ABC Model
How ABC Model Can Enhance The Information Of Management Accounting?
This report will involve a detailed explanation of the concept of ABC model and its features. Identification of the objectives and mission of the Crown Resorts will be done. The corporate strategies of the company will be discussed in this report and how ABC model will assist it in achieving its strategies. In relations to the implementation of the ABC model in Crown resort, two recommendations will be provided. Apart from this suggestion of other management accounting tool will be given which will be suitable for the company.
Activity-based costing is called as a method of accounting that supports in recognizing the activities that are executed by a company and then allot indirect cost to the products. A system of activity based costing identify the relationship between products, activities, and costs, and by this relationship, it allocates indirect costs to the products less casually as matched to traditional methods (Zeuner, 2012). This costing is majorly used in the industry of manufacturing as it improves the dependability of cost data, therefore offering approximately correct costs and better categorizing the costs experienced by the company in the process of production (Moisello, 2012).
This system of costing is utilized in target costing, product costing, profitability analysis of customer, service pricing, and analysis of product line profitability. It is also vastly popular from the time when companies can create a better corporate focus and policy if costs are well grasped. The cost accounting system of ABC system is constructed on doing, which can be said as an event, task or work with a precise goal like designing products, operating machines, for a production setting up machines, allocating finished goods. Activities take overhead resources and are measured cast objects. Under this system, an activity or action can also be measured as an event or any transaction that is a driver of cost. A driver of cost, also called as a driver of activity, is utilized to refer to an allocation base. Instances of drivers of cost comprise power consumed, maintenance requests, purchase orders, machine setups, production orders or quality inspections (Accounting Tools, 2017).
- The overall cost is distributed into two sorts’ i.e. variable cost and fixed cost which is essential to offer quality information in order to prepare an appropriate cost system in a manufacturing department.
- The proper division is done between the patterns of cost behavior.
- The patterns of cost behavior are event related, volume related, time-related and diversity related.
- The suitable cost driver needs to be recognized for outlining the overhead to a product.
- The drivers of cost direct the patterns of cost behavior (Account learning, 2018)
Crown resort limited is the biggest group of entertainment and gaming in Australia (Business Chief, 2018). In 2018 the resorts possess A $8.7 billion as market capitalization. Crown wholly operates and own Australia’s two entertainment complexes and leading gaming, i.e. Crown Perth, and Crown Melbourne. The company was introduced in 2007 when PBL (Publishing and Broadcasting limited) divested its assets of gaming from Crown Limited. PBL was given new name i.e. Consolidated Media Holdings, holding all of the residual assets (Crown Resorts, 2015).
Features of ABC Model
Mission – Crown Resorts Limited is devoted towards offering its consumers with a secure and professional experience of gaming that is definite fun-filled enjoyment. With cautious planning and well-informed staff, they are confident that they will not only attain but also go beyond their goals of their customers and guests (Crown Resort, 2018).
- Support in creating opportunities for communities in disadvantages
- Generating opportunities and offer support for Indigenous communities.
- Donate implicitly to the societies in which Crown resorts operate
- Endorsing the art development by the support of art organizations, programs that can increase exposure and convenience of the arts (Crown Resort, 2013)
Marketing Mix of Crown Resort
The Marketing mix is said to be a set of tactics or actions that is utilized by a company in order to promote its product or brand in the market. The 4ps are the important elements which make a classic marketing mix i.e. product, price, place and promotion. However, currently, the marketing mix increasingly encompasses some other Ps like people, packaging, politics, and positioning, as important elements of the mix. In this report, the 4ps of the marketing mix will be explained.
Product – Product means an item or service really being sold or offered. The product or service should supply a minimum level of the performance; or else even the finest work on other marketing mix elements will not perform well. The Crown Resort offers different and entertainment services to its customers like: Gaming Service, the Crown reports are aimed at creating the diverse type of service for its normal customers and VIPs. The main revenue of the gaming floor is approximately $991.9 million in which VIP program is $481 million. Besides gaming business, Crown resorts are involved in the business of Restaurants, Shopping, Hotel, and Entertainment (Crown Resorts, 2017).
Price – Price means the value that is set for the product or service. It is based on the product cost, targeted segment, marketability to pay, demand and supply, and a host of other indirect and direct factors. The Crown Resorts set the prices of their services according to the demand and profitability and have adopted value-based pricing theory. The group majorly promotes pricing strategy of VIP & VVIP. This strategy has been adopted by the company to stimulate and attract its visitors and customs. The Resort is focused towards delivering value to its customers by being focused towards maximizing the Australian operation’s performance and it will attempt to reduce the disturbance to consumers from its program of capital expenditure.
Promotion – Promotion involves all the efforts or activities performed to make the service or product famous to the customer and trade. This can comprise word of mouth, incentives, awards, advertising, press reports. It can also comprise direct marketing, prizes, consumer schemes, and contests. The Crow reports adopted integrated market communication to promote its services and products to the current customers and grab new customers. This strategy also helps the company in making difference in their offerings as compared to the competitors by developing the brand and offering value to the consumers.
Background of Crown Resort
Place – Place means the point of sale. In all the industries, getting the customer’s eyes and creating is simple for them to but is the key agenda of the distribution of good strategy. The Crown resorts do physical distribution of their services and at those locations where there are transportation facilities. They are focused towards delivering art culture in order to make Crown the top luxury brand. Besides this, it offers services to millions of international and domestic visitors with a memorable experience.
Activity Based Costing is the practice that recognizes different activities in a company and allots the cost to every activity with a resource to every product and services as per the actual consumption by each (Positive Psychology, 2018). The ABC costing follows some principles to support company in achieving goals by allocating cost and resource
Principle 1 Activities consume resources- According to this principle as much as the activity will be performed there will be more consumption of resources.
Principle 2 Activities have a cause
Principle 3 Products, Channels, or Customer cause diverse levels of activity (Kannaiah, 2015)
If Crown resorts will adopt Activity-based costing in its operations then this model will support it in allocating cost to the channels, and products depending on the activity proportion they actually consume.
The Activity-based costing will identify various activities of Crown plaza such as product, price, promotion, and place and then will allocate cost with resources. The company can implement ABC model by following these steps:
Identification of Activity – At this step, Activity-based costing model will identify the activities of Crown Resort and will be collected together in a group of activity. Activity groups are the subsidiary activities that tie into a service or product line such as product, pricing, promotion, distribution.
Analysis of Activity – ABC will continue with the analysis of the activities, will clearly recognize the procedure which helps a product and ignoring some of the general imprecision of traditional costing.
Costs Assignment – Based on the first and 2nd step assignment of the cost will be done to the pool or group of activities.
Compute Activity Rates – Initial analysis will be comprised of indirect support labor. These activities should be given a cost in real accuracy.
Allocate Costs to Cost Objects – Once the pools, costs and rates are recognized and well-defined, the subsequent step is to allocate them to cost objects. Objects are normally defined as the outcomes provided top a customer (Cunha, 2017).
Mission and objective of Crown Resort
Make and Allocate Report of Management – Once Activity-based costing is completed, that data of cost must be placed in a brief and clear way for cost object and procedure owners (Purchasing and Procurement Centre, 2017).
While implementing Activity-based Costing to attain goals of the company it should have an applied attitude. System of ABC is only a machine it does not think of anyone, it performs the job for the company or solves the issues by itself.
Besides this, Activity-based costing needs talented and skilled people to understand and utilize information from the system of ABC in order to make a strategic and proper decision. Thus, if the company can put into action the right instrument in the correct manner to the right issue and with the right attitude, it will reliably create the positive outcomes.
Apart from Activity-based costing Crown Resorts can make use of Time-Driven activity-based costing in its operations. Time-driven activity-based costing helps in simplifying the procedure of eliminating the requirement to survey and interview employees for the distribution of resource cost to the activities before taking them down to the object of cost (products, customers, orders) (Kaplan, 2007). This model allocates resource costs straight to the cost objects by utilizing a sophisticated outline demanding only two sets of estimated. First, it computes the supplying resource capacity cost. Second, TDABC utilizes the rate of capacity cost in order to determine the cost of departmental resource to cost objects by approximating the resource capacity demand that every cost object needs (Anderson and Kaplan, 2018).
Conclusion
In the conclusion, it can be said that Crown Resorts is performing very well in the market with its aim and objective however it needs to do some of the changes in its processes to increase productivity and efficiency. The model that company should utilize is Activity Based Costing which will support it in allocating the cost along with a resource to every activity performed in the company. The above report has provided a brief overview of the Activity-based costing and its features. Along with this, it has highlighted the mission and objective of the Crown Resorts. Moreover, a report has provided the explanation of how Activity Based Costing will assist in achieving the strategies of the company. In the recommendation, two important requirements have been mentioned to properly utilize Activity-based costing model. In the end, a suggestion of one model i.e. Time-Driven activity-based costing has been provided that can also be used in the company.
References
Account learning (2018) Meaning of Activity Based Costing (ABC) [online]. Available from https://accountlearning.com/activity-based-costing-meaning-features-objectives-implementation/ [accessed 12 May 2018]
Accounting Tools (2017) Activity Based Costing [online]. Available from https://www.accountingtools.com/articles/2017/5/14/activity-based-costing [accessed 12 May 2018]
Anderson, S.R., and Kaplan, R.S. (2018) Time driven Activity Based Costing [online]. Available from https://fenix.tecnico.ulisboa.pt/downloadFile/3779580640677/HBR-Time-Driven%20Activity-Based%20Costing.pdf [accessed 12 May 2018]
Business Chief (2018) Crown Resorts [online]. Available from https://anz.businesschief.com/Crown-Resorts/profiles/294/Crown-Resorts’-journey-towards-sustainability [accessed 12 May 2018]
Crown Resort (2013) Our Commitment [online]. Available from https://www.crownresorts.com.au/crown-resorts-foundation/our-commitment [accessed 12 May 2018]
Crown Resort (2018) About [online]. Available from https://www.crownresort.com/about.html# [accessed 12 May 2018]
Crown Resorts (2015) Corporate Social Responsibility Report 2013 [online]. Available from https://www.crownresorts.com.au/CrownResorts/files/15/15c3f31c-2279-4d43-9abc-2e673588a508.pdf [accessed 12 May 2018]
Crown Resorts (2017) crown resorts elevate reconciliation action plan 2015-2017 [online]. Available from https://www.crownmelbourne.com.au/getmedia/62a2f00b-d63d-47cf-8570-84654cfebc08/150730-CrownResorts-General-Media-Release-RAP-Booklet.pdf.aspx [accessed 12 May 2018]
Cunha, A.A.J. (2017) The implementation of activity based costing system in a manufacturing company [online]. Available from https://www.sciencedirect.com/science/article/pii/S2351978917307990 [accessed 12 May 2018]
Kannaiah, D. (2015) Activity Based Costing (ABC): Is It a Tool for Company to Achieve Competitive Advantage? International Journal of Economics and Finance, 7(12), 275-281.
Kaplan, R.S. (2007) Time-Driven activity Based Costing [online]. Available from https://www.cwj24.cz/doc/Time-Driven-ABC.pdf [accessed 12 May 2018]
Moisello, A.M. (2012) ABC: Evolution, Problems of Implementation and Organizational Variables. American Journal of Industrial and Business Management, (2), 55-63.
Positive Psychology (2018) ABC Model in the Cognitive behavioural therapy [online]. Available from https://positivepsychologyprogram.com/albert-ellis-abc-model-rebt-cbt/ [accessed 12 May 2018]
Purchasing and Procurement Centre (2017) Six Critical Implementation Steps to ABC Costing [online]. Available from https://www.purchasing-procurement-center.com/abc-costing.html [accessed 12 May 2018]
Zeuner, P. (2012) Activity-Based Costing. 2nd edn. Germany: GRIN Verlag.
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