Wesfarmers Company Overview
Budgeting is considered as a procedure through which a company lays down there the financial plan for the future year. Hence an efficient budgeting system within a company will ensure that there is an effective financial plan laid down by the company to ensure its future financial success. Budgeting has been a prominent part of management accounting for future management of cash inflow and outflow. It helps a company to effectively maintain a high level of plan regarding monetary management that increases the efficiency of the company to incur incomes and expenses. Increasing the managerial efficiency of form in term of finance can be achieved by applying a suitable business budgeting method that derives all the essential elements needed by a firm to be financially efficient. The company selected for current assessment or will be regarded a client’s firm is Wesfarmers a company based in Australia. The budgeting method will be evaluated and the suitability of A Budgeting within the firm budgeting system will be determined in order ensure the benefits and limitations which the firm might face through the implementation of Activity-based Budgeting system in the management account system.
Wesfarmers is a company based in Australia is considered to be one of the biggest firms in the country founded in 1914. The following is headquartered in Perth Australia and is considered as Conglomerate Company in the country. Conglomerate means a company that works in different industries with their subsequent subsidiaries. The company has a predominant business working and focusing on Australia and New Zealand. The industry in which the company works in is coal mining, retail supermarket, chemical fertilizers, industrial and safety industry. This shows that the company has diverse financial sources through which it generates income and there are various fields in which the company has to incur expenses for operation. It has been considered as one of the largest company in Australia in terms of revenue which shows the financial status and size of the company in the market and level of monetary assets which the company has to manage. The company is also listed on the Australian Stock Exchange market and is a public trading company within the country (Group, 2018). The company is also known for employing the highest number of employees in the country that shows that the workforce of the company is also very diversified. In the early stage of business, the company started to provide service to Western Australian Farmers through fertilizers and assistant. In the year 1984, the company got listed on the ASX and emergent as retail conglomerate for the country. In the initial stage of the business, it was seen that the company was under the management segment of cooperative ownership but from the year 2001 it started trading as a public company with open ownership as the company was now interest in acquiring other companies (Group, 2018).
One of the major operations that the company conducts is operating in the supermarket or retail industry. The company’s subsidiary Coles is known to be supermarket giant in the Australian and New Zealand Supermarket industry. It is a huge retail outlet that incurs one of the major sources of income and expenses earned by the company in an annual year. Coles is Regarded as one of the major components that the company has in terms of generating income. The retail industry has been one of the most efficient industries in income and profit margin of the company. Coles being a giant in the market has huge consumer bases and income through which it is able to incur a high amount of revenue and maintain its financial stability in the market. Other than Coles the company also has a good hold in Chemical, energy and Fertilizer industry which is named as Wesfarmers Chemical energy and Fertilizer which sells products related to chemical fertilizers such as ammonia and ammonium nitrate. The company also deals in LPG and LNG energy sources through this venture of operation (Group, 2018). Other than this the company also operates in the resources industry where it has ventured for steaming coals for domestic power generation. The company operate in Industrial and Safety industry as well under which it has acquired Pacific Brand Limited which is benchmark company in the industry rendering business Fasteners, Packaging House, King Gee, Hard Yakka, Stubbies and GotStock and others. Other than in core business the company also looking for entering the hardware industry any time songs and also trade internationally to increase its operational efficiency.
The Need for Effective Budgeting System for Wesfarmers
It can be said that the company has a diverse range if operation and industry in which it has to operate in for this purpose it is essential that the company had effective budgeting system for fund allocations to different operations and subsidiaries working in the different industry. In this context, the company use Traditional Budgeting system. It had been seen that the company had been facing a problem, regarding the expansion of the budgeting system to different types of industry in which it was working in. The corporate governance within the company is focused on creating value for its stakeholders that will enhance the overall brand value of the company and will be in the benefit of the stakeholders of the company (Group, 2018). For this purpose, there will a need of efficient financial management system and budgeting system. The following will be discussed in the below sections.
Activity-based budgeting is considered to be one of the finest forms of budgeting system in which business can choose to increase the effects of the budgeting system. The budgeting method is made to increase and maintain a high level of transparency in the budgeting process (Ben-Aderet et al. 2015). In the Activity-based Budgeting system, the organization recognizes the units if expenses which generate revenue for the company and allocates fund in accordance with their demand and importance to increase the income of the firm. It has been seen that ABB process is focused on empowering the focus of the company on the accountability for a resource generating income units and creates efficient understanding on the demand of units to manage resources allocation and findings efficiently. It helps the organization to have direct controls over the cost and to create new units to increase e-resources allocation effect of the firm in its operational procedure (Langfield-Smith et al. 2017). It can be said that as it offers direct control of resources allocated to the management, the following can effectively align the budgeting process to the strategic goals and objectives of the company making the budgeting process more viable and feasible to operate in. It can be said that in the process of ABB the company mainly identifies and analyzes the key activities which are performed by the company based on which the cost incurred in the activities are determined. The process searches for the efficiency in different business activities and develops budget resources required according to these activities. ABB method of budgeting is an efficient model for budgeting under companies with different subsidiaries, high amount of customers, diverse business locations and diverse range of services which are being rendered. According to the ABB model of budgeting, it has been seen that under the ABB system cost drivers are the units that are responsible for generating income and expenses for the firm (Kalhor et al. 2016). The stages that are involved in the ABB process is very simplified this includes determinations of the Number of units which are related to each activity which are performed by a company in an annual year. In the second stage cost per unit of the activities are determined to delineate funds in accordance with different activities level. Now the advantages of using the ABB system within a company are that the following method allows a high amount of control over the budgeting process. The companies through this method are able to properly allocate funds and resources in accordance with their activity levels and importance makes the process more precise and specific. It can be said that through the use of ABB a company can efficiently allocate cost in terms and importance of the activity in the line with the strategic goals and objectives of the firm. This means that through the use of ABB the company can effectively align the goals and objectives of the company. This means the use of this system will enhance the control of the management towards its budgeting process and this will make the budgeting process more efficient in the firm. Now there are some limitations that the company has to face in order to implement the system. It has been seen that this system incurs more cost in implementation, operations and maintenance. It can be said that the company will have to incur a high cost for operating such a budgeting system (Mahal and Hossain, 2015). In order to operate the following budgeting system, the company will have to maintain a high level of expertise which means it will have to bear extra cost in employing personal and professional conducting the budgeting process with efficiency. The features of ABB are as follows:
- It is a precise and specific budgeting method
- Its unit is the major parameter of activities based on which the cost allocation is done
- The process involves the determination of and definition of the cost needed according to the demand
- The approach of this budgeting process is more practical
- It provides direct controls to the management over the process of budgeting
- It helps the company align its goal and objective to the budgeting process.
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Subject |
Traditional Based Budgeting |
Activity-Based Budgeting system |
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Ease |
Traditional Budgeting method or Zero Based budgeting method is the easiest form of budgeting process which can be conducted by a company in three operational activities. The parameter is easy to identify and calculations thus made are simple in nature. As it does not take historical data into consideration is has a very simple framework to apply while budgeting. |
Activity-based budgeting is a complex process to implement while budgeting for the operations of a firm. It applies revelations of historical data to get information on cost units, activities performed and their respective importance to the firm. In this respect, the framework which is applied for ABB budgeting is complex in nature (Miller-Nobles et al. 2016). |
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Alignment to strategic plan, goals and objective |
It can be evidently said that under the traditional based budgeting system there is no proper relevance of strategic plans, objectives and goals set by the company. It can be stated that the budgeting is performed by the needs of the firm regardless of their alignment with the goals and objectives of the organization. |
In the context of ABB budgeting system, it can be said that through the following budgeting system companies can align the strategic goals and objectives of the company to the budgeting process in order to increase their financial efficiency. Thus It can be said that Alignment of strategic, plan, objective and goals are there under this budgeting process. |
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Cost Optimization |
This budgeting procedure is an aid to be used for cost identifications purpose rather than cost optimization purpose. In accordance with this budgeting process, the cost is thneed of the company to conduct their operation hence cost has to be incurred. It thus can be said that the level of cost optimization low under this budgeting process (Gurcanli et al. 2015). |
Optimization of the cost is a core objective under this process of budgeting. Historical data is considered to know the overall requirements of the company in accordance with income-generating capacity. In this way through the use of budgeting the company will be able to optimize cost i9n a very efficient way. |
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Time |
Time taken in this type of budgeting process is very low as the there lower amount of calculations and assumption which the analyst has to take in order to prepare the budget. On the other hand, the process does not consider historical data and does no cinder future requirements. It can be said that it takes time but is not very time-consuming. |
On the other hand, the ABB process is a budgeting process involves a lot of consideration from past and future. On the other hand, the calculations are descriptive in the procedure as it requires a lot of calculations. Hence the process is very time-consuming so as to provide accurate results (Seuring, Archangelidi and Suhrcke, 2015). |
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Control |
It can be said that all the management has control over the budgeting process under this process the level of controls is not that high there is no direct control of the management in regards of the traditional or zero-based costing process (Taylor et al. 2015). |
Under this budgeting process, there is direct control of management over the budgeting process which is conducted as there various information required. The management directly controls the budget in accordance with the future budgeted activities by allocating cost accordingly This means that there is a direct control of the management in this budgeting process. |
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Efficiency |
It can be said that in terms of efficiency it can be said that for the purpose maintenance budgeting Traditional or zero-based costing procedure is very efficient but for future operational operations budgeting it is termed to be less efficient (Zhu et al. 2016). |
It can be said that it can be seen in the operations of the firm that ABB costing increase transparency, viability and effect of the budgeting process but being more practical, precise and specific. On this terms, it can be said that the process is highly efficient for a company’s future operational budgeting. |
Activity-based Budgeting System
Discussion on whether the ABB is suitable for the firm
Wesfarmers is a company on its growing trend hence adding ABB into its budgeting system would beneficial for the company in the sense of growing the company must use the system in accordance to model business environmental. It can be said that ABB will suit the operational activities of the Wesfarmers as the company is big, has a diverse range of operations and a high amount of monetary fund’s present in the firm (Bichou, 2015). In case of this Wesfarmers situation, it can be said that ABB is an ideal budgeting option through the help of ABB Wesfarmers will be able to create a budget for its different operations activities which it conducts. It can also be said that as the company has so many subsidiaries it can use ABB efficiently in order to create a budget from different subsidiaries which the following has in different industries (Noreen et al. 2014). This will increase the efficiency of the company in budgeting in the right manner with consideration of major parameters which are to be needed while budgeting for subsidiaries in different industries. ABB is considered as one of the most ideal budgeting systems for companies having subsidiaries hence it can be said that Wesfarmers has so many subsidiaries that it will be able to budget the expenses of the act subsidiaries accordance to the activities performed by the following in their respective industries (Kaplan et al. 2014).
ABB is also considered to be an effective budgeting system to ensure budget of financial activities which the firm carries out for acquiring new business in a financial year. It can be said that Wesfarmers always has an approach of considering the acquisition of companies and investing in a new firm for the expansion of the business. Hence it can be said that the ABB can be used for the strategic goals of Wesfarmers in acquiring new forms for expansion in different industries. Wesfarmers has a strategy of continuously expanding in different sectors and industries (Waters, 2015). Hence the ABB budgeting procedure will ensure that the company is able to create effect budgeting plans for there expansion process as this will help the company effectively winter markets and new industries and will help the following in their expansion process
It has been stated in the above sections that ABB budgeting process is aligned with the firm strategic plans, objectives and goals. In this sense, the company will be to ABB to align the budget of the company to their respective goals. Wesfarmers can also have direct control over the budget and can align the following to their future strategic goals and objectives. The budgeting process through ABB method will be more precise and goal oriented which will help the company to precisely follow their strategic plan and achieve their objectives.0 It can be said that through the budgeting process the company is able to know the real-time financial needs of the company in accordance with their activities (Al-Sayed and Dugdale, 2016). This will help the company to identify the important and the unimportant activities carried out by the firm which will help the follow in optimizing cost to increase the profit margin of the firm effectively. It can also be said that the company can effectively use the following procedure of budgeting to ensure that there no major financial barrier in the operational activities of the firm which will ensure the financial stability of the firm in the future of their operation. Although the company will have to incur higher budgeting cost it viable that the following budgeting implementation will benefit the company. Hence it can be stated that the Activity Based costing method is suitable for the operational activities of the company (Bruhn et al. 2018).
Benefits of Activity-based Budgeting System for Wesfarmers
The Wesfarmers could easily evaluate and change the required aspect of business operation by just going through the actual aspect. Moreover the business organisation can be more accountable by the utilisation of the ABB costing. The use of the process for proper and accurate manner of pricing can be used relentlessly. Service Industry do get benefit in this format of accounting but retail like the Wesfarmers need to evaluate the pros and cons of the implementation that may create issue later. Traditional budgeting may allow an extra cushion for self calculation and authority, but that would lead to the ill management of time (Dale and Plunkett, 2017).
Conclusion
Concluding in the light of the above context it can be said that there are various benefits that the Wesfarmers will receive through the implementation ABB budgeting system within their organization. It can be said that this will better the budgeting efficiency of the company. It can be added that making proper decisions regarding changes in the financial management system of the company according to the needs of the following is very important. This helps the company to effectively make the overall management of the company efficient.
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