Discuss about the Influence of Company Characteristics Factors.
The main objective of this report involves analyzing and evaluating the various aspects and factors of the Activity Based Costing (ABC) mode. Some of the major areas of discussion related to ABC model is the features of the model, the characteristics of the model, its implementation and others. The major purpose of this report is to analyze the different aspects of ABC model by relating it one of the Australian Security Exchange (ASX) listed business organizations; and Tassal Group Limited is taken into consideration for the completion of this report. Tassal Group Limited is one of the leading salmon farming companies in Australia. The company was established in the year of 1986 and got listed under ASX in the year 2003 (tassalgroup.com.au 2018).
ABC model puts focus on the relation among the costs, activities and products for the assignment of the indirect costs to the products of the companies (DRURY 2013). ABC model does this whole system less arbitrarily as compared to the traditional costing methods. However, there are many instances where the companies face complexities in assigning specific costs under ABC model. For this aspect, salary, an indirect cost, can be taken into consideration as it is difficult for the companies for the allocation of this cost to the products or services. In spite of this, massive popularity of ABC model can be seen in both the manufacturing as well as service industries. In addition, business organizations use this ABC model for analyzing the profitability from the customers, for the implementation of target costing and others (Dale and Plunkett 2017). Thus, it can be said that the ABC model has gain popularity almost all areas of cost accounting.
The following discussion sheds light on the major features of ABC model:
- Business organizations become able in segregating the overall costs into two board categories of variable costs and fixed from the assistance of ABC model. Due to this segregation of costs, it becomes possible for the business entities in the adoption of appropriate costing system as per the nature of their business operations (Öker and Özyapici 2013).
- One major feature of ABC model is that the cost accountants become able to distinguish between the patterns of cost behavior in the manufacturing or business operations.
- It provides assistance in linking the patterns of cost behavior in the business organizations with various other aspects of costing; they are time, cost behavior and others.
- In the presence of ABC model, the enmities become able in the identification of the cost drivers in order to trace down the costs overheads (Öker and Ad?güzel 2016).
- The adoption of ABC model helps the business organizations in dividing their costing activities in sub activities and develops the cost pools that provides assistance to carry on the costing operations of the companies.
As per the above discussion, business organizations can achieve their goals and objectives with the help of ABC model. The following discussion shows the mission, objective nd corporate strategy of Tassal Group Limited.
The mission of Tassal Group involves in bringing the sustainable health and wellbeing to the communities and the environment in which the company is operating and the customers with the help of superior quality of product. For this reason, the aim of the company is to work along with their employees, suppliers, customers and stakeholders to achieve the mission (tassalgroup.com.au 2018).
For this reason, the objective of the company is to collaborate with all the stakeholders of their organizations so that they can ensure the achievement of the goals and objectives of the business organization. Another major business objective of Tassal Group is the promotion of Zero Harm to their employees as to ensure safety is the number one priority of the company (tassalgroup.com.au 2018).
Corporate Strategy of Tassal Group Limited
It needs to be mentioned that Tassal Group has adopted the right set of corporate strategies from four major perspectives; they are environmental, operational, financial and social perspectives. These strategies are discussed below:
- The main strategies focus of Tassal Group is the delivery of sustainable growth along with global best practice returns. Thus, the strategic focus areas of the company are environmental, financial, operational and societal value (tassal.com.au 2018).
- Another major strategy of the company is to keep gaining high profit margin along with cost efficiencies so that the company moves closer to the global best practice return from the fish performance. The major subparts of this strategy are to ensure optimization of salmon sales return and to deliver strong gains in salmon growth. These are the major corporate strategies of Tassal Group (tassal.com.au 2018).
Role of ABC Model to Achieve the Strategies of Tassal Group Limited
The ABC model has gain major popularity for the fact that it can be applied in every kind of company irrespective of manufacturing organizations or service providers. However, most of the use of this ABC model can be seen in the manufacturing companies all over the world. Considering the business operations of Tassal Group, the company can be categorized in the manufacturing or processing organizations as the company involves in the processing of salmon fish. It is possible for the management of Tassal Group to take the opportunity of cost saving along with the fulfillment of organizational objectives by implementing ABC model in the organization (Carli and Canavari 2013).
Three major sections can be seen under the ABC model; they are costing activities, costing resources and cost objectives. In case of Tassal Group, the resource section of ABC model includes the company’s expenditures from different processing departments. The grouping of this departments can be done in different segments like the farming department, manufacturing departments, processing department, packaging departments and others along with some of the common departments like the human resource department, finance department, information technology department and many others. Thus, for the purpose of cost computation, it is required to describe all these shared services. The next process involves in the transfer of costs to the departments by the cost accountants. In addition, all the other farming facilities of Tassel Group can be grouped by this cost. Thus, this aspect indicates towards the fact that the implementation of ABC model increases the scope for cost allocation for the company (Ríos-Manríquez, Colomina and Pastor 2014).
In the farming and processing operations of Tassal Group, the description of the costing activities can be provided based on the farming operations along with the processing operations of the salmon fishes. For this reason, these activities can be the purchase of farming equipments, equipments for processing the salmon fishes, purchase of the foods of the salmon fishes, purchase of the necessary medicines, chemical and others. For this reason, after the definition of all of these farming and processing related operations, it is require segregating them into various activities of ABC model (Sigüenza Guzmán, Abbeele and Cattrysse 2014). For the purpose to place the cost activities, the next step is to give name and time the cost activities. In this criterion, it is require considering the size of the batches so that the costing activities can be carried out in the batch mode. Hence, the ABC model does the grouping of the costing activities based on each department. In the presence of all these aspects, it will be possible for the management of Tassal Group for the reduction of extra cost burden along with the new technology adoption cost.
The segregation of the cost objective part can be done in two ways. The computation of the extra costs that the customers are required to pay while purchasing the product of Tassal Group from different channels is involved in the first section. However, it needs to be mentioned that the customers are not required to pay the same extra amount for the different products of the company (Rbaba’h 2013). However, it is required for the management of Tassal Group to make the computation of the extra cost separately as all the products will not have the same amount of extra cost. With the application of ABC model, the management of Tassal Group becomes able in deterring these extra costs so that the pricing of the products can be done more accurately.
Recommendation on Implementing ABC Model
One major contributor that ensures the correct implementation of ABC model is the extended support from the senior management of Tassal Group. The management of the company needs to consider the fact that it is not the responsibility of the accounting department to carry on the processes of ABC model implementation as the cost-functional team of the company is accountable for the implementation of ABC model (Campanale, Cinquini and Tenucci 2014). For this reason, it is needed for Tassal Group to form a team from taking members from each department of the company so that effective data generation can be done with the assistance of ABC model. If required, the company can take the help of outside experts to get assistance in the ABC model implementation process.
Another factor is the resistance from the employees of Tassal Group for the implementation of ABC model. In the presence of effective support from the management, effective implementation of ABC model can be ensured. Secondly, the employees of Tassal Group will not provide enough importance to the ABC model and will not comply with the systems of this ABC model if the senior management does not shows support towards the implementation of this costing model. (Hardan and Shatnawi 2013). Apart from this, gaining effective understanding about the existing costing model is required for the effective implementation of ABC model. In order to ensure effective cost allocation, the management of Tassal Group is needed to include the cross-functional team in the implementation process of ABC model.
Alternative Management Accounting Tool for Tassal Group Limited
Apart from the ABC model, the management of Tassal Group can adopt the strategy of Budgetary Control that is a major management accounting tool. The management of Tassal Group should adopt this model as budget is considered as a crucial part to plan and control the production processes of the companies. Apart from this, the management of Tassal Group can use budgetary control in planning, monitoring and controlling different activities related to the farming and processes of salmon fishes (Otley 2015). The benefits of budgetary control are shown below:
- The management of Tassal Group always has the option to integrate the efforts of their employees and staffs to achieve the organizational goals and objectives. It implies that the synchronization of all the activities can be done with the organizational objectives in the presence of budgetary control (Maas and Van Rinsum 2013).
- In case the expenses of any specific department cross the budgeted amount, the presence of budgetary control ensures that the management takes corrective measures to revive the situation.
- It would be possible for the management of Tassal Group to gather knowledge and information about the past events so that this information can be aligned with effective techniques to minimize the future possibilities of these errors. From this, the management of Tassal Group can get the option to develop effective strategies (Fullerton, Kennedy and Widener 2013).
The above discussion indicates towards the fact that the implementation of ABC model provides the business organizations with the opportunity to control their organizational costs in an effective manner so that the organizational goals and objectives can be effectively achieved. It case of Tassal Group, the implementation of ABC model will ensure the cavemen of the organization’s vision, objectives and strategies like ensuring stable growth, rise in sale of the salmon fishes and others. For this reason, it is needed to have the full support of the management of Tassal Group. The above discussion also shows that budgetary control is an effective alternative management accounting method for Tassal Group.
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