and as
the production department depends on the supply of raw materials, the managers also have
to ensure the raw materials stack is always kept in a manner to avoid shortages. The whole
chain discussed above is necessary for building optimum delivery of goods to the
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consumers. This can be done by employing SCM techniques in the company. This system will
manage the entire process from procurement of raw materials to the final delivery of goods
to the consumers. This system will help the company to undertake large-scale operations by
efficiently managing its production, selling and distribution process.
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Conclusion
After the completion of the project, it can be concluded Resmed Inc. will gain significant
advantages after the adoption of ABC Model as it will lead in the proper management of
cost and company can improve its profit-making capacity by making suitable adjustments in
its product line. Additionally, it was observed, after the adoption of Supply Chain
Management (SCM) company can enhance the value of its inventory by optimally managing
its stock of goods. Finally, it can be concluded after the adoption of both the systems the
company will be able to expand its profit-making capacity.
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