Explanation of Activity-Based Costing Model and its Features
Discuss About The Financial Management And Running The Company.
The client is Rio Tinto Group Company which participates in the discovery of mines, drawing out of the identified mines and processing of the obtained mineral resources all over the globe. Rio Tinto Group Company provide products such as copper, gold, aluminum, silver, diamonds as well as molybdenum. The company also deals with industrial minerals which includes titanium dioxide, borates, iron ores, salt as well as metallurgical coal and thermal. The company also sells uranium and other metals (Zhuang and Chang 2017). The most source of the company’s profits come from aluminum products that are used in various sectors within the consumer durables markets. The organization has its headquartered in London a city within the UK. The company over the current past have not been able to reach the top of the industry based on various challenges. Rio Tinto Group Company as an organization, therefore, needs new management strategies and tools which can be used to change the situation and help the firm move further on top. The company has decided on the implementation of an activity-based costing as an accounting management tool appropriate for Rio Tinto Group Company. The content of this paper, therefore, presents a report on the implementation of an Activity-Based Model for Rio Tinto Group Company.
Accounting-Based costing model is currently becoming the most applied financial too for accounting management. This tool of accounting management assigns costs to products about the resources of factors of production which are being utilized in the process. The ABC model was developed by two scholars Kaplan and Cooper in the year of 1987. The ABC as an accounting approach helps organizations such as Rio Tinto with precise apportionment of overhead cost in pools to the activities involved (Zhuang and Chang 2017). The application of the Activity Based Costing comes with high and improved organizational performance which takes place within all sectors of the organization. The advantage of this accounting tool is more evident in the profit margin based on the ability of the instrument to upturn organizational performance while minimizing expenses. The activity model assigns cost to the final product of a company through cost driver also Kwon as cost pools. Activity-based costing uses innovative techniques to measure values of business activities as well as processes to allow for the cost savings of the individual organizations as well as the overall supply chain (Wang et al. 2018). Activity-based costing can be viewed in different ways. It can be considered to be in process view as well as cost assignment view. The cost assignment view offers information on activities, cost object, and resources. Where the process view provides nonfinancial information about the events that are for the business as well as the business process.
Features of Activity-Based Costing Tool
Activity-based costing has various features that make it unique compared to other accounting models. These features are well explained by the founders of the model that is Kaplan and Cooper as follows:
Activity-based costing isolates the TC into the variable cost and settled cost which is vital in the arrangement of the exact information for a proper cost framework. Movement construct costing is based concerning adding up to and settled cost bases. This suggests for any item to experience preparing are settled expenses and the diverse cost. Settled and variable expenses are imperative for giving data in the advancement of a cost to the clients (Tavana et al. 2017). The capital utilized as a part of building up a specific item decides the main value the product will be assigned to the market. Production of a product can be at high cost based on the general process starting from preparing them from the crude shape to a completed item with additional costs such as advertisements a few costs among other factors.
The best possible contrast between ABC model and other models is that the cost created is planned by the conduct of the whole process executed. There are times when the economy is steady in this way not requesting much from nature (Askarany, Yazdifar and Askary 2010). At the point when the application is high, the cost goes with the same pattern in this manner creation cost rises. This takes into account the development of the completed item. Subsequently, when the supply is appeal turns out to be low, and its cost related in this manner lessened rates of the information sources and the last item too (Taticchi, Tonelli and Cagnazzo 2010).
The cost drivers manage the cost conduct of an item. Cost drivers incorporate the components that prompt the ascent or bringing down of the cost of an item upon improvement. The components identified with a particular item manages the cost of an item (Baldvinsdottir, Mitchell and Nørreklit 2010). The fourth element of the ABC costing is that it is situated in light of the volume, occurrence and time. The ABC model works through steps enabling an organization to come with suitable prices for their products with a consideration of all factors such as season and time (St John et al. 2018).
How Activity-based costing aligns with strategies and goals of Rio Tinto Group Company
Rio Tinto Group Company works towards its mission and objectivity is to be a universal company supplying the whole world with metals and minerals for a maintainable future. Rio Tinto Group Company fulfills this in the hunt for proper minerals delivery as well as maximizing profit to the shareholders (Drury 2013). Rio Tinto Group Company further aims at investing in the communities where it operates as well as protecting the environments where the operation of its activities takes place. The vision and mission of Rio Tinto Group Company Corporation are to be the metals and mineral seller in the industry through the work of 55000 employees located in almost 42 countries.
How Activity-Based Costing Aligns with Strategies and Goals of Rio Tinto Group Company
The main objective of Rio Tinto Group Company is to become a leading firm in the industry through finding, mining, processing, and selling of minerals. Rio Tinto Group Company also aim at changing the world to a better place through the provision of metals and mineral resources such as aluminum which is used in various sectors within durable consumer markets (Elhamma and Zhang 2013). Another objective of Rio Tinto Group Company is to facilitate the development of the modern processing plant to be used in the distribution and production of the minerals resources both industrial and non-industrial. The company has a goal of committing zero damage to the environment while working towards benefiting the society.
Rio Tinto Groups have a unique a system that is reliable whose proper application is believed to drive Rio Tinto Group Company towards becoming the becoming number one seller of metals and mineral sources. Rio Tinto Group Company has been focused on growing the benchmark for environmental standards and distributor of security in the global market (Fatah 2013). Another strategy of Rio Tinto Group Company to makes debt and structured agreement with various financial providers a strategy which enables Rio Tinto Group Company with ways of dealing with financial situations and moves to the next level. Rio Tinto Group Company has an effective framework for concentrating their 55000 workforce team in all the nations. Rio Tinto Group Company also works based on the organization’s cultures.
Rio Tinto Group Company will need to rely on the innovative and vital strategy for bookkeeping such as the Activity-based costing tool I order to remain relevant and gainful in the focused mining industry business. This technique for cost bookkeeping will empower the Company survey, investigate, assess and the general data thus creating a way of financial management as well as help with ways of advising the administration on methods for decreasing the operational expenses while increasing profits (Relich and Pawlewski 2018). Further, the ABC model will empower Rio Tinto Group Company with the development of a decent comprehension of its qualities and also the certain elements that activities these expenses. At the point when both the representatives and the Managers can recognize the right expenses of exercises, they should then utilize them in the basic leadership process (Garrison et al. 2010). Because of the rising rivalry in the market, the utilization of the model will help the association to enhance or keep up their aggressiveness in the market using data on costs that will dependably be right and precise when the ABC show is utilized as a part of the generation procedure. The approach will empower the association to utilize more appropriate bookkeeping data (ABC) to control and arranged its tasks which will dependably mirror the real expenses of the administrations and also the result of the organization (Phu and Velu 2012).
At the point when the organization utilizes the utilization of the model, the costing framework will give exact data which fundamental to dealing with the choice is making. ABC will help the Company to satisfy its objective because the administration will have the capacity to expand its benefit by sparing the assets, time, and cash of the business (Granof, Platt and Vaysman 2010). This approach will altogether help the association in this condition where Rio Tinto Group Company works costs is the unique factor that the association needs to consider amid their everyday activity. The utilization of the approach will likewise empower the association to enhance its budgetary execution. The appropriation will help the Company in making exact cost examination, along these lines aiding the particular of imperatives and decreasing unnecessary expenses (Meyer and Bras 2011).
ABC model operates in a more specific and different way thus the company should consider various factors during its implementation. The company management team involved with implementations must ensure an effective communication which is very crucial for Rio Tinto Group Company employees at any level of the organization. The firm should ensure that it communicates the deficits of the costing system that they are using as well as the impact of implementing activity-based costing system (Hellman and Duncan 2018). Rio Tinto Group Company management team should as well explain how the new ABC approach can be used to offer accurate information on costs of particular activities within the company. Moreover, the responsible management team should also state the effect of utilizing the ABC model on employees reward as well as valuation. Since communication involves getting feedback as well as addressing the concerns (Hilton and Platt 2013).
The administration ought to likewise take a gander at the issues of the general population especially the representatives that they will raise concerning the execution of the Activity-based costing framework as the new costing framework. This may incorporate investigating the issues that the administrators may forward that may keep them from encouraging the evolving procedure. It is additionally fundamental for the association to address the impact of the new model on pay framework and estimation of execution (Karpov 2015). The current execution measurements should be amended, or new one concocted, in light of the information gathered amid the activity based costing application.
In as much as the activity based costing is one of the most appropriate financial accounting models for Rio Tinto Group Company, the company management can resort in to the use and implementation of (ABM) Activity-based management as an alternative to ABC model (Horngren 2009). However the use of the combined ABM and ABC is the most appropriate model based on the adverse impact of the combination where the Activity Based Costing model system will perform the arithmetic of costs with the intention of providing precise cost information as ABM will be used manage different activities within Rio Tinto Group Company.
Conclusion
In conclusion it can be noted that accounting and financial management tools are very crucial when it comes financial management and running the company. There are various accounting management tools, however, based on the above discussion, Activity-based costing model is regarded as the best tool in achieving financial prosperity of Rio Tinto Group Company as compared to the traditional. This is as a result of the management advantages of ABC.
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