You are required to prepare a report to recommend about ABC model for your company. The report should cover the followings:
- An explanation of ABC model and its features
- An explanation of how ABC model aligns with the current goals and strategies of the company. This explanation should include:
- An identification of the company’s mission and objectives; and
- An identification of the company’s corporate strategies
An explanation of how ABC model assist in achieving the company’s strategies.
- c) Provide at least two (2) recommendations about the implementation of ABC model for your company based on your research findings.
- d) Apart from ABC model, suggest one other management accounting tool suitable for your company and justify it.
Beach Energy Limited is an Australian company which deals in the oils and gas exploration and production of many types of energies. The company said to the company said to work mainly on the Cooper basin which is said to have energy sources and also an average of land having no less than 69000 square kilometres of area. It was in 1961 that the organization was founded and in the year 1962 the Australian securities exchange listed it as a public company. The headquarters of the form is located in Adelaide, South Africa. Also, the clear analysis of the firm has led to the decision that the company needs a very strong costing model in order to operate all the plans related to the oil and gas Reserves. The company was active in the copper basin and thus are the largest onshore Oil producers in Australia which it uses to increase its business by the establishment of new infrastructure and also get access to the new resource basins present in the complex locations. Also in the year, 2016 production of 9.66 million barrels of oil was said to be produced by the firm which was equivalent to the revenue of $558 million (Beach Energy Ltd, 2017). Because of the huge operations conducted by the company, it is very important that it uses of proper cost allocation method because the use of traditional costing method will not be able to support the financial statements of the organization. The report ahead will be clearly stating the implementation of the cost allocation in the company's financial statement.
This is a type of Costing method in which identification of the different type of activities which are made to be operated within an organization are assigned as different individual activities and the cost of each product and service is separated by usage of each. This can also be understood as the method in which over it cause related to a certain activity are being calculated and then added to the cost of the product or service so as to ascertain the real effective price (Hopper & Bui, 2016). This method should be taken into existence when there are a lot of Machines, products and processes that are being operated by the firm does making it difficult for the management in the assessment of cost. If there is a small business conducted by the firm then there is no use of this kind of method (Lee et. al, 2015). The steps involved in the conduction of an activity-based costing method are:
Identification of cost: this is the primary step of the ABC method and here only alignment and identification of the costs are being done.
Creating secondary cost pools: there are many indirect administrative costs which are related to the products and services which can be used to create by the use of cost pools. These kinds of questions can be aligned with the products and services so that the indirect costs which are related to the products and services can be found initially.
Aligning the ABC model to the goals and objective of beach Energy Limited
Creating primary cost pools: there are many costs that are directly related to the products and services and also can be easily measured. The measurement of the activity privacy said to be the next year after the creation of primary cost pools. Their details collected from the activity tri words which can be used to allocate this kind of costs in alignment to the secondary cost pools (Marsh, 2009).
Allocating the primary cost pools: the last and final step of ABC method is said to be an alignment of the costs with the help of activity drivers. This can be done with the help of evaluating the cost that has been acquired during the production of particular service or good and later can be added to the cost function (Beach Energy Ltd, 2017). The total overhead expenses can be found out and then may be divided by the number of activities in the activity driver. When the reports can be made in according to the ABC method, the values of which can be used by the management to determine the Strategies and plan for the upcoming years.
The ABC model of beach Energy Limited stated that the calls have been divided into two types which can be understood as fixed and variable costs. This is also useful for the company in implementation and designing a new system of allocation of cost and thereby using the quality information collected to distinguish between fixed and variable costs. This is the method in which appropriate decision is said to be made by using the different type of costs and behavioural pattern (Horngren, 2011). The activity drivers were assigned to each of the cost on the basis of which the patterns of the behaviour analyzed.
Missions and goals of Beach Energy Limited are to optimize and strengthen the operations in the oil and gas segment. It also wants to grab any of the opportunities which are coming towards it. The company seems to extend the glass business in the east coast basins by strengthening the financial position of the business (Beach Energy Ltd, 2017).
The company also tried to inculcate corporate strategies like ensuring safety for the people so that it can be made priority and a fact that never compromises on. The company as also tried to improve the innovative methods in which it tries to improve the creativity does making payments efforts in the exploration of new and creative values. It also seeks the company to get and give respect to all people, society, culture, communities, etc. in any circumstances that may prevail in the environment. Honesty should also be integrated into the companies so that there may be no possible dialogues which may harm the company in future (Drury, 2011). Performance is also a very important factor that should be executed in the desired and planned manner. Also, application of teamwork is important to achieve the goals and harmony within the firm so that the organization works as a team and not just as individuals (Marsh, 2009).
Attainment of the strategies
With the application of ABC system of Costing the business will be much easier to demonstrate and get segregated in numerous systems and segments so that uniqueness and be attained and different costs can be apportioned to the different departments so that each component will be having different procedure involved with it. This will be the resulting the business and classification of activities on the basis of their physical attributes, time, space, value, etc. If you take an example of an array manufacturing company the overall process can be divided into manufacturing, procurement, assembly, research and development of marketing strategy of sales (Beach Energy Ltd, 2017). With this type of segregated activities, classified costs can also be abbreviated thus helping the company to make decisions and minimize cost for the future.
It will be valuable or Beach Energy Limited to divide all its operational activities so that clear information can be attained, thus helping it to finalize the cost-cutting strategies. In order to get to the missions and objective of the organization, it will be best to formalize new strategies and then break down all the activities as planned above. The above process can be only carried out if the application of ABC model has been done in the company. The strategies help to get the company a clear picture of its environment. Also, a division of the activities should be made for the settlement of the cost pools according to the profit they are being provided (Horngren, 2011). Then the different type of cost pools should be aligned together to ABC model in which the different activities can be apportioned to find specific data that can be useful for the firm in ascertainment of the Future Plans.
The company is having a very important function of performance measurement this is stated to be very important part of management accounting tool. Performance measurement is said to be profitable for evaluation of both financial and nonfinancial information. It is also said to be one of those tools which will be very helpful in the measurement of the value that can be added to the different type of activities. Also the scrutinizing of the financial and nonfinancial measures can be taken into fat file monitoring the control over these kinds of activities they have been taken down by the management team (Chenhall, 2007).
Beach Energy Limited is there to improve the features and purposes by utilizing this kind of tools for improvement of the planning of the strategies, cutting expenses and making new strategies of operations for the organization which will prove to be profitable in future. The performance measurement tool also is tried to find the accessibility of an employee towards his reach with objective and goals of the organization (Oker & Ad?guzel, 2016). If it is observed that all the employees are working in a proper condition, and then the cost is reduced to a great deal and also the proper allocation of costs can be made. Performance management also helps in comparison of the performance of employees to their estimated performances (Beach Energy, 2017). The financial and nonfinancial performance of the company is said to be achieved with the help of this tool as it helps to distinguish between the actual and the targeted performance that the employees need to achieve. Also, it is used by the senior management employees who have to evaluate the performance of the lower position employees and thereby also helping the management to analyze if the employee should be provided with bonus or not (Brown, 2013).
It is important that the organization have designed its component and measured the values in very specific manner. Also when it comes to the performance measurement of the employees of an organization, the timeliness structure should also be considered as a major point because it has a lot of effect on the organization's operational activities (Balakrishnan et. al, 2014). Also, there must be limits designed for every task and processes so that it can be further made easy to make a comparison between the times was estimated and the time that has been taken in order to complete a particular activity task which has been assigned to an employee.
In order to reduce the cost and enhance the quality of the products and activities, there are a number of management accounting tools that should be operated by the organization. The management accounting tools may also prove helpful in the process of increasing the efficiency and effectiveness of the processes and activities which are being conducted by an organization. The utilization of all search tools can be made by Beach Energy Limited in order to achieve the goals and requirements which it has stated as the primary objectives of the firm. It has also been mentioned that the organization to try to implement the cost-cutting strategies in order to improve the overall activities of the company. By using the ABC model Beach Energy Limited can minimize its overhead cost and thus improve the profit statement. The management can also be improved by the use of new tools that work well with the ABC model. Also, it will be made easy for the organization to accomplish its goals and objective by the utilization of the tools in a very fruitful manner.
Balakrishnan, R., E. Labro, and Soderstrom, S. (2014) Cost structure and sticky costs. Journal of Management Accounting Research [online]. 26 (2), p. 91–116. Available from: https://bs4e.auinstallation32.cs.au.dk/fileadmin/site_files/filer_oekonomi/subsites/DCAF/konferencer/Labro.pdf [Accessed 16 May 2018]
Beach Energy Ltd. (2017) Beach Energy Ltd Annual report and accounts 2017 [online]. Available from: https://www.beachenergy.com.au/irm/content/annual-reports2.aspx?RID=215 [Accessed 22 May 2018]
Brown, P. (2013). How can we do better?. Accounting Horizons. 27(4), 855–859. DOI https://doi.org/10.2308/acch-10365 [Accessed 20 May 2018]
Chenhall, R. (2007). Theorizing contingencies in management control systems research. In Handbook of Management Accounting Research
Drury, C. (2011). Cost and management accounting. Andover, Hampshire, UK: South Western Cengage Learning.
Hopper, T & Bui, B. (2016) Has management accounting research been critical?. Management Accounting Research. [online]. vol. 31, pp. 10-30. Available from: https://pdfs.semanticscholar.org/6ccf/f78a452763f17ed5e4f4ddc6b96703801403.pdf
Horngren, C. (2011). Cost accounting. Frenchs Forest, N.S.W.: Pearson Australia.
Oker, F & Ad?guzel, H. (2016). Time?driven activity?based costing: An implementation in manufacturing company. Journal of Corporate Accounting & Finance, 27(3), 39-56. DOI: https://doi.org/10.1002/jcaf.22144
Marsh, C. (2009) Mastering financial management. Harlow: Financial Times Prentice Hall.
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