Discusss about the Asx listed company ," Treasury Wine Estate" which is Consumer Staples.
Understanding ABC as a Management Accounting Tool
An increasing number of different forms are using the ABC in gaining some insights into manufacturing processes and product process. With these, the report aims at presenting what ABC is all about. It also aims to present its features and how the model aligns with existing goals as well as strategies of one of the ASX listed company. Additionally, the report would present some of the recommendations in implementing ABC explaining how this model could improve management accounting information on the company’s top management team. Finally, the report would explain other management accounting tool which would be suitable for the company.
ABC is one of the management accounting tool indicating how different resources are utilized by activities in producing products or outputs beneficial to clients (Bufi & Moilanen 2014). Besides, ABC is one of the most powerful tools used in measuring an organization’s performance. It is utilized in identifying, assigning and describing different costs to the agency operations or business processes (Innes & Kouhy 2011). The tool is said to offer more accurate management costing system than the traditional costing accounting in identifying available opportunities for improvement of the business processes efficiency and effectiveness through determination of true costs of the services or products. Additionally, ABC utilizes or employs cost drivers in assigning costs from different activities to the outputs (Theriou, Theriou & Papadopoulos 2007). In other words, ABC is the multi-level cost allocation technique where different costs are driven in stages; that is, from activity to activity, and from one stage to the other. Further, ABC is said to encourages organization’s management in evaluating cost-effectiveness and efficiency of the program activities. its main benefits is providing insights on the basis of past computed costs not only spending and them applying similar information in making better decisions (Venieris & Cohen 2008).
ABC provide more accurate outlook on the reality since it recognizes that some of the costs do not differ with volume measurement but with other measurements (Bufi & Moilanen 2014). It is usually a more detailed technique to attributing costs, first to their activities and to their cost objects which is said to create some demand for such indirect costs. ABC offer correct costing data features of being relevant and efficient. Since ABC focuses mostly on the activities performed during production, it provides alternatives to traditional means of accounting. According to Pineno (2002), ABC is a system that assesses different costs and performance of capitals, costs objects and activities, assigns different resources to their relevant activities as well as different activities to their cost objects on the basis of their use as well as recognizes the causal relationships of the cost drivers to the activities. It is also viewed as a technique of measuring different cost and presentation of cost objects and activities. It usually assigns costs to different cost objects on the basis of the use of the activities and assigns different costs to their activities on the basis of the use of different resources. ABC provides some added advantages of at least reducing or evading alterations in the product costing which is allocated as the indirect costs (Anand, Sahay & Saha 2005). Besides, it offer useful information regarding how expenses occur, how cost-effect has been distributed to different departments as well as how one might accomplish quality improvements over its rivals.
Benefits of Using ABC
The ABC comprises of two different stages; first, the ABC take into consideration that each activity causes some costs, and assigns all the costs to their relevant activities (Velmurugan 2010). Such activities are said to take place in the cost pools or activity centres and are usually evaluated by the cost drivers. Cost of such activities or resources are referred to as cost elements. In the second stage, the ABC take into account that different products consume different activities and therefore costs incurred at particular cost pools or cost centres are allotted to products on the basis of products consumptions of every activity as well as level of these activities to ABC (Israelsen 1994). In order to accomplish such, cost drivers are said to be closely dedicated to assigning different activity costs to the relevant products. Hence, ABC captures factual cost bookkeeping by assigning the overhead outlays to different cost centres as well as onwards to the output services or products. Besides, this model is significant in refining processes both the logically and in the assessment role (Shane 2005). This is because it determines activities performed by which organization’s resources and attribute different costs to their relevant products on the basis of their utilization of these resources.
ABC is mostly based on accurate procedures, which identifies specific activities or stages that require taking place in determining the activity costs (Bufi & Moilanen 2014). Such stages might have several applications as well as individuals options as shown in Figure 1 below.
Figure 1: ABC major activities
Source: Μυτακ?δης (2015).
ABC is said to report more accurate costs and therefore decrease any probability of the management making poor decision on the basis of the available cost information (Anand, Sahay & Saha 2005). To be more specific, the ABC improves managerial decision-making process that is specifically crucial for different organization facing intense competition (Angelis & Lee 1996). Besides, ABC measure more precisely expenses of different product process and design involvedness. This implies that it assist product manufacturers to understand some of the financial inferences of the design selection and therefore sway conduct by accomplishing the design for the manufacturability (Oseifuah 2018). Additionally, ABC is said to identify amount of the expenditures incurred on different activities and therefore outline which particular activities are crucial for manufacturing. Here, identification of activities which is crucial enhances introduction of the concept of the continuous improvement. The ABC model recognizes that every client has his or her character and therefore the firm does not make similar profit from every client (Angelopoulos & Pollalis 2017).
ABC Implementation for Treasury Wine Estate
Treasury Wine Estate’s MissionandObjectives
Treasury Wine Estate is the largest wine firms across the globe which is listed in ASX. The firms is mostly focused on delivering high quality shareholders’ value vial production of quality products and selling and marketing quality wine brands to different clients across the globe. In other words, Treasury Wine Estate is an integrated wine firm focused on premiumisation which is mostly supported by innovation as well as optimised brand. The company is also committed to making some positive contributions to local communities where it operates. Its mission is to be recognized as world’s most celebrated and successful wine firm.
Treasury Wine Estate’s CorporateStrategies
Treasury Wine Estate corporate strategies include building high performing firm by driving a supportive, collaborative and inclusive culture. It also comprises of development of long-term relationship through connecting with its clients, partnering with chief clients in growing its wine category as well as driving performance for all its stakeholders. Another corporate strategy by Treasury Wine Estate includes optimizing its capital base. This is to be achieved by operating safely, responsibly and sustainably, creating supplying chain cost as well as quality advantages. It is also accomplished by simplifying it processes and addressing high cost structures. Besides, the company identifies the means it could improve the contributions to local communities by managing social and environmental risks as well as driving sustainability.
How ABC Model Assist in Achieving Treasury Wine Estate’s Strategies
The main objective and mission of the ABC is mainly to enhance organization’s management decision-making through development of robust programs across the company with sustainable data, reports, methodology and analyses. Besides, ABC assist in achievement of higher quality services and products to the external and internal clients while driving toward a more effective production of services and goods as well as more efficient performance of the company’s activities.
Recommendations ofon Implementation of ABC
Based on the company’s main objectives, it is recommended that Treasury Wine Estate should make use of the ABC. This is based on the notion that ABC could assist in achievement of higher quality services and products to the external and internal clients while driving toward a more effective production of services and goods as well as more efficient performance of the company’s activities. Furthermore, ABC assigns costs to different cost objects on the basis of the use of the activities and assigns different costs to their activities on the basis of the use of different resources.
Other Management Accounting Tool That is Suitablefor Treasury Wine Estate
Other Suitable Management Accounting Tools for Treasury Wine Estate
Other than the ABC, Treasury Wine Estate should utilize balanced scorecard as one of the most suitable management accounting tools. This is based on the fact that BSC could assist the company in addressing inadequacies of the performance measurement (Angelis & Lee 1996). Besides, the BSC could assist Treasury Wine Estate in improving its decision-making by utilizing both non-financial and financial measures and could also improve its performance. This is based on the notion that the BSC emphasise needs of giving the company suitable information in addressing all its applicable areas of the performance in a manner that is unbiased and objective, to help the management in accomplishing and formulating the strategic policies (Anand, Sahay & Saha 2005). In essence, employment of the BSC would help Treasury Wine Estate in improving it strategies, resulting in improved financial and economic performance. Furthermore, the BSC could assist the company by offering sustainable information for their decision-making by setting clear objectives and targets that might in turn assist in improving the company’s financial performance. Besides, BSC comprises of tools which are significant for the company management since it increases probability of a successful introduction of the strategy and accomplishment of the business objectives and goals (Angelis & Lee 1996). BSC would also assist the company in aligning the non-financial and financial measures which might in turn permit the organization’s management in overviewing existing situation and then present innovative perspective which could be utilized in interpreting different strategies for the growth into the operative terms that the management is in a position to review financial performance in numerous segments concurrently. It would also assist the company to continue improving and creating value since it result in learning and innovative perspective where future succeed today (Anand, Sahay & Saha 2005).
In conclusion, Treasury Wine Estate can utilize ABC in replacing it current standard costing, since the model could assist the firm achieve it key objectives. Basically, increasing profitability or improving financial performance is a complex thing for any firm, which has numerous aspects require to be considered. The ABC could assist Treasury Wine Estate making more profits that could in turn assist in improving its profitability and sales level. Furthermore, given the ABC would be of greater importance to Treasury Wine Estate, there is need to also implement BSC. This is based on the fact that BSC could assist the company in addressing inadequacies of the performance measurement. Besides, BSC is said to assist Treasury Wine Estate in improving its decision-making by utilizing both non-financial and financial measures and could also improve its performance. Additionally, BSC is also found to assist the company in aligning the non-financial and financial measures which might in turn permit the organization’s management in overviewing existing situation.
Anand, M, Sahay, BS & Saha, S 2005, Activity-based cost management practices in India: An empirical study. International Journal of Economics and Financial Issues, 7(3), 586-593.
Angelis, DI & Lee, CY 1996, ‘Strategic investment analysis using activity based costing concepts and analytical hierarchy process techniques,’ International Journal of Production Research, 34(5), 1331-1345.
Angelopoulos, M & Pollalis, Y 2017, Activity Based Costing (ABC) as a tool for Lean Transformation: The Case of the Greek Power Public Corporation (PPC).
Bufi, E & Moilanen, S 2014, ‘Designing An Activity-Based Costing System for A Specialty Retail Store,’ Unpublished Master‘s Thesis, Oulu Business School Department of Accounting, Finlandiya.
Innes, J & Kouhy, R 2011, ‘The Activity-Based Approach,’ In Review of Management Accounting Research (pp. 243-274). Palgrave Macmillan, London.
Israelsen, P 1994, ‘ABC and variability accounting differences and potential benefits of integration,’ European Accounting Review, 3(1), 15-47.
Pineno, CJ 2002, ‘The balanced scorecard with time-driven activity basedcosting: An incremental approach model to health care cost management,’ J Health Care Finance, 28(4), 69-80.
Oseifuah, EK 2018, ‘Activity based costing (ABC) in the public sector: benefits and challenges,’ Management, 12, 4-2.
Shane, JM 2005, ‘Activity-based budgeting: creating a nexus between workload and costs,’ FBI L. Enforcement Bull., 74, 11.
Theriou, NG, Theriou, GN & Papadopoulos, A 2007, The Use of Analytic Hierarchy Process in Integrating The Balanced Scorecard and Activity-Based Costing. Journal of Business Logistics, 19(2), 131.
Velmurugan, MS 2010, ‘The success and failure of activity-based costing systems,’ Journal of Performance Management, 23(2), 3.
Venieris, G & Cohen, S 2008, ‘Flexibility in manufacturing and activity based costing: modelling the interrelationships,’ Journal of Applied Business Research, 24(2), 81.
Μυτακ?δης, ΣΚ 2015, The implementation of an integrated Activity-Based Costing (ABC) and Balanced Scorecard (BSC) System as a Strategic Management Tool. Accounting Horizons, 15(2), 147-160.
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