Introduction to Management Accounting and Activity-Based Budgeting (ABB) System
The Management Accounting provides information on the cost of the activities to the management so that they can perform their operations accordingly and efficiently. The report is based on the Activity-Based Budgeting (ABB) system which is the effective and common tool of the management accountingfor the organisations. To explain the ABB system the Amcor Limited, Australia has been taken as the client firm (Wouters, et. al., 2018).This report highlights the Activity-Based Budegting, commonly known as the ABB method or system, which is considered as the important and most used feature of the Managerial Accounting.It focuses on its concepts, advantages and disadvantages. The report begins with the small introduction to Management Accounting and Activity-Based Budgeting (ABB) system used in the organizations. The ABB system implementation in Amcor Limited, Australiahas been done to calculate the budgetedprofit and revenues of the company. A complete explanation is provided over the ABB system of management accounting with the help of a couple of journals taken to review the system in detail.ABB system implementation can offer numerous benefits but is hard to implement within the organisation. It requires a detailed description of the activities and their related costs and therefore is a lengthy procedure but it helps in providing an accurate and exact picture of the revenues earned by the company within a provided timeframe (Noreen, et. al., 2014).Subsequently, the purpose of the study is provided in context to the journals taken and the topic is explained at length. The ABB system is explored and explained. Furthermore, the discussion is done on the differences and similarities in the findings of the respective journals.To end with, the outcomes on the research findings of the respective journals has been provided and the justification for the same is provided.
Amcor Limited, Australia is the large firm of manufacturing sector developing and producing packaging products. It is a global packaging company headquartered in Brisbane, Australia.It develops various products for packaging and these products are environmentally friendly.
The budgeting system generally differs as to which costs are assigned to what object and the level of the sophistication of the object. Two budgeting systems has been used by the management accounting over the years, they are traditional budgeting system and activity-based budgeting system. Activity-Based Budgeting (ABB) system is a much-used budgeting system nowadays by various firms for analysing and evaluating profitability (Dale and Plunkett, 2017). This system provides relevant information and is basically used by the managers to make better decisions for the benefit of the organisation.
Activity-Based Budgeting Implementation in Amcor Limited, Australia
For tracking or treating the direct costs, there is no major use of the ABB system, the cost tracing is simple and is done in a brief period of time as it is based on the cause-and-effect correlation. The indirect costs are traced or tracked with the help of the traditional budgeting system or by the ABB system, whichever is more relevant. The interrelationship between the management accountants and the human resource managers have been of great significance. It is relatively significant that the companies have effective and efficient analytical tool available for evaluation. Nowadays, companies are mostly using the ABB system for cost tracking in order to achieve accurate results, which further helps in making better decisions by the managers.
Due to the complex products and service, the overheads have increased nowadays and due to which the traditional budgeting system is not beneficiary in providing accurate costs, therefore ABB systems are used by the companies in order to get accurate costs.
Amcor is using the ABB approach for cost handling at the Order Handling Department in order to better serve the customers. Amcor is a large organisation and it basically relies on the ABB system for accurate calculation method of the cost. For the Amcor, in the ABB system, activities are divided into 2 groups. First includes the activities that directly involve and second includes the activities that are not directly involved in handling the orders. These are the 2 activities that are handling customer services and other processes for Amcor and requires an ABB system for ensuring accurate cost calculation and estimation (Bennett and James, 2017).
The 2 journals have been selected from the library which will further help in understanding the importance of implementation of the ABB system for cost accuracy. It is very important for the system of the company to have an effective analytical tool available. As the users are forced to look manually and integrate the data, there is a probability that users will definitely choose the first option that meets their need. Irrespective of, whether or not the option they have chosen is an optimal alternative. Therefore, there is a lack of accurate results due to incomplete information provided by the associated people. Additionally, it is advisable that the companies make each and every attempt for integrating various data and information sources into a solitary source. Also, if the data is not accurate, decisions made on the basis of this data cannot be informative and therefore problems arise which has been sought out with the help of ABB system implementation in the companies (Chenhall, 2012). The purpose of the study of two journals is better understanding the ABB system concepts, its use in organisations. The journals selected are-
Concepts, Advantages, and Disadvantages of Activity-Based Budgeting (ABB) System
#1 A field study on the acceptance and use of a new accounting and budgeting system
#2Developing an organizational perspective to management accounting.
Article #1: A field study on the acceptance and use of a new accounting system.
Purpose of the study – The journal provides a detailed study on the acceptance of a new accounting system which is the Theory of Constraints (TOC)Systemover the ABB system in the pharmaceutical industry. The TOC system has been discussed in detail in this article. The purpose of the study is to understand the reason behind using the TOC System over the ABB system in the pharmaceutical industry. The main reason behind using this system was that as a framework it uses the structuration theory for better understanding the change process. This theory points towards the relationship between the activities by the humans and social structures. It focuses on connecting the purpose and stagnant concept and the deterministic concept of the organisation (Krishnan, et. al., 2012).
Generally, the decision-support systems differ in the support amount provided by them in decision making. The decision making it has been of two types, it is either data-oriented or model-oriented. The data-oriented decision making retrieves objects of information. It categorizes the data into pieces and therefore thinks of it as a file drawer.
Data-oriented decisions that are taken depends largely on the judgment of the decision makers and therefore they are not reliable due to limitations of information processing. It makes the decision makers overloaded with the data and the information, significantly then they fail to incorporate the useful and important information (Chea, 2011).
Are the results from TOC system more beneficial for BPharm students?
Article #2: Developing an organizational perspective to management accounting.
Purpose of the study – This journal article is based on the developing an organisational perspective to the management accounting for Australia. The students of Australia had to go abroad especially to the UK and America for further studies on Management Accounting discipline. The issues provided by the management accountants on the implementation of Performance Management and Activity-Based Budgetinghave been discussed and serves as the basic purpose of the article. To better understand and the differences between the management accounting and traditional economics have also been the purpose of the article. The interrelationship between the management accountants and the human resource managers have been of great significance. The work of management accountant on analysing the cost of the operations and activities and providing it with accuracy with effective systems like ABB system helps the human resource managers to take the strategic decisions on a large scale (Kaspina, et. al., 2014). The effort of introducing ABB system for providing accurate results in organisations have been discussed and serves the basic purpose of the article.
Selected Journals for Understanding Implementation of ABB System
Research Question
Do organisational issues affect the development and effectiveness of Activity-Based Budgeting System?
Similarities in the two journals- The two journals are based on better understanding of the management accounting practices. Both the journals are focused on the activity-based budgeting system as a new approachfor the management accounting. The focus is on providing accuracy to the budgeting system with the help of activity-based budgeting method implementation. The firms are focusing hard on the changes brought about by the ABB system. Article 1 illustrates in length the importance of accounting management in the large firm whereas article #2 explains the importance of the accounting management for providing help in taking strategic decisions for the human resource managers.
Differences in the two journals-Article 1 emphasis on the importance of the TOC system in the pharmaceutical industry whereas. The study adds to the accounting literature. This study was done for examining the adoption and acceptance of the TOC system.
On the other hand, article #2 emphasis on the use of the ABB system in retail organisations for providing accuracy to their costing system. Article #2 focuses on the theories of the management accounting as they provide better opportunities for understanding the relationship between the management accounting and organisation in detail. It also involves the emerging issues in management accounting. The study focuses on shifting its focus from the orders and consumers to the activities (Lu, et. al., 2016).
Though the ABB system is very simple, effective implementation of the ABB system is required with the help of the software. Results provided by the ABB analysis have helped many companies in taking the strategic decisions at right time and making tremendous profits. The decision-support systems vary from in the amount of support provided by them to the managers and other decision-makers of the firm. Data collection in the organisations is basically case based or survey based. This data is not accurate and therefore decisions or analysis made on the basis of this data cannot be accurate (Harris and Durden, 2012).Therefore it has become significantly important that attention is paid to ensuring the measurement and definition of constructs reliable and valid.
Article 1-Specific Outcomes with justification
- The ABB system is merely a cost-reporting system and has solved the main problems leading to the accuracy and strategic decision making for the organisation. It is considered so because it helps in the strategic functions and decision making and supports the human resource department significantly as they are totally dependent on the management accounting department for taking the cost-related decisions. The ABB system helps in finding both the non-value activities as well as the value-adding activities (Lunkes, et. al., 2013).
- ABB system has changed the approach of decision makers from data oriented to model-oriented approach.While the ABB system is significantly rooted in the manufacturing industry, the cost-based businesses are also significantly benefited by the ABB system greatly. The firms are now approaching the ABB system primarily as a support for decision-making. Therefore, the companies should focus on including the important elements while performing the calculations. These important elements include providing a well-designed interface and relevant data along with appropriate and accurate analytical tools with automatic system updates. Proceeding with the correct approach,theABB system can be useful and helpful for the managers in making strategic decisions (Major, 2014).
Article 2- Specific Outcomes with justification
- Activity-based budgeting is basically compared with contribution method and/or absorption method.In production, planning and scheduling, the present decision inputs can be retrieved significantly. Though these activities are very important the value that needed for calculations come from the leveraging obtainable information (Oseifuah, 2014).
- ABB is needed for service departments so that the consumed resources can be then matched with the revenues.For determining the optimal product mix, the ABB is very important and plays a vital role. According to the study, the information provided for ABB calculation should not be limited but the relevant nonfinancial data should also be used for getting better and accurate results. With the combination of internal and external data as well as financial and non-financial data, accurate results can be achieved (Lueg and Morratz, 2017).
The overview of the report for accurate budgeting system the Amcor is using the ABB system. With the implementation of the ABB system, there has been a significant difference in handling order types, specifically the costs relating to each other (Schaltegger and Burritt, 2017). For the Amcor, the most expensive order cost was around 15 400 SEK in contrary to the least expensive cost of around 130 SEK. The estimates provided have been calculated with the help of the ABB system and are activities based. ABBimplication has been the important implications for the organization. The basic reason found out was due to the difference in consumption of activities (and resources). Introduction of ABB in a service department for Amcor has been of great importance (Suraeva, et. al., 2016). The ABB approach is a long time-consuming method, therefore, the companies nowadays are using the new time-driven ABB approach which consumes less time. It is basically simpler since the requirement for this approach as it includes only 2 parameters to study with the inference of time of activities.
Comparison and Analysis of Two Journals on ABB System
Furthermore, Amcor is using the time-driven ABB method as the managers take the time that is idle or unused for measuring the time spent on activities. ABB is very valuable for Amcor and it has provided efficiency to the strategic decisions taken by the managers.
Conclusion
To conclude, the implementation of ABB is not easy and therefore the efforts are to be made by the organisations in order to implement the system. The ABB software is of great help for the implementation purpose. The Amcor Limited has been using the ABB approach for a long time and has gained many benefits with the use of this system. Large-scale ABB implementation in the organisations has been suggested. The 2 journals selected have helped in understanding the importance of the various approaches of the Management Accounting and its concepts. The activity-based costing concept is being used by the manufacturing industries greatly as it helps in accurately estimating the cost of the processes and significantly helping the management to take strategic decisions on the basis of the accuracy provided by the ABB system. It not only provides accuracy in measurements and other scales but also provides a competitive advantage to the organization over other organizations in the same industry.Finally, to conclude the ABB system is most commonly used by the manufacturing industry for estimating the costs. The rate of accuracy is higher for the ABB system and therefore it provided benefits to the HR managers in their strategic decisions and benefitting the organization overall.
References
Bennett, M. and James, P., 2017. The Green bottom line: environmental accounting for management: current practice and future trends. Routledge.
Chea, A., 2011. Activity-based costing system in the service sector: A strategic approach for enhancing managerial decision making and competitiveness. International Journal of Business and Management, 6(11), p.3.
Chenhall, R.H., 2012. Developing an organizational perspective to management accounting. Journal of Management Accounting Research, 24(1), pp.65-76.
Dale, B.G. and Plunkett, J.J., 2017. Quality costing.Routledge.
Harris, J. and Durden, C., 2012. Management accounting research: An analysis of recent themes and directions for the future. Journal of Applied Management Accounting Research, 10(2), p.21.
Kaspina, R.G., Khapugina, L.S. and Zakirov, E.A., 2014. Employment of activity-based costing in the process of company business model generation. Life science journal, 11(8), pp.356-359.
Krishnan, R., Mistry, J.J. and Narayanan, V.G., 2012. A field study on the acceptance and use of a new accounting system. Journal of Management Accounting Research, 24(1), pp.103-133.
Lu, C., Sridharan, V.G. and Tse, M.S., 2016. Implementation of the activity-based costing model for a farm: an Australian case. Journal of Applied Management Accounting Research, 14(2).
Lueg, R. and Morratz, H., 2017. Understanding the error-structure of Time-driven Activity-based Costing: A pilot implementation at a European manufacturing company. European Journal of Management, 17(1), pp.49-56.
Lunkes, R.J., Feliu, V.M.R. and Rosa, F.S.D., 2013. Study of published articles on management accounting in Brazil and Spain. RevistaContabilidade&Finanças, 24(61), pp.11-26.
Major, M.J., 2014.Implementing Activity-Based Costing in the Telecommunications Sector: A Case Study. Journal of Telecommunications System & Management, 3(1), p.1.
Noreen, E.W., Brewer, P.C. and Garrison, R.H., 2014. Managerial accounting for managers. New York: McGraw-Hill/Irwin.
Oseifuah, E.K., 2014. Activity based costing (ABB) in the public sector: Benefits and challenges. Problems and Perspectives in Management, 12(4), pp.581-588.
Schaltegger, S. and Burritt, R., 2017. Contemporary environmental accounting: issues, concepts and practice. Routledge.
Suraeva, M.O., Grigoryants, I.A., Karpova, G.A., Khoreva, L.V., Schreyer, A.V. and Sirotkin, V.A., 2016. Prerequisites for Setting Up Management System in Municipal Retail Trade. International Journal of Environmental and Science Education, 11(14), pp.6796-6809.
Wouters, M., Selto, F.H., Hilton, R.W. and Maher, M.W., 2018. T Course: Management Accounting 1 [T-WIWI-102800]. Module Handbook Industrial Engineering and Management (B. Sc.).
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