Activity based costing model
Identify the features of ABC Costing model and features for the business.
Ideally, ABC costing is used to bifurcate the costing of business such as labour, electricity, water and resources of the company in its different work process department of organization. These all resources have their cost factors which could be used to classify the cost in the different work process of organization. The ABC costing model assists in proper allocation of the resources and suggests the way which could be used to reduce the overall costing of the business. By using the ABC costing model, Common Wealth Bank could easily determine the required amount of cost and time driven factors to classify the costs of the different work process department (Common Wealth Bank 2017).
The Activity based costing model is the most effective tool for the efficient classification of the business cost in the different work process department of Common Wealth Bank. This ABC model is used to analysis the deviation of the cost. Activity based costing model is a very effective as well as efficient way used by the organization as it helps in analyzing the deviation of cost in relation to the process work of the Common Wealth Bank and determine the actual class cost in the different work driven process. The main benefit of the ABC costing in Common Wealth Bank is related to its consistent tracking record, cost incurred and resource utilized in th work process of organization. It is observed that by keeping the proper track record on the identifying the cost incurred and implemented research and development department will eventually increase the overall efficiency of the business.
However, ABC model is ideally used or deployed for the bifurcation of the cost in the different work process department. With the increasing suitability and features of ABC model, is more suitable for the manufacturing companies. It is observed that resources allocation of the business could also be done by using ABC model costing. In Common Wealth Bank, ABC costing is used to allocate the resources in different work department and identify the least cost of the business process. It assists in determining the process cost drivers. However, Common Wealth Bank does not require implementing the ABC costing model in its business. Nonetheless, by using the ABC costing, Common Wealth Bank could ease its business process and could easily determine the process costing. It also assist in determining the future budget costing different work process program and cost drivers which may directly and indirectly impact the process costing of Common Wealth Bank (Anderson, Hesford, and Young, 2012).
Features of Activity based costing
There are several features which could be used by organization to make business more effective and profitable. The main feature of ABC costing model is to determine the least cost process of the different work department. It reveals the area and cost drivers on the basis of Which Company could determine the least cost of the business (Anderson, Hesford, and Young, 2012).
The cost drivers are the multipliers which are used by company to make the proper bifurcation in the cost process of organization. It sets the variable and fixe costing and also reflects the posibel changes in these costing with the changes in the production units. The ABC costing of Common Wealth Bank will focuses on the optimum utilization of the resources and minimizing the overhead cost of the business in different work department (Anderson, Hesford, and Young, 2012).
It is evaluated that there are no connection of the fixed cost with the increased production level however, variable cost of the business vary with the changes in the production units. Therefore, if there is no production then there will be no variables cost in the business process. The separation of the cost is done by using the ABC costing model. By using these models, Common Wealth Bank could easily determine the fixed and variable cost require to run the business effective. It also assists in determination of the break-even point, contribution point, margin of safety and lowest cost for the business process of Common Wealth Bank
Common Wealth Bank could use the cost drivers identified by using the ABC costing to determine the costing of its work process and set up the cost recording process in its books of accounts (Anderson, Hesford, and Young, 2012).
The fixed cost of the Common Wealth Bank is accompanied with the several costs such as depreciation, expenses in plants and machineries, buying land and building. On the other hand, variable cost accompanied with the several costs such as direct and indirect costing, overhead and administration expenses of business (Mahal, and Hossain, 2015).
Each and every organization has their own goals, objective and mission which is designed to achieve the ultimate target of its stakeholders. The main target of Common Wealth Bank is to achieve the delivery the best possible service and budgeting functions to clients for their better satisfaction. Common Wealth Bank always keep its business loyal towards its customers, stakeholder and employees at large. It is growing bank which have been offering all the financial and banking services to clients (Kim, et al. ., 2016.).
ABC model in accordance with the goals, strategies, missions and objectives of Common Wealth Bank
There are several points which need to be undertaken for the effective running of its business.
- It has been indulged in offering the banking and financial services.
- It has been growing its businesswhich has reflected 22% growth as compared to last year data (Common Wealth Bank 2017).
- Common Wealth Bank focuses on using the advance technologies and system process to increase the overall outcomes and render the best quality services to its clients.
- Earning trust and loyalty of client in market.
There is one statement which have been undertaken by the Common Wealth Bank for showing its vision and mission in long run (Zhang, Lee, and Zhang, 2016).
-“Making the matter what becomes better ”. All the managerial person of Common Wealth Bank focuses on rendering the customer oriented service which not only increase the clients satisfaction but also increase the overall productivity in long run.
The HR department of the Common Wealth Bank focuses on the providing the effective training and leaning program to its employees to make the effective use of the resources. All the employees are focused on creating value on their investment. The business environment of the Common Wealth Bank has been managed so effectively which not only increases the overall outcomes but also make employee more effective in their work ( Aksenov, et al. , 2015).
The communication of vision, mission and objectives of the Common Wealth Bank creates a sense of responsibility among the employees.
The main strategies of Common Wealth Bank is related to the product differentiation and cost leadership strategy which will be used by Company to win over the market (Oseifuah, 2018).
How ABC model assist in achieving the strategies of Common Wealth Bank (Common Wealth Bank 2017).
It is observed that ABC model is the most suitable method which not only reduces the overall costing of the business but also increases the efficiency in determined approach (Common Wealth Bank 2017).
The ABC model is the most perfect model which is used to identify the cost associated with the process system of the organization and increase the overall output. It also assists in setting the budget of the business and increase the overall outcome. The ABC Model assists in planning the budget which will be used to expand the business in long run. It basically analysis all the impact of the expansion plan of the Common Wealth Bank and lower down the cost associated with the strategies. The ABC costing assists in decreasing the ultimate price of the offered service and win the market with the cost leadership strategy. ABC costing of the Common Wealth Bank focuses on identifying the ways or process system to lower down the cost and increase the effectiveness of the business it not only attracts customers to avail the service from the Common Wealth Bank at least cost but also increases the overall outcomes in effective manner (Namazi, 2016).
How ABC model assist in achieving the strategies of Common Wealth Bank
After analyzing all the positive and negative factors of the ABC costing model in Common Wealth Bank, it could be advised that Common Wealth Bank may or may not use this costing method. Common Wealth Bank is indulged in offering the banking and financial services for which ABC costing model is less effective for the effective business functioning (Kalhor, et al., 2016). The ABC costing model is the most suitable method which assists in lower down the cost of business by classifying the cost in different work process department and increasing the efficiency of the business. Common Wealth Bank should also focuses on using the balance score card approach and flow chart diagram if it wants to implement the effective banking and financial services in market.
Two recommendations
- Common Wealth Bank should hire of expert employees who could effectively use ABC costing model
- Setting parameters to determent the cost drivers.
However, Common Wealth Bank should use this ABC costing model effectively by following proper procedure and effective tool to increase the overall outcomes of the business.
The life cycle costing model is best suitable costing management tool which could be used by Common Wealth Bank in its business (Todic et al. 2017).
There are several management accounting tool which are mostly suitable for Common Wealth Bank such as flow chart diagram and life cycle costing method and balance score card approach. It is observed that Common Wealth Bank has kept it business more clients oriented and increased its business functioning for the better satisfaction of clients.
It is observed that life cycle method will be used by Common Wealth Bank to increase the overall outcomes and deals with the procurement cost and find out the cheaper way of doing the business. It assists in helping the online side of the business (Tsai, et al. 2015).
The life cycle costing will be more suitable for the Common Wealth Bank which will increases the overall outcomes and increased business efficiency. If these systems are used to bifurcate h cost in the different work department.
Conclusion
After analyzing all the details and facts of ABC costing model, it could be inferred that the use of the ABC costing model will not only increase the overall output but also increase the overall efficiency of the business. It is considered that As the Common Wealth Bank is indulged in offering the banking and financial services for which ABC costing model is less effective for the effective business functioning. Now it could be inferred that by using the ABC costing model is less effective for the Common Wealth Bank and it should focuses on using the life cycle costing method. These all costing systems have their own pros and cons which should be assessed by company to implement whether the particular costing model should be undertaken. Now in the end, it could be inferred that by using the ABC costing model, Common Wealth Bank could easily determine the required amount of cost and time driven factors to classify the costs of the different work process department.
References
Aksenov, V.V., Walter, A.V., Gordeyev, A.A. and Kosovets, A.V., 2015. Classification of geokhod units and systems based on product cost analysis and estimation for a prototype model production. In IOP Conference Series: Materials Science and Engineering (Vol. 91, No. 1, p. 012088). IOP Publishing.
Anderson, S.W., Hesford, J.W. and Young, S.M., 2012. Factors influencing the performance of activity based costing teams: a field study of ABC model development time in the automobile industry. Accounting, Organizations and Society, 27(3), pp.195-211.
Common Wealth Bank 2017., Annual report., [Online]., Available from https://www.nab.com.au/about-us/shareholder-centre/financial-disclosuresandreporting/annual-reports-and-presentations., [Accessed 14th May, 2018].
Kalhor, R., Amini, S., Emami, M., Kakasoltani, K., Rhamani, N. and Kalhor, L., 2016. Comparison of the Ministry of Health’s tariffs with the cost of radiology services using the activity-based costing method. Electronic physician, 8(2), p.2018.
Kim, Y.W., Han, S.H., Yi, J.S. and Chang, S., 2016. Supply chain cost model for prefabricated building material based on time-driven activity-based costing. Canadian Journal of Civil Engineering, 43(4), pp.287-293.
Mahal, I. and Hossain, A., 2015. Activity-Based Costing (ABC)–An Effective Tool for Better Management. Research Journal of Finance and Accounting, 6(4), pp.66-74.
Namazi, M., 2016. Time-driven activity-based costing: Theory, applications and limitations. Iranian Journal of Management Studies, 9(3), p.457.
Oseifuah, E.K., 2018. Activity based costing (ABC) in the public sector: benefits and challenges. Management, 12, pp.4-2.
Todic, V., Cosic, I., Maksimovic, R., Tasic, N. and Radakovic, N., 2017. Model for simulation of life cycle costs at the stage of product development. International Journal of Simulation Modelling, 16(1), pp.108-120.
Tsai, W.H., Tsaur, T.S., Chou, Y.W., Liu, J.Y., Hsu, J.L. and Hsieh, C.L., 2015. Integrating the activity-based costing system and life-cycle assessment into green decision-making. International Journal of Production Research, 53(2), pp.451-465.
Zhang, L.L., Lee, C. and Zhang, S., 2016. An integrated model for strategic supply chain design: Formulation and ABC-based solution approach. Expert Systems with Applications, 52, pp.39-49.
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