Activity Based Costing methods and its Features
Discuss About The Contingency Theory Of Management Accounting.
The current report is associated with the understanding of the practical aspects of the digital company that is associated with the service of providing salary packaging, novated leasing, financing of fleet and managing service (Angelopoulos and Pollalis 2017). The report primarily places its emphasis on the applications of the Activity Based Costing method in McMillan Shakespeare Ltd. The Activity Based Costing is regarded as the young method of management and recently several companies have placed their emphasis on adopting its techniques.
Even though the concept of Activity Based Costing was created long before but it is gained greater importance and managers of several firms have increasingly began implementing the Activity Based Costing methods in the McMillan Shakespeare Ltd. McMillan Shakespeare is considered as the global organization and listed among the top 200 ASX listed companies (Mahal and Hossain 2015). The McMillan Shakespeare Ltd is held as leading single source solution provider of the salary packing, novated leasing, financing of fleet and managing service. MMS has 21 subsidiary company and among them 15 of the companies are incorporated in Australia two in New Zealand and four in United Kingdom. The report would be taking into the considerations the applications of the Activity Based Costing methods as well as suggesting different alternatives for the company.
Activity Based costing methods is regarded as the new concepts in the theory of managerial accounting. It is held as the procedure of assigning the costs based on the benefits that is received from the numerous kinds of indirect activities (Cugueró-Escofet and Fito 2016). This usually comprises of the ordering, setting up the projects, quality assurance etc. Activity Based Costing methods is also referred as the collection of numerous kinds of financial and operating performance information drawing authoritative activities for the companies and its products.
The basic objective of the Activity Based Costing methods is that places emphasis to the activities that are fundamental to the objects of costs. Activity Based Costing methods is used as the tool of computing the costs of numerous goods and services that are produced by a business entity (Almeida and Cunha 2017). The primary concept of the Activity Based Costing methods is that it deals with the allocation of costs and largely places emphasis on the allocations of the indirect costs to the objects that are generated inside the entity. Activity Based Costing methods assigns most of the costs based on the specific cost drivers that results in momentous influence on the procedure of allocations. ‘
- One of the important features of the Activity Based Costing methods is that it separates the aggregate costs and categorises it to the fixed and variable costs (Kamala et al.2015). These costs are held as imperative in offering superior information to generate correct results of costs for the direct and the indirect materials that are placed in the production procedure.
- One of the most characteristic features of Activity Based Costing methods is that places focus on the activities of the fundamental cost objects (Mills 2016). While the traditional methods of costing is largely reliant on the more general purpose of the cost system and it is not made in accordance with the requirement for differentiating activities.
- Another important feature of the Activity Based Costing methods is that it makes use of the available cost information that helps in improving the overall quality of the management decisions (Zeff 2016). Most importantly, Activity Based Costing methods places emphasis on the activity instead of placing emphasis on the department.
Alignment of Activity Based Costing methods with McMillan Shakespeare Ltd
McMillan Shakespeare Ltd medium term strategy was to move in the direction of constantly refining the core business activities to generating the organizational growth, selectively diversifying the streams of revenue and promoting the development and increasing its product for the benefits of its clients (Vasarhelyi, Alles and Kogan 2018.). McMillan Shakespeare Ltd constantly takes into the consideration the strategic value adding acquisition in the complementary sectors of the market to align with business value proposition that is subjected to market conditions.
As the business of the McMillan Shakespeare Ltd constantly expands in the digital transaction channel to streamline it procedures it also looks forward to increase the operational efficiencies (Gitman, Juchau and Flanagan 2015). The McMillan Shakespeare Ltd looks forward to cut down the average costs by serving its customers in increasing its customer’s base.
The Australia’s most leading global business organization aims to provide its customers with improved options of self-servicing to not only improve the experience of customers but also it is central to the McMillan Shakespeare strategy is making an investment in the technology to create productive gains and margin growth (Ellul et al. 2015). The board of McMillan Shakespeare undertakes the annual strategic review and lay down the strategy agenda for the organization. Additionally the asset management business primary objective is maintaining the continuity and the flexibility in funding with the help of committed revolving of bank facilities.
Credits usually originates from the cash and cash equivalent. Therefore the deposits made in the banks along with the exposure from the outstanding receivables and risk related with the interest and currency swaps. The most important ways of delivering the strategic corporate strategy is by promoting the dynamic management indulgence so that it can improve or increase the overall performance of McMillan Shakespeare (Schaltegger and Zvezdov 2015). The company manages the exposure from the volatility interest rates through the help of group’s treasury and policies of pricing. With the help of these business functions, McMillan Shakespeare wants to offer an exemplary single source solution provider so that it can operate with similar level of competitiveness and offer the rightful service to its customers. Therefore the Activity Based Costing can be considered as the helpful means of attaining the corporate objectives as well as the strategies of McMillan Shakespeare.
The applications of the Activity Based Costing model in McMillan Shakespeare would be considered as the better move of minimizing the cost (Christ and Burritt 2015). The application of the Activity Based Costing would help in reducing the cost of the company. In the modern age of innovations and modernization where most of the organizations places their focus on attaining the pat of continuous growth in the products and services by setting down the benchmark in its business activities (Chak and Fung 2015). It can be stated that McMillan Shakespeare must consider application of the Activity Based Costing since it would help the company with corporate strategic objective of accomplishing and improving the activities of the business value chain.
Alignment with McMillan Shakespeare corporate strategies
The application of the Activity Based Costing would help in continuous monitoring of the costs associated to the activities of the undertaking the improved decision making (Taleb, Gibson and Hovey 2015). The application of activity based costing would help in drawing greater amount of revenue for the company. Since the company is engaged in the process of rendering services, implementing the Activity Based Costing would help the company in eliminating the unnecessary costs. The application of teh Activity Based Costing would require a thorough understanding of the operations department costs that are associated in reading the product and services (Otley 2016). The application of the Activity Based Costing would help in selection of the appropriate method of supporting the department with cost allocations. Therefore the above stated methods would helpful for the McMillan Shakespeare in completing each of their cost driver to the concerned departments.
The implementation of the Activity Based Costing is the McMillan Shakespeare ltd requires inclusive amount of backing from the management of top level of the company commencing from the higher level authority to the subordinate level. Until this kind of support is lend to the Activity Based Costing no kind of management accounting tools along with the applications of the Activity Based Costing is not possible (Fullerton, Kennedy and Widener 2014). As a result of this, there is a requirement of extensive amount of backing from the higher level management of McMillan Shakespeare that turns out to be indispensable affairs. It is recommendations that the support to Activity Based Costing can be lend through active participation of the management in application of the Activity Based Costing which ultimately makes a successful method of cost allocations.
The application of change in any form of business is always met with lower level of acceptance from the current set of staff of the organizations. Given that the applications of the Activity Based Costing is not made adequately then the management may not be able to yield effective amount of support to the company (Otley 2016). It is the duty of the management to educate the ground level workers or the ground level functionaries regarding the changes in the process of costing system. Engaging with the subordinates and educating regarding the applications of the Activity Based Costing would help in reducing the resilience of the staff. Therefore, for better application of the Activity Based Costing it becomes obligatory for the management to assure that employees in the McMillan Shakespeare are well aware of the application of the Activity Based Costing.
Use of ABC Model in McMillan Shakespeare
A recommendations can be provided regarding the application of the absorption method of costing for the McMillan Shakespeare as the substitute of the Activity Based Costing. Absorption costing is regarded as another method of cost accounting that is used for determining the valuation of the inventories (Fullerton, Kennedy and Widener 2014). The absorptions costing takes into the considerations all the different forms of costs that are associated with the products and services along with the fixed and variable costs. This usually comprises of the costs that are involved in the direct materials or the direct labour. These costs are usually included in the products pricing.
The adoption of the absorption costing as the alternative to the Activity Based Costing methods would provide the McMillan Shakespeare ltd with the opportunity of more exclusive and the precise view of the cost that are involved in the production of the product goods or inventory (Schaltegger and Zvezdov 2015). This methods would assist the company in providing the inclusive understanding of the costs to generate the goods and services. The absorption costing methods would help the company in allocating the direct costs are involved in the services that are rendered by the company or the products produced.
In the current situation the absorption costing relating to all the services that are rendered by McMillan Shakespeare (Gitman, Juchau and Flanagan 2015). The company can directly assign the costs of services rendered to the cost units. Furthermore the application of the absorption costing methods would offer McMillan Shakespeare with the opportunity of allocating all the different directs costs of the production. Therefore, the application of the absorption costing would be helpful in making an accurate costing system for the McMillan Shakespeare.
Conclusion:
On a conclusive note it can be stated that primary objective of preparing the report is about understanding the procedure of the place a relative amount of effort on the activity based costing in the single solution provider company of McMillan Shakespeare. The report primarily placed emphasis on gaining an understanding of the application of the Activity Based Costing along with its significant features and procedures of applications.
The report comprehensively provides the justification of the application of the Activity Based Costing in McMillan Shakespeare Ltd based on the cost allocation objects. The report provides a detailed analysis of Activity Based Costing and also considered an understanding of area of manufacturing that was helpful in providing valuable advice to the company.
Reference List:
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