ABC model and its features
Discuss about the Cost Allocations and Distortion in Costing.
Activity-based costing (ABC) is among the many models that are available in the accounting management tools. Accounting management tools are frames, replicas or procedures that facilitate administrative financers to improve their performance during work. Enhance decision-making process with the already collected data that is then presented to the management for easy processing. Supportive on the planned goals of the company through enhancing achievements of the goals through the analysis and finally the tools are supposed to add value to the company when put into use to the given company (Kaplan and Anderson 2013).
Other tools that may be used together with activity-based costing, to mention but a few are; the fiscal arrangement that is used in to accomplish the corporate objectives through maximizing profits earned by the company. Cost accounting is another model, and used to generate cost data that enables top management to evaluate the reasons behind differences in the cost. Budget control is another abstract that is used to give the estimates of the future financial performance of the company (Granof, Platt and Vaysman 2010).
The report is used to analyze the use of Activity-based costing Model In Technology One Company; the company is an Australian enterprise software company. The missions and objectives of technology one limited company are described in details and the corporate strategies of the company. The relationship that led to the progress of the of the company’s strategies using the activity-based costing is also defined (Karpov 2015). The recommendations of why activity-based costing are suitable for technology one limited company are also outlined according to the findings and finally another model that may fit in the management of the accounts in the company.
Activity-based- company is an accounting method that identifies the activities of a company and assigns a cost of each bustle-taking place. The assignment of values is based on actual consumption of each event-taking place in an organization. Emphasized more significantly that the ABC-Model assigns more indirect costs to direct in comparison with conventional costing. Chartered institute of management accountants (CIMA) that gives a better definition (Srinivasan 2012). It is costing and nursing activity, which involves finding of the reserve consumption, and costing of the closing output. ABC model helps in identifying the company’s tools of work, which include the elements, activities and the services towards making a better decision by the management of a company.
Mission, vision and objectives
ABC model helps in identification of the products and services, which are not yielding the intended profit margin. It also enabled bringing down the prices to a customer friendly price to attract more customers thus making a better profit compared to retaining goods without a good sale (Baldvinsdottir, Mitchell and Nørreklit 2010). Use of the ABC model helps the companies in doing away with the most used processes, which may be unfriendly to use to adopt new methods, which are fast and more profitable to the company, and producing the same product at a lower cost. Economically firms are centered in delivering the highest quality of a product at the lowest price possible to its prospective customers.
Previously ABC model has been used in evolving new strategies such as estimating, subcontracting, documentation and dimension of process improvement initiatives (Monroy, Nasiri and Peláez 2014). Adoption of activity-based accounting helps the organization in advanced management, evaluation of better processing procedures, improvement of the quality of a product through an implementation of a new production process and increase the competitiveness of a firm by creating an opportunity to produce high-quality products and selling them at an affordable price to the customers. Similarly, activity-based costing has some features and characteristics that determine its operation in business.
Activity-based costing is based on total and fixed cost bases. This implies that for any product to undergo processing are fixed costs and the different cost. Fixed and variable costs are vital for providing information in the development of a price to the customers (Tsai and Hsu 2010). The capital used in developing a particular product determines the first price it will take. Inputs of a product can be at high cost, processing them from the raw form to a finished product also ads some costs thus finally the price is figured to the customers.
The proper difference between the prices developed is designed by the behavior of the patterns implemented. There are times when the economy is stable thus not demanding much from nature. Demand and supply of the inputs used are vital in the presentation of the price of a product. When the application is very high, the price follows suit thus production cost rises. This allows for the growth of the finished product (Elhamma and Zhang 2013). Consequently, when the supply is high demand becomes low and its price related thus reduced rates of the inputs and the final product as well.
Corporate strategies
The cost drivers dictate the cost behavior of a product. Cost drivers include the factors that lead to the rise or lowering of the cost of a product upon development. The factors related to a specific product dictates the cost patterns of a product (Terungwa 2012). The fourth feature of the activity-based costing is based on the volume, event-related and time-related. It gives a more profound meaning since cost effectiveness is affected by this factor at a higher rate. For instance, it is evident that for a for the cost pattern to be lower factors like what time of the year, season queries must be answered accordingly since they are interrelated to one another.
Technology one is a software-based company that has its vision is experiencing the power of a single integrated solution centered on a single modern platform with a consistent look and feel. The mission of the company is to deliver cost-effective items to the customer’s needs. The technology one mission also states the management want to offer high-quality services to their client at a fair price (Terzioglu 2012). Technology one company has goals and objectives to guide the performance of the company from losing the focus it is intended. The objectives of the technology one company are pegged on the mission of the company, which includes an offering of the best-priced commodities and services, offering high-quality goods and services to the consumers, satisfaction of the clients and finally the success of the company and its customers.
Through identification of the firm’s mission and objectives of the company, it is evident that adoption of the activity-based accounting is efficient indeed, since the company is centered in producing at a cost-effective price to the customers and offering the highest quality products (Fatah 2013). It is in line with the features of the activity-based strategies.
Technology one company has a business strategy based on the specific improving areas of performance for a better coming up with a good market and a way of making it grow as an enterprise. The corporate strategies are to improve the services they offer to customers. Selling of high-value content to the customers, the offering of original software content to the customers (Zimmerman and Yahya-Zadeh 2011). Developing campaigns to winning new customers in the company and retention of the already attained customers by offering them a tasty treat when conducting software services to their customers. Previously we studied that activity-based accounting is all about assigning the cost of the identified activities in the business gap. With this regard, it is evident that Technology one can use the activity-based accounting method to maximize its profits in production and sales (Hilton and Platt 2013). The suggestion of activity-based accounting adoption is because Technology one company is centered on the mission to produce cost-effective products and at the same time offering high-quality products to the customers. Finally, the company wills to focus on its success and its customer’s.
Conclusion
Technology one limited company being one of the biggest companies in the Australian security exchange (ASX) has had problems in the way of allocating its cost, through the traditional way, more indirect cost was allocated than direct cost hence getting few profits and hence experiencing an imbalance in their accounting management (Garrison, Noreen, Brewer and McGowan 2010). Activity-based costing has brought significant impact in this field and has cut off the challenges. Technology one company has been able to achieve its goals with guided information given by the ABC model regarding their accounts and hence able to make relevant ideas according to the books of accounts.
It has also enabled technology one to make cost estimates to use in prices, though he uses of the cost data that are delivered by the activity-based costing. Activity-based is considered to be the best model in the technology one limited company through the integration of the management which has contributed to yielding of maximum profits in the company from the provision of cost data regarding the running cost of the company.
Activity-based costing has also enabled technology one limited company to monitor on the fields that do need the change in operation to allow for cost reductions, the reductions of cost and operations increases the efficiency of the company as well ways of monitoring the running of the business (Askarany, Yazdifar and Askary 2010). ABC also allows the top management team of the technology one company to understand where the highest cost occurs in the firm; this enables them to rectify in the matter to lower the increased cost that may lead to the drop of the company’s normal profits.
Apart from activity-based costing model that is used in the accounting management tool, other tools can be suitable to use in the development of technology one company. One of the models that can be suitable is the budget control tool. The budget control model is a scheme of techniques castoff to make certain that companies’ authentic income and expenses observe narrowly to its fiscal plan. Budget control models enable the top management individuals of technology one limited company such as the CEO and the senior managers to get the estimates of their future financial need of the company or spending (Horngren 2009). The estimates done are organized in an orderly way to get the strategies and the way it should take place from the beginning to the end.
Through budget control model technology one limited company will be able to control its financial performances of the company in due time. The top management of the company will monitor the company financial expenses with ease inclusive of the cash flows within the business either directly or indirectly (Baldvinsdottir, Mitchell and Nørreklit 2010). The model includes the top management to establish goals and the objectives of the company to be a budget committee that was formed by the CEO and the senior managers of technology one limited company supervises their target during budget control process, the decision of the company. It also keeps the top management team on track when the target drops below the expectations.
Conclusion
In conclusion, the accounting and management tools are the best in the running of the business, as it has been indicated during the analysis for a company to achieve its objectives and the financial goals there is need to solve the indirect cost procedures. Activity-based costing model is regarded as the best tool in achieving financial prosperity of technology one limited company as compared to the traditional way. ABC model offers more advantage to the company, from performance improvement to giving ease of relevant data to be used in the decision-making process of the company than the traditional form. Having the best objectives in the business world that is affected by the use of
Reference
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