Overview of company
Discuss about the ABC Model And Analysis of Bellamy’s Australia.
The aim of the report is to present the details related to the ABC model of accounting that can improve the management of the accounting information available to the top management team of the company. The company that has been selected for the analysis is Bellamy’s Australia. The report is present to the Board of directors of the company by the hired account who is suggesting the company to implement ABC model. Moreover, it includes the detailed description related to model and its contribution to accomplish strategies of the company.
Bellamy’s Australia is well-known organic companies in Australia that is originated by Tasmanian family in year 2004 with the motive to offer appropriate nutritious organic products for their kids. The company offers a wide variety of organic food and formula products for babies, toddlers and young children with more than 30 products (Bellamy’s organic, 2018). The company is also recognized as the largest organic infant formula producer.
ABC model
ABC model stands for the Activity-based costing method. It is an accounting technique that determines activities related to a business and then allocates indirect costs to goods. ABC systems identify the relationship among the costs, activities and the products and with the help of relationship it allocates the indirect cost to the goods less arbitrarily than the traditional method of costing (Investopedia, 2018). This method is generally used by the manufacturing industry because it helps them in enhancing the dependability of cost data. Therefore, they produce nearly accurate costs and better classifying the costs suffered by the firms at the time of the production process (Mitra, 2016). In simple words, it can be said that it is costing methodology that determines the actions in an association and assigns the cost that is associated with each resource to all the products and services after considering the consumption of each. Moreover, this model allocates more indirect cost (overhead) into the direct cost if we compare it with the conventional costing (Accounting tools, 2017).
ABC method was first defined by Kaplan and Bruns in the late 1980s. ABC is measured as a modern substitute for absorption costing that permits the manager of the company to understand the product and customer net profitability (CGMA, 2013). ABC costing provides the business with effective information so that they can make the value-based and effective decisions for their business activities. In the ABC method of costing, an activity is generally considered as any business or event that works as a cost driver. A cost driver in this model is also known as activity driver and it refers to an allocation base. This model includes two major activities measures which are: –
- Transaction drivers: – It involves the number of times an activity occurs.
- Duration drivers: – These drivers measure the time that activity takes to complete (Dale and Plunkett, 2017).
ABC model and its features
Activity-based costing method works effectively in the complex environment of the business where the business involves many machines and products along with the tangles processes that are not easy for the company to sort out. Most of the companies found that the implementation of ABC model by the managers helps them making the decisions related to the accounting.
Features of Activity-based costing
- The cost of the company is divided into two types; fixed and variable cost. ABC model design a suitable cost system in the company which is essential to offer the quality information (Weygandt, Kimmel and Kieso, 2015).
- ABC enables the proper distinction between the cost behavior patterns of the company.
- Activity-based costing model provides the accurate details related to the cost that is associated with the product and service of the company due to which companies make accurate price decision.
- This method of costing generates an understanding of overheads and cost drives that contribute to make the activities like costly and non-value adding activities more visible to the company. Therefore, the manager can easily reduce and eliminate these types of overheads and cost drivers (Cooper, 2017).
- The maintain characteristic of ABC model is that it supports performance management techniques like scorecards and management techniques.
The mission of Bellamy’s Australia
The mission of the company is to produce wholesome organic food for the children’s including babies and infants. The company wants parents to provide their offspring a Pure Start to Life (Bellamy’s Australia, 2018).
The objective of Bellamy’s Australia
Every company has both long-term and short-term objectives. Similarly, Bellamy’s has both growth objectives in which they focus on the growth of the business. The objective is to become focus towards the finest quality, modernization, firming up its brand awareness and variation of its sales channels (Bellamy’s Australia, 2018). Along with this, the company wants to form a sustainable functional platform through improvement of its inner systems and functional processes. This reflects that the overall objective of the company is continuous growth and expansion of the business.
Corporate strategies of Bellamy’s Australia
The company tried to achieve the objective of a company by following the corporate strategy. The major strategy that is followed by the company includes effective distribution channel as this is the effective way through which the company can support the growth of the business. Bellamy’s Australia has invested a huge amount in the supply chain as this help them in making the raw material inventory measured and deliberated one. This strategy helps the company to continue flexible and quick to respond to the fast-growing market demand for the product.
The multi-channel distribution is one of the effective strategies that are implemented by a company and this will help the company in achieving the objective of growth and expansion.
Another strategy that is implemented by the Bellamy’s is related to the expansion into the new exports markets outside of Asia. The company is looking to expand their business for which they export the products (Bellamy’s Australia, 2018).
The achievement of strategies of the Bellamy’s Australia is done with the help of the ABC model assistance. This method of managing the accounting information is one of the effective methods with the implementation of which the company can accomplish their objective.
For distribution strategy
Bellamy’s Australia can use the Activity-based costing method with the distribution channel. The multi-channel distribution is commonly termed as the logistics of the company. Customer’s satisfaction with the products is totally dependent on the cost of the product that they are offering to its customers. The improvement in the distribution channel will help the company in reducing the cost which is one of the ways through which the company can attract new customers and leads to the customer satisfaction (Miller, 2017). The cost that the companies charge from the customers totally depends on the decisions that they make related to the realization methods of their logistics activities. ABC method alignment with the strategy will help the business in reducing the logistics cost and to offer the high level of customer service demanded. Moreover, it is essential to identify the resources used in every single activity through an efficiency logistics cost examination system. Activity-based costing in the Bellamy’s Australia will lead to the subdivision which is given below: –
ABC aligns with goals and strategies
The analysis of the logistics cost require the breakdown of the activities and creating a map of logistics activities for Bellamy’s company. ABC uses the concept of the resource driver for the particular activities that is simply a factor that can influence the cost (Christopher, 2016). The activity emphasis on most important processes and sub-processes carried out in the Bellamy’s Australia that includes different business functions. Once the resources related to the activities have been imputed, it is essential for the company to determine the factors that can generate the demand related to the activities for each cost object. Activity-based costing will provide the help in determining at least one activity driver (Joshi, 2016). This assortment of cost driver is essential because it affects the level of accuracy of the concluding object cost assessment. ABC raises the usage quantity of cost driver in carrying out the activity by the unit cost of the driver. The identification of the cost will help the Bellamy’s in reducing the cost so that they can offer the products at low prices to the customers which is essential to form a connection with the new customers.
For exports of products strategy
The export of the products also includes the cost that the company has to bear for exports. The activities that help the company to achieve the growth include cost which is very high and this will reduce the profit of the company. Therefore, the use of the Activity-based costing model is very effective as this model allow the company in reducing the cost of the company. The allocation of the resources is evaluated with the help of which the company can evaluate the cost that is linked to a particular activity. The alternative solution for the particular activity might help the company in reducing the cost (Wu, Wang, and Cheng, 2015). This will help the company in making the maximum amount of revenue that is essential for the company to establish a business in the market of Asia.
The research and findings related to the ABC model reflect that it is a method which every company implements in this competitive world. The implementation of the ABC method is not easy to be implemented by the manager of the company. Therefore, it is recommended to the company to hire an experienced accounts expert who is good at implementation of ABC costing. Considering the fact that operations of the Bellamy’s Australia are complicated due to which there is need of the expert who can focus on every activity.
ABC model assist in achieving the company’s strategies
It is also suggested to the company to keep monitoring and evaluating the implementation of the ABC model in their business as this is the only way through which the company can check the effectiveness of the business. While monitoring if the account finds the improvement in the revenue, sales, and reduction in cost then they can treat it a positive sign that ABC model is working effectively. Moreover, it is recommended to the company while implementing the Activity-based costing method company should analyze the allocation of the resources effectively because without that implementation of ABC will not take place effectively.
Bellamy’s Australia can make use of the Balance scorecard tool that helps in monitoring the performance of the company. It helps the company to measure the efficiency of the machine and labor in compare with the investment that is made by the company. Balance scorecard technique provides the insight of the financial, internal, organization and customer perspective. Therefore, the company can make use of this tool of managing the accounting (Hansen and Schaltegger, 2016).
Conclusion
In the end, it can be concluded that Activity-based costing method is one of the effective methods that help the company in the analysis the cost that is associated with every activity and provide them the assistance to reduce the cost which is essential for the companies in the competitive world. Similarly, the use of the ABC model by the Bellamy’s Australia leads to the advantage for the company as with the help of this model company will be able to identify the cost that is affecting their business activities and operations. Along with this, the reduction of this cost will help the company in achieving the profit and will also lead to customer satisfaction, retention and attraction.
References
Accounting tools (2017) Activity-Based Costing [Online]. Available from: https://www.accountingtools.com/articles/2017/5/14/activity-based-costing [Accessed on 10th May 2018]
Bellamy’s Australia (2018) Annual Report 2014-15 [Online]. Available from: https://www.annualreports.com/HostedData/AnnualReportArchive/B/ASX_BAL_2015.pdf [Accessed on 10th May 2018]
Bellamy’s Australia (2018) Annual Report 2015-16 [Online]. Available from: https://www.annualreports.com/HostedData/AnnualReports/PDF/ASX_BAL_2016.pdf [Accessed on 10th May 2018]
Bellamy’s organic (2018) About Bellamy’s Organic [Online]. Available from: https://www.bellamysorganic.com.au/about-us/ [Accessed on 10th May 2018]
CGMA (2013) Activity-based costing (ABC) [Online]. Available from: https://www.cgma.org/resources/tools/essential-tools/activity-based-costing.html [Accessed on 10th May 2018]
Christopher, M. (2016) Logistics & supply chain management. UK: Pearson.
Cooper, R. (2017) Target costing and value engineering. New York: Routledge.
Dale, B.G. and Plunkett, J.J. (2017) Quality costing. New York: Routledge.
Hansen, E.G., and Schaltegger, S. (2016) The sustainability balanced scorecard: A systematic review of architectures. Journal of Business Ethics, 133(2), pp.193-221.
Investopedia (2018) Activity-Based Costing – ABC [Online]. Available from: https://www.investopedia.com/terms/a/abc.asp [Accessed on 10th May 2018]
Joshi, A. (2016) Activity Based Costing (ABC) used in Logistics & Supply Chain Management as cost optimization & it benefits [Online]. Available from: https://www.linkedin.com/pulse/activity-based-costing-abc-used-logistics-supply-chain-joshi [Accessed on 10th May 2018]
Miller, T. (2017) The ABCs of Activity-Based Costing for Logistics [Online]. Available from: https://www.mhlnews.com/transportation-distribution/abcs-activity-based-costing-logistics [Accessed on 10th May 2018]
Mitra, A. (2016) Fundamentals of quality control and improvement. New Jersey: John Wiley & Sons.
Weygandt, J.J., Kimmel, P.D. and Kieso, D.E. (2015) Financial & managerial accounting. New Jersey: John Wiley & Sons.
Wu, M.F., Wang, S.L. and Cheng, F.T. (2015) Application of Activity-Based Costing Management System by Key Success Paths to Promote the Competitive Advantages and Operation Performance. World Academy of Science, Engineering and Technology, International Journal of Social, Behavioral, Educational, Economic, Business and Industrial Engineering, 9(11), pp.3922-3927.
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