Explanation Activity-based model and its features
Discuss About The Explicitly Comprehensive Energy Management.
Origin Energy is one of the Listed Company in Australia. The Company undertakes the energy business. The organization consumes the massive amount of resources, and the cost of energy is also increasing, and the prediction is that the trend will continue even to the future years to come. The constant changes that happened in the sector of energy and necessitate them to acquire relevant information useful in decision making, need a rethinking on the type of the costing system that the Company should apply to be active in the industry. Due to the financial and economic manifested in the sector, Origin Energy must discover ways to stay strong as well as reducing costs; ensure that its activities continue as usual in the industry with the role of becoming best of the best in the industry. Therefore, the company requires different measures to enhance the information system as well as ensuring that the operational track most of the costs in the company. The complexity of the organization and other different challenges such as ways to monitor the energy within the processes necessitate the organization to model the systems, but the system Complexity will make the organization to suffer more costs regarding information and time to facilitate the creation of the model. At the same, most of the organization such as the Utility Companies begins to implement modern technologies to facilitate the distribution of energy. The most favorable management accounting tool that will enable the Origin Energy to solve most of the issues that affect its operations and be relevant in the industry is the adoption of the Activity-based costing model. This approach will enable the management to verify whether a particular Response and Demand is viable to the organization. The method will also assist in modeling how the facility uses the energy. It will also offer the required structure to be used in evaluating the product and processes costs in the organization. The paper is separated into parts with each part discusses the issues relating to the Activity-based costing.
ABC is the management accounting tool used to find costs to process or product of the Company. Rather than apportioning costs directly to specific products and services, they are allocated to the Company’s activities (Dalci, Tanis and Kosan 2010). Then, the products cost are calculated by finding out how each product has used each activity. This approach requires the knowledge and skills of the model process to find out the costs distribution. The data obtained can allow the organization to predict the future costs. Activity-based costing is mostly preferred than other forms of management accounting (Maclean, Jagannathan and Panth 2018). ABC applies the method where it traces resources used in to perform specific activities then it cost object to get a precise distribution of cost. A cost object represents process or product, whereas the events are actions which the organization must undertake to ensure that there is the creation of cost objects (Brotchie, Hall, Newton and Nijkamp 2017). Resources represent the objects consumed by all activities which lead to costs for example Material, labor, equipment, etc. The idea started by the Activity-based costing is that cost object use activities which then used the company’s resources, and actual use of the resources resulted in costs (Sarkis, Zhu and Lai 2011).
Explanation of how Activity-based costing aligns with the goals as well as strategies of the Origin Energy
Activity-based costing has the features that can make it be identified from another type of the management accounting tool. The characteristics or features include: it has the cost drivers which are used in tracing resources to the operational activities then activities to cost objects. The approach has two kinds of costs that is variable cost and then the fixed costs which are used in the provision of quality information in the organization (Rajemi, Mativenga and Aramcharoen 2010). The cost driver of the model also helps in dictating cost behavior design.
Explanation of how Activity-based costing aligns with the goals as well as strategies of the Origin Energy
The mission of the Origin is to lead in the transition of smarter, customer-centric, and cleaner energy to their customers (Moriarty 2018). The objectives of the Origin Energy include establishing the closer focus on their customers, building trust and loyalty and delivering different products to their customers, for example, predictable plan. The Company ensures to use Analytic as they continue to offer different products as well as achieving their customer-centric goals. Another objective of the origin is providing electricity products and natural gas to all of their customers in the market (Amiri and Weinberger 2018).
Origin Energy focuses on being one of a successful organization in the market among the competing firms that offer the same products. The primary strategy of the Origin Energy is to ensure the connection of energy resources to its market (Imteaz and Ahsan 2018). It has the following strategic priorities: To deliver leading customer solutions and experience, create resources to balance the increasing demand of gas, ensure that there is disciplined in the management of capital, and embrace digital and a decentralized future (Filapek 2018). Other strategies include moving toward the production of clean energy and also being one of the lower cost operators. The Origin Energy mainly focuses on what matters to their customers. The company aims at improving each day to be better in the future (Merkenich 2018). This will motivate them to build and grow the business, connect their customers to the technologies and energy of the future. These strategies help to set the path and give direction to the Company. It informs the company what they have to deliver based on the on the opportunity cost and priorities. The strategies can also tell the organization where it is headed to regarding fulfilling the set goals (Amiri and Weinberger 2018).
ABC system will allow the organization to apportion all the costs of resources to functions or activities. Nevertheless, the Activity-based costing model can be applied in the organization to find the allocation of a particular price of resources all over the Company, for example, the cost of energy. With the distribution of energy cost, management will be able to find out which activities, as well as cost centers or products, are incurring the highest value of energy and consuming the highest amount of energy (Govindan, Khodaverdi and Jafarian 2013). This information will then enable the organization to detect the probable energy waste. Management can then put its efforts on the departmental areas where there is a significant amount of energy which is being used and then evaluates them with the intention of finding out whether a redesign is capable of reducing waste as well as increasing the efficiency of energy. Activity-based costing will also offer actual cost information that the organization can use to ensure that there is energy saving in specific functions or areas (Maclean, Jagannathan and Panth 2018). The approach will, therefore, be useful in the organization in that it will facilitate the management decision making relating cost issues. The organization will improve their performance hence leading to the profitability in the long-run (Drury 2013). The use of Activity-based costing will also enable the organization to improve their financial performance. The will increase the profitability and improve the performance in the following ways: It will identify the exact cost drivers as well as overhead costs leading to active business processes (Catherine, Soundarrajan and Louis 2018). The manager will be able to develop a hint of the business processes that perform well and those that are wasteful through the allocation of both the indirect and direct costs of their products. The costs data of the Activity-based costing is equally important because it will help the management to come up with optimal choices about how they should assign the limited resources of the organization. Therefore, effective implementation of this approach of management accounting into the system of the Origin Energy will enable them to achieve most of their strategic priorities (Tejera, Rios, Martínez and Palacios 2018).
Objectives and mission of the Origin Energy
The application of ABC will necessitate the establishment of the process of effective change management. The process will have the responsibility of ensuring that the organization supports the system. It will involve putting in place the top manager to fight for the initiative and the issues that affect all the employees regarding the implementation of the Activity-based costing system (Fang, Ma and Luo 2018).
The implementation of Activity-based costing will necessitate the organization to put in place enough resources, such as time, competent team, hardware, software as well as the human support (people). So, the organization needs to provide enough people and material to help in completing the implementation process of Activity-based costing. All the stages that the model through require enough resources. Such as, the implementation stage needs enough funds and knowledge, skilled personnel’s (García, Istrate and Iribarren 2018).
The proper management accounting that the organization should develop is the (ERM) Enterprise risk management. This will enable the organization to identify the risk as well as providing a suitable method of addressing the risk factors for the achievement of the set strategic objectives (Etges, Souza, Kliemann and Felix, 2018). It will also enable the organization to be ahead of its competitors. The process of managing risk is an important factor used in the strategic management of any form of organization. Therefore, Origin Energy should include Enterprise risk management in its ongoing activities. This approach will offer awareness of the various risks that affect the organization as well as providing suitable methods of solving them effectively. It will also enhance the confidence of the management and the entire employees about the accomplishment of the company’s strategic objectives.
Conclusion
This paper provides ways in which the Origin Energy can use Activity-based costing to improve the decision-making process. The management can use the model to solve most of the problems faced by Origin Energy. Being that the organization is related to the sector of energy, the volume of fixed costs is high, and the only model that can help to reduce the costs is the Activity-based costing model. The approach will not only increase the profit of the entity but also increased the perceived value of the customers. Therefore, any organization wishing to increase their profitability and improve their decision-making process should use ABC model.
References
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