Explanation of ABC model and its features
The different types of interpretations of the study is based on implementation of “activity-based costing (ABC)” from organisational point of view. The accomplishment of future goal is duly included with selection of the company listed under the ASX. For the purpose of reporting, “Carsales.Com Ltd (ASX: CAR)” has been selected, which is recognised as the largest “online automotive, motorcycle and marine classifieds business” based in Australia (Carsales.com.au 2018). The present goal of thiss company is depicted in terms of aligning the considerations for implementing this costing system which will improve the overall decision-making associated to higher-level management. Finally, apart from the aid of ABC model, the study has also suggested an appropriate management accounting tool for “Carsales.Com Ltd.”
a. ABC model can be depicted as an accounting technique which stresses the different activities which an entity conducts for assigning indirect costs related to the products. Some of the other perspective of this model has been considered with relationship of the cost, activities and products thereby minimising overall arbitration which is associated to cost allocation of the products in compared to traditional costing system. Some of the challenges encountered in this model is seen with the complicacy of allocating the products. For instance, the salaries of office staffs and management can be difficult to be apportioned based on product manufactured. This relates to creation of nature of model in various types of global industrial sectors. Despite of this, the costing system is appropriate in “product costing, target costing, product line profitability analysis, service pricing and customer profitability analysis ” (Afrbiz.com.au. 2018). Henceforth, this model is applied in various entities regardless of size and nature of corporate visions and strategies based on the cost factors. Moreover, the model is characterised of the following features:
- Since costs as per this model is segregated into fixed costs and variable costs, the model will be offering a good quality information in developing precise cost system for a corporate entity.
- The application of this model is further conducive in comparison of cost behavioural patterns in a much more effective manner
- This technique has identified more “diversity, volume and timeliness” among the cost behavioural patterns of ABC model
- The significant cost drivers are considered in such a manner that over at costs can be easily dressed for a particular product
- Moreover, there have been several depictions in the cost behavioural patterns, which allow identification of cost drivers (Afrbiz.com.au. 2018)
(Source: Christian 2018)
b. This section comprises of the discussion of corporate strategies and goals of carsales.com and aligning the same with the ABC model.
How ABC model aligns with the current goals and strategies of Carsales.Com Ltd
The company aims are attracting more Australian buyers or sellers of automotive such as trucks, caverns, boards and motorcycle in the classified groups of their websites. It has been further observed that “carsales.com Ltd” is having its operations situated in Asia Pacific and is interested in being one of the leading online automotive classified company in “Brazil, South Korea, Malaysia, Indonesia, Thailand and Mexico” (Mahal and Hossain 2015).
The main vision of carsales.com is to facilitate hassle free buying and selling experience of cars. The company aims to develop and empower greater confidence among the customers when it comes to trading of cars irrespective of the amount which is needed to be paid for them. The company continues to expand its portfolio which has allowed it to encompass evolving needs of the customers and support future delivery of services (Hirsch 2016).
The marketing of the products and services adopted by “Carsales.Com Ltd”, are considered with the following strategies illustrated as follows:
- Firstly, the company has adopted the strategy of filling a market need. Carsales.com’s consistency of success and growth is mainly due to the entrepreneurship regimes which is commenced with Greg Roebuck. The continued incubation of creative ideas has led to better marketing strategy in compared to its contemporaries
- Secondly, the company has aimed to stand out of the competition by following the strategy of blue ocean. This has led to an uncontested market space resulting in huge success of the marketing ideas and creating powerful leaps in both buyers and business driven by value innovation. The main USP of the organisation is identified with creating classified advertising avenue which will ensure specialised understanding of future opportunities and business. The range of USP’s include, robust online platform, intuitive search functionality, effective online ad creation and enhanced buying and selling experience (Angelopoulos and Pollalis 2017)
- Thirdly, the innovation culture has been led by various ideas which has played a central role in defining the integral environment of the business which is important in day-to-day decision-making for medium-term and long-term planning
- Fourthly, the company is involved in developing of new products with vital expansion strategy which ranges from idea generation, concept development, product development, test marketing to commercialisation (Almeida and Cunha 2017)
Despite of the popularity of a business system among manufacturing industry, service industry has also implemented the ABC system and gaining rapid popularity. Online classifieds service such as carsales.com does not comprise of much direct costs and most of the costs are considered under the overheads. Furthermore, it also does not consist of tangible assets such as inventory as it does not manufacture any product. Henceforth, such online services might not find the traditional costing system to be helpful in nature. The different types of associated benefits of ABC model will have importance in greater decision-making and better management of cost functions (Rohani, Azman and Zakaria 2015).
The three core sections of this costing system comprise of “resource, activity and cost object”. With particular reference to the expenses incurred by carsales.com, these are included within the resource section. The corporate office and branches along with human resource, IT departments and call centres can be merged into a single group. The service is provided by human resource and IT Department of carsales.com is illustrated with calculating the main costs. The cost transfer is associated to other department’s service volume. Conversely, the various offices of the company can assign such costs. Henceforth, the ABC system will allow diversifying the future scope of cost assignment among the branches which will be conducive for the company in estimating future advertising costs (Ali et al. 2015).
Carsales.com has further involved in defining the activities as per the transactions which the customers conduct for the different products. These transactions are included with several channels which originate from commercial financing. In order to deal with the buying and selling process, the company needs the applicant to go through several procedures. Firstly, the user needs to identify their choice of automotive which they want to sell, as per their make, model, location, minimum price, maximum price and body type. Secondly after choosing the appropriate model of car the user can enquire among several listed cars along with their brief details on total kilometre in the event, transmission type and engine model. The enquiry information is followed by providing the relevant details of the buyer such as name, email address, phone number. The buyer can also directly call the dealer of the car if needed (Hirsch 2016).
Recommendations for the implementation of ABC model for Carsales.Com Ltd
The various types of cost objects segregation are based on two factors. The first part has included the calculation of additional costs which is based as a result of government taxes. This needs to be included as the prices offered in the website excludes the government tax. The cost segregation of government tax based on the cost driver can be applied with the total value of the car. Henceforth, higher is the value of the car, higher will be the government tax taken into consideration. In case the company adopts a business system, it will be also able to define the services which are rendered between two services such as buying and selling. Henceforth, the awareness ABC system will be conducive in calculating the costs separately. It will also allow for identifying the cost which would involve higher in case there are any shipping charges involved. As the main focus is kept on smoothening of car buying and selling process, car sales.com has been successful in generating more brand awareness and created a monopoly competition for itself.
(Source: Ali et al. 2015)
c. The main procedure of application of ABC model for “car sales.com” is based on the support from higher-level management. Moreover, the incorporation of designing of the model is associated to the responsibility of a “cross functional team” rather than sole involvement of accounting department. The various departments from which the representatives would take part will include higher-level accounting management staff, along with personals from engineering and marketing team. The various types of external consultations need to be considered with the knowledge of ABC model for providing relevant advice to the selected team.
There are two reasons for implementing ABC model for “car sales.com”. The initial implementation process will ensure that if higher management of the company does not provide adequate support, then managers may not accept the change. In addition to this, lack of support from higher management will also significantly reduce the importance of ABC model among the subordinates. The main implementation and incorporation for ABC model needs to be supported with thorough knowledge of cost accounting which are currently in use. In addition to this, the cross functional team is responsible for incorporating their business system as per suitability of the departments. Therefore, the important elements of the model will be conducive in generating external financial reports.
Suggesting an appropriate management accounting tool for Carsales.Com Ltd
d. The most appropriate management accounting technique which can be implemented with “carsales.com” can be duly identified with the intimidation of budgetary control procedure. This is conducive in defining the role of budget as part planning and controlling. The managers of the company need to utilise the budget for appropriate control, monitor and planning at departmental level. Therefore, the several numbers of benefits of budgetary control for the company are listed as follows:
- The several corporate strategies can be accomplished with a common goal with the help of budgetary control. The activities can be synchronised based on the goals and objectives set for the business in long-term
- It needs to be also understood that most of the cost components for a specific department in “carsales.com” is comparatively greater compared to the planned budget and several types of appropriate actions needed to be undertaken for minimising such variances in the budget (Druhmann and Zingg 2014)
- Some of the other considerations for implementation of this technique is with the knowledge which can be procured from the past experiences with budgetary control. In case of any flaws identified in the previous budget, the managers of carsales.com can effectively formulate the strategies for eliminating any occurrence of such instance in the future (Mohamed, Kerosi and Tirimba 2016)
Conclusion:
The various discussions of the study have shown that ABC model can be depicted as an accounting technique which stresses the different activities which an entity conducts for assigning indirect costs related to the products. Since costs as per this model is segregated into fixed costs and variable costs, the model will be offering a good quality information in developing precise cost system for carsales.com. With particular reference to the expenses incurred by carsales.com, these are included within the resource section. The corporate office and branches along with human resource, IT departments and call centres can be merged into a single group. The service is provided by human resource and IT Department of carsales.com is illustrated with calculating the main costs. Carsales.com has further involved in defining the activities as per the transactions which the customers conduct for the different products. These transactions are included with several channels which originate from commercial financing. The additional costs are seen as government taxes. This needs to be included as the prices offered in the website excludes the government tax. The cost segregation of government tax based on the cost driver can be applied with the total value of the car. Henceforth, higher is the value of the car, higher will be the government tax taken into consideration.
Reference
Afrbiz.com.au. (2018). AFR Business Case Studies | carsales.com.au: Effective business strategy for online success. [online] Available at: https://www.afrbiz.com.au/case-studies/carsales.com.au-effective-business-strategy-for-online-success.html [Accessed 23 May 2018].
Afrbiz.com.au. (2018). AFR Business Case Studies | Home page – Edition 6. [online] Available at: https://www.afrbiz.com.au/media/k2/attachments/Carsales_Case_Study_Ed_6.pdf [Accessed 23 May 2018].
Ali, S., Malo-Alain, A.M. and Haque, M.I., 2015. IMPACT OF ACTIVITY BASED COSTING ON FIRMS’PERFORMANCE IN SAUDI ARABIA. Science International, 27(1).
Almeida, A. and Cunha, J., 2017. The implementation of an Activity-Based Costing (ABC) system in a manufacturing company. Procedia Manufacturing, 13, pp.932-939.
Angelopoulos, M. and Pollalis, Y., 2017. Activity Based Costing (ABC) as a tool for Lean Transformation: The Case of the Greek Power Public Corporation (PPC).
Carsales.com.au. (2018). About Us – carsales.com.au. [online] Available at: https://www.carsales.com.au/carsales-info/about-carsales [Accessed 23 May 2018].
Christian, D., 2018. Building Cost Management: Case Study Using Costing Methods. IJAME.
Druhmann, C.K. and Zingg, M., 2014. Budgetary Control for External Facility Management Service Providers. International Journal of Facility Management, 5(2).
Hirsch, S., 2016. World Wide Web And Databases International Workshop Webdb98 Valencia Spain March 27 28 1998 Selected Papers. World Wide Web, 1, p.4.
Mahal, I. and Hossain, A., 2015. Activity-Based Costing (ABC)–An Effective Tool for Better Management. Research Journal of Finance and Accounting, 6(4), pp.66-74.
Mohamed, I.A., Kerosi, E. and Tirimba, O.I., 2016. Analysis of the Effectiveness of Budgetary Control Techniques on Organizational Performance at DaraSalaam Bank Headquarters in Hargeisa Somaliland.
Rohani, J.M., Azman, N.A. and Zakaria, M.H., 2015. DEVELOPMENT OF ACTIVITY-BASED COSTING IN FABRICATION COMPANY: A CASE STUDY. Jurnal Mekanikal, 38, pp.44-52.
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