- ABC Model and its Features:
- Below mentioned are few features of ABC costing:
- Mission, vision and objectives of the company:
- The corporate strategies that have been implemented by the entity:
- The ways in which the ABC model can assist the company in achieving its goals:
- Recommendation regarding the implementation of the ABC model:
- Other management tool suitable for the management:
1- Write a report on managerial accounting in 2000 words with reference to APA.
An attempt has been made in the present report in order to develop and understand the ABC modelling concept as a tool of management. Foundational principles can be understood through the in-depth analysis of the organization’s different elements (Fullertonet al., 2014). Being aware with the basic ideologies is the primary purpose and determination of the orientation of the toll with that of company’s objective and ultimate goal is the entity’s mission and vision.By understanding all these crucial factors of the foundation of the entity, the process can be incorporated inside the company’s operations.
ABC Model and its Features:
Those functions that are being carried out by the company are being examined and analysed by the accounting method of ABC costing. Indirect costs to the product that are manufactured by the company are added after performing such analysis. Through this method, the relationship among the company’s products, its cost and activities can be understood. Assignment of the costs to the products can be done less arbitrarily compared to the traditional process of costing through the understanding of the relation that exists among the elements of the process of production (Chiarini&Vagnoni, 2015). Moreover, few costs are found to be very complex to assign through this process. Such costs includes costs like salaries of office staffs, management salaries, etc.
As this process of costing accelerate the reliability of the data of cost, hence, this method is more often used in manufacturing concerns. Therefore, the process leads to the company’s better cost classification and true cost generation while undergoing the process of production.
In various types of costing and analysis that the company had carried out, this tool has been used by the management. A few of those tool includes product costing, target costing, service pricing, product line analysis, etc. As the company was able to grasp the cost spent by it in a better, hence, it led to the better strategical development and corporate development for the company.It is also referred as an event or a work unit or may be a specific goal as the complete process is activity based. In respect to the activities of production that the company carries out, such as product designing, finished goods distribution, carrying out machine operations, setting up machines for production purposes, etc. the task might extent between several jobs. Various overhead resources are being consumed by the company through these activities, which are known as the objects of the cost (Chenhall& Moers, 2015).
An event or a transaction can be called as an activity, which is also termed as driver of the cost under this method of costing. In order to refer an allocation base, the cost driver is used. Setup of the machine, requests for maintenance, power consumption, orders regarding purchases and productions are few examples of the cost drivers.
These exist two types of activity measures under this method. Transaction driver, which is involved in counting the times, an activity takes place is one of such method. While another method isthat, which gauges the amount to time it takes to complete an activity and is known as duration driver (Shields, 2015).
The classification of the activities iscarried out in five broad levels by the ABC costing. Such levels includes activity for product level, organization-sustaining activity, activity for batch level, unit level and customer level activities.
Below mentioned are few features of ABC costing:
a. Variable cost and the fixed cost are the two broad categories under which the total cost spent by the company is divided. In order to create an appropriate system of cost within a manufacturing concern for the purpose of provision of quality information, the division is necessary.
b. In order to create a proper distinction among the pattern of cost behaviour, the method assists in a huge way.
c. According to the method, the pattern of cost behaviour is related to event, time, volume and diversity.
d. In order to trace an overhead to a product, the right driver of the cost is identified by the company.
e. The cost driver of the company announces the pattern of cost behaviour.
Mission, vision and objectives of the company:
The various mission, vision and objectives of the company are as follows:
a) Creation of value for the shareholders in the long run: It is very well known that the only reason for which the shareholders of the company are interested in investing in the shares of the company is that they are hopeful that the company will be able to create value for them in the end. The company realises this and ensures that value is being delivered to the shareholders corresponding to the amount that they have invested in the company in the long term (Pavlatos&Kostakis, 2015). For the purpose of ensuring, that value is being delivered to the stakeholders of the company the company tries to increase the profitability of its operations by increasing the sale that is achieved by it and cutting down the cost that has been incurred by it for the purpose of conducting its own business.
b) Creating a culture of team spirit within the entity: The company tries to inculcate the spirit of team within the entity. The reason for setting up of these objectives is that, all the objectives that are going to be set up by the entity are going to be dependent on the efficiency and the effectiveness with which the employees of the entity conduct their respective every day duties. For the purpose of ensuring that the employees stay motivated for the delivery of the duties, it is necessary that the entire work force of the company works as a team (Chiwamit et al., 2017).
c) Increase the profitability of the business: The company’s main objective in terms of financial matter is to increase the profitability of the business. For this purpose the company has ensured that the costs that are being incurred by it are reduced and the sales that are conducted by it increases over the period of time.
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The corporate strategies that have been implemented by the entity:
The various corporate strategies that have been implemented by the entity for the purpose of
The company has ensured that the work force of the company is adequately diversified. For ensuring that the company includes diversity as one of the main functional requisites, the company has increased the participation in the management of the company of the PNG Citizens and the females of the company by 22% and 23% respectively. The company has at the same time established a strategy in this respect. The company is going to focus on gender diversity, citizen development and inclusive workplace.
The ways in which the ABC model can assist the company in achieving its goals:
In order to achieve the various goals of the company and to actualise its several strategies, which are formulated in different ways, the ABC costing model helps in a great way. Bearing the fact in mind that the cost incurred in execution of the formulated policies must be carried out effectively is the main core of actualization of these strategies. The company has undertook several programs in order to foster the efficient and innovative culture inside he organization has resulted in the increase in expenses related to training and development and human resource expense, etc.
The cost that are incurred permanently, i.e., which are the fixed cost of the company irrespective of the value generated by the company’s corresponding activities or the company’s production volume, the management to these will be served by the ABC model along with various information regarding these cost (Bennett& James, 2017). The impact of the decisions taken by the management and the cost of implication of this decision can be understood by the management of the company after carrying out the above policies and processes.
Moreover, essential data and information are also being provided to the company’s management relating to its nature of the cost that is spent through separating the cost behaviour into five different models. Those five models are volume, time diversity and event related models.
Recommendation regarding the implementation of the ABC model:
It is necessary for the company to take the following steps in order to implement the ABC model within its framework effectively and efficiently.
a. Identifying the organization’s functional areas: It is very much important for the management to identify the several functional areas of the organization. The exploration and the mining function are the most important functional areas for the company to focus on at present. While the average or less important ones includes logistics function and the transportation function and the least important ones are Human Resource management.
b. Identify the primary activities of the organization’s functional area: Compared to other activities in an area, there are some few areas within the functional area, which requires more resources of the organization. Hence, these few crucial area must be assigned as the organization’s primary functional areas for operations.
c. It is the responsibility of the entity to assign the cost that is indirect in nature on a suitable basis to every important operational area.
d. Apart from these, the organization also requires to generate a statement of expenses based on the activities that are carried out by the company itself.
e. After the preparation of statement of expenses, it must be compared with the statement of value addition of the organization.
f. It is also very important for the management to correctly identify such activities that are not required to be performed and eliminate the same so that a better and efficient performance of the company can be brought.
Other management tool suitable for the management:
Standard costing is one of the most important and crucial tool used by the management for the purpose of decision-making. The standards of performance are set out by the management in case of standard costing. For different elements of the organizational operation, various standards can be set up. The cost to be spent by the company relating to a specific activity or project is the elements that are included (Messner, et al., 2016). Through the process, the amount of income the company can generate can also be determined by the management. The management can move to the next step once it completes the process of setting the standards of performance. Gauging the record of real performance by the company for a particular period is the next step in the process. After completion of this process, management focuses on determining the amount of deviation of the company’s performance from that of the standards set, if any. After this, if any deviations are found, the company then tries to figure out the possible reasons behind such deviation. Subsequently, the company also take prompt corrective action to rectify such deviation and to bring the process back on track as per the pre-set standards of performance.
After the features and the benefits of the ABC Management tool are conducted, it can be said that the process is very capable to provide vast value towards the management. This method also ensures that appropriate division is being carried out at the time of presenting the cost analysis incurred by the entity on a specific project. Therefore, it is advisable that the company must use this tool proficiently and effectively to increase the return percentage and amount of the company’s stake holders.
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