Overview of Cotton on Group
A budget is a blueprint that illustrations the inflow and outflow of cash. It is like a picture that shows all the funds that a business has to spend, which permit it to attain its financial goals. Budgeting is very important part of financial planning. It directs a way of being deliberate about the manner saving and spending is done (Dugdale and Lyne, 2010). It has been said that, with budgeting, money could be controlled. Budgeting helps in saving from the stress of urgently adjusting to lack of funds because initially the planning of spending was not done. Besides this, it helps in avoiding unnecessarily spending on services and items that do not support achieving the financial goals. If the business is being operated with very limited resources, budgeting help on meeting the needs (Budgeting income, 2014). This report is being presented in order to highlight the changes and updates in the system of budgeting. One of the concepts of budgeting i.e. Activity Based Budgeting will be explained and how it is suitability for Cotton on Group, which is one of the famous retail chains of Australia.
Cotton on is the retail chain of Australia, famous for its trendy clothing for teenagers, children, women, and men. It has around 1500 stores in 12 countries and hires 17,000 workforces internationally (Zendesk, 2018). The company also operates Cotton on Kids, Cotton on Body, Typo, T-bar and Factorie and Rubi Shoes. In 1991, Nigel Austin introduced Cotton On, with its first store in the market of Geelong, Australia. The team of designing in the Australian office manage the production steps from stock scheduling to launching provisions, and production is subcontracted to around 150 factories in Asia and Europe (Cotton On Group, 2018). These services are utilized for labor’s horizontal division in place of being integrated.
The vision of Cotton on Group is to be the most famous and loved brands worldwide. Being a group they beliefs in creating unique designs. They have faith in their capabilities to attain their objectives. When they are involved in something then no one can stop them (Cotton On Group Careers, 2018).
Cotton on Group put their maximum efforts to make something new and always desire to look to tomorrow for exciting and new opportunities. They involve in the procedures to make different things. They are expanding their business to have a worldwide presence and to be the part of groups across the world. They plan their visions on making a constructive and quantifiable change in the young people lives, and allow youth to know more, contribute more, and appreciate more (Cotton On Group, 2018). The employees of the group are skilled and experienced to bring their ideas to life. Being one of the leading fashion brands in the world they are unwavering in the chase to offer consumers the right to involve in fashion, at an affordable and correct price. With the expansion at different locations, the company set new standards in the industry to be the most successful brand worldwide (Cotton On Group Careers, 2018).
The vision of Cotton on Group
Activity based budgeting is said to be a system that registers, investigate, and examines the activities that lead to costs for a company. Activity based budgets are not just about bending preceding budgets to account for business development or inflation (Capusneanu, Boca and Barbu, 2013). In its place, activity based budgeting pursuits for competences in the operations of the business and created budgets depending on these activities. This type of budgeting is mostly used by new businesses deprived of historical budgeting information. Moreover, Activity Based Budgeting is more beneficial for businesses undergoing material changes, like those with new holdings, important consumers, products, or business locations. Because processes of traditional budgeting merely bend the amounts of previous year’s budget, recognized companies with marginal change are likely to utilize approaches of traditional growth budgeting (Accounting Tools, 2018).
Activity based budgeting system allows extra control over the procedure of budgeting. Expense and revenue planning occurs at a detailed level that delivers valuable facts about predictions. ABB permits management to have more control on the procedure of budgeting and bring into line the budget with complete goals of the company. This system licenses a high level of modification in the organization of cost and consideration on the types and volume of activities arising in a company. A possible outcome of utilizing this system is administration planning to decline the levels of activities required to make revenue, which enhance profits. It also reflects that executives are forced to possess a thorough understanding of the procedures of the business if they desire to improve the structure of the cost of the company. Another benefit of the method is the strong relationship between it and the company’s goals. Preferably, management can utilize the method to observe how much value or cost is linked with every division of the business, and then takes the decision of the allocations of the funds in every area. This can result in a change in funding to provision portions of the company on which management desires to have maximum emphasis, like on the new product development or a product rollout in a different district.
Activity based budgeting is approved to carry effectiveness in the organization activities. Budgets are organized after moderating the drivers of cost. Therefore, activity based budgeting is concerned with activity and not with the function.
Activity based budgeting method assesses every cost driver. It orients every step comprised in an activity. Inappropriate activities are eliminated and only the essential activities form a portion of the business (E-Finance Management, 2018).
The mission of Cotton on Group
The system of Activity based budgeting excludes all type of irrelevant activities, which support business to save the costs. The saved cost is used in the services and goods production at a lower cost as compared to rivals. It also supports the business to attain a competitive advantage in the marketplace (E-Finance Management, 2018).
This technique of budgeting supports in looking at the business as a sole entity and not in the department form. The top management or executives plan the budget as a whole for the business entity and not considering any single division as done in different budgeting systems (Stevens, 2004).
Under activity based budgeting budgets are planned after detailed analysis and investigation. This study eliminates all the irrelevant business activities. By doing so, the company excludes all kind of bottlenecks linked with the activity and business operations are performed smoothly (E-Finance Management, 2018).
Activity based budgets are mostly used by new businesses without any type of historical data. In addition, ABB is useful for businesses experiencing material changes, like those with significant customers, business products, new subsidiaries, or business locations (Bengu, 2010). Because traditional budgeting procedures only adjust budget amounts of the previous year, well-known companies with limited changes mostly make use approaches of traditional growth budgeting.
For example, a company expects to get 50,000 orders of sales in the coming year. The cost to practice one order is $2. Consequently, the activity based budget for the expenses associated with handling orders of sales for the coming year is $100,000 ($50,000*$2).
Activity based budgeting is expensive as compared to the techniques of traditional budgeting. It needs more data and time from the executive to be processed. The system of ABB needs extra expectations and details from management, which offers various opportunities for inaccuracies in budgeting. Lastly, the constant care and examination of budget alterations need more resources compared to other techniques of budgeting (Pietrzak, 2013).
Activity-based budgeting has not been introduced recently. Initial writings on the topic were performed in the late of 1990s. This method was introduced by the US-based CAM-I, which concentrated in the issues of planning in the procedure of traditional budgeting (Hansen, 2011). The main factor that encouraged to introduce activity based budgeting is to get more precise and consistent information, which is not provided by the traditional budgeting techniques. In addition, Activity based budgeting requires defining the planned activities cost, depending on their anticipated size and resources, so it is valuable for monotonous activities, particularly for procedures instigated by orders, services, demands, patrons, and products (Hansen, 2011).
Activity Based Budgeting
Activity based budgeting is a method which is detailed as compared to the traditional method, the description of sales and production demand, the accessible supply, efficiency of the resources, and the cost of acquisition. With effective implementation of activity based budgeting, managers could have better control over the structure of cost, mainly regarding fixed costs (Shim, Siegel and Shim, 2011). They can concentrate on the operative understanding of activities essential for operating a company and deliberate workload. The ABB method also excludes the issues of a mismatch with the applied policy, and, as an outcome, makes extra value for the company.
Activity based budgeting is majorly used when there is some change in the business such as expansion. Cotton on Group has been expanding its operations in different countries and now it is thinking to bring more brands under a single roof by opening mega stores to capture customers. For successful establishment of mega stores in the market it requires cost anticipations, however, the outcomes are based on the skills and knowledge of the employees and management, connected with the process of budgeting (Koehn, 2017). Based on arranged reports, the business can only judge the profitability of the company. However, the purpose of the factors that affect it and other related data that permits the examination of the business is difficult. This is mainly essential if the arrangement of cost and a high share of indirect costs in the overall costs experienced by the business are considered. Appropriate allocation of cost for precise customers or products might result in important alterations in the valuation of effectiveness and might lead to variations in the verdicts of the management (X-kit undergraduate, 2007).
From the above data, it is important for Cotton on Group to change its budgeting system for and adopt a more reliable and accurate system i.e. activity based budgeting. Moreover, any loss or decrease in the profit of the company cannot be clarified by the information generated in the reports in the system of traditional budgeting. Defining the sales prices in the renegotiation of the formerly determined agreements is also an important problem (Koehn, 2017). The firm can face hurdles in guessing the costs to be accepted to encounter the necessities of individual consumers. While expanding the business the company will deal with altered desires, with size, and increasing variety from year to year. The average price does not confirm the attractiveness in the marketplace (Koehn, 2017). It is a serious issue that cannot be managed by the traditional budgeting systems, therefore, activity based budgeting will be suitable to considerably upsurge the amount of data, offer different opportunities and data cross-analysis within the business.
Features of Activity Based Budgeting
According to global authorities, the two key axes on which the usage of activity based techniques is dependent are, Activity based costing, and Activity based analysis. The first axis rotates near to the evaluation of every job depending on thorough performances, and the second axis concentrate on arranging a set of process and rules on chasing, examination, and allocation of costs on calculation objects (C?pu?neanu, Boca and Barbu, 2013). The ABC technique tracks the route of the process of business, following solely those procedures generating value and consumer satisfaction. The analysis of the activity highlights the role, significance, worth and competence of every component of the process of business and ABB should adapt to the process of the business decided by the firm (Hansen and Mowen, 2005).
For effective execution and operation of the Activity based budgeting, every budget relating to the procedure definite by the business will be dependent on the two key axes as stated above. The fundamental notion of the activity based budgeting comprised of cost hierarchy, responsibilities accounting, flexibility of the budgets, and cost variability (Blocher, 2006). As per the viewpoint of researchers, the Activity-Based Management is attentive on the interior series of standards of the organization, to attain a certain level of strategic and competitive advantages. The creation and implementation of this notion are conceivable only with the support of the ABC method. Every procedure is framed based on support activities and fundamental activities, a portion of them being reformed in the main ones. The resources required for every activity are recognized, totaled at the procedure level and after that at the entity level (Blocher, 2006).
Conclusion
From the above analysis, it could be said that Cotton on Group is one of the leading brands of fashion in the world and expanding its business operations worldwide with effective strategies as well as skilled employees. In order to successfully expand the business in other countries and make changes in the present operations as well as fashion, it requires proper planning along with cost and demand that will be incurred in establishing the offerings. For arranging funds for successful expansion, they require an accurate and reliable system of budgeting that could provide proper information, which is not possible with traditional budgeting systems. Hence, Cotton on Group needs to adapt activity based budgeting to planning cost that could be incurred in performing all the activities of the business. ABB is a structure of planning in which costs are linked with activities and planned expenses are then collected depending on the predictable activity level. This method is diverse from the system of traditional budgeting, where present levels of cost are accustomed for inflation and key revenue alterations in order to develop the yearly budget. Activity based budgeting is different from traditional systems of budgeting because ABB concentrate on the volume of work and procedure cost and traditional budgeting system, concentrate of employees as well as on the cost of the department. Besides this, the ABB system evaluates the effects, define, and recognize the unemployed competences. On the other side, traditional budgeting system evaluates the effects, but do not define and recognize the unemployed competencies. The above report has highlighted all the essential information that could help an organization to change its traditional budgeting system to activity based budgeting, which offers more reliable and accurate information to the management that supports in taking decisions.
References
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