Characteristics of Activity Based Costing
Discuss About The International Journal Of Trade Economics And Finance.
Managerial accounting is the procedure of preparing managerial accounts as well as reports that offer precise and accurate information based on finance and statistics needed by management to make long and short-term decisions. The current report is about the assessment of Breville Group Limited Consumer Discretionary, with the analysis of the ABC model and its characteristics and implementation. The study is concerned about the corporate mission, objectives and strategies, together with the explanation of ABC system implementation by the company. After considering the overall findings, the study will place recommendation in order to help the corporate in implementing ABC model effectively. Furthermore, the study will also dictate standard costing, which is another management tool apart from ABC model facilitating the company in reaching its ultimate objectives and mission.
Activity-based model allots manufacturing overhead costs to products in a highly logical way; it initially assigns costs to those activities which are held from overhead. Further, the costs are assigned to those activities or products which are highly demanding. It is a methodology to gain a correct assigning overhead to those activities that actually make use of it (Cardos and Pete, 2011). This model can be implemented for the aimed diminution of overhead costs. It refers to the costing method that identified activities in a firm and allots costs of all activities along with resources to each product and service as per their actual consumption. Further, this methodology allots more of indirect costs, i.e., overhead into direct costs. It is one of the most effective tools that help the company and managers to create strategic decisions.
- ABC model provides quality information for designing a cost system that can assist in making better pricing decisions.
- It offers accurate difference among cost behaviour patterns related to volume, scale, scope, events and time.
- ABC makes a proper identification of costs drivers. Costs drivers are key determinants of cost-related activity. Along with this, it also describes the cost behaviour pattern in an optimal way while tracking overhead costs of a product (Chea, 2011). ABC interprets and considers the cost behaviour model to determine the appropriate cost driver.
- The ABC method allocates the resource cost of the company with the help of the products and the services offered to its clients. The ABC is the method usually used asan instrument for understanding the customer cost, products and the profitability which is based on the performing or production procedures (Szychta, 2010). Although the ABC has been primarily used to assists, the strategic decisions like, outsourcing, pricing, measurement of process and identification
- Activity-based costing offers more of accuracy for the products in terms of cost, decision making or directing. It establishes an understanding of expenditures and cost drivers while emphasizing on costly and non-valued activities in the management, allowing managers to alleviate them from management.
- ABC also places effective challenges to operating costs in a manner that it can investigate best suitable means for eliminating overheads(Fei and Isa, 2010). Furthermore, it enables developed products and evaluation of customer profitability.
The mission of the Breville Group Limited is to offer quality electronic appliances which can be used in the kitchen. The company aims to provide small appliances which runs on electricity and will cover a few spaces in the kitchen but will be quite helpful and useful (Breville Group Limited (BRG), 2018). The company performs measures so as to guarantee for Quality, Safety, Performance, Sustainability and Peace of Mind. The key feature of the company is so successful for all these years is the fact that all the way through their survival they keep their advanced beliefs, and simultaneously they are capable of encouraging growth and changes in each of the things which do not comprise as a part of the beliefs (Babnik and et al., 2014). The basic aim of the Breville Company is to offer quality products at affordable prices along with delivering high value to stakeholders in the company.
Corporate Mission, Objectives, and Strategies of Breville Group Limited
Breville Group Limited aims to hold its position as a leading distributor of small electric kitchen appliances on an international basis. The objective of the company is to maintain high integrity and image while representing the best quality at the most affordable prices (BREVILLE GROUP LIMITED, 2018). The company aims to offer highest potential service standards to their customers, while they also seek to retain a high calibre of their workforce by good work conditions. The company’s objective is to maintain and develop adequate profitability level (Belghitar, Clark and Kassimatis, 2016). The strategic objective of the company is operating on a global basis while delivering service excellence to their customer thereby achieving goals of shareholders, investors, clients and the company itself. The company targets to formulate an optimal retail structure for kitchenware and display the wide variety of offered brands and products.
The corporate strategy of Breville Group Limited is to provide high accessibility of their products in all over the world. Their sales and distribution networks work on the same to available their products globally through broad distributions and supplier network. Breville Group Limited educate its customers on an ongoing basis regarding their products and their advantages to have Breville product. The strategy of the company is to build value at economical rates and all their products targets at being affordable, and the company strives and struggle to ensure that they are leading the market (Rugman and Verbeke, 2017). The corporate strategy is based on making their product as effective as possible so that they can dominate the entire market.
ABC model will help Breville Group Limited by providing accurate data at both strategic and operational level. Further, correct product costing will help the company in comparing their profits that different customers, brand, locations and product line produced and to make a decision on reducing unprofitable products and lines. Further, the information held by ABC system could also motivate management to do re-designing of products for making improvement in product quality (Ayvaz and Pehlivanl, 2011). When the ABC is integrated with the crucial management, then it can deliver the company as a strong tool for ongoing re-thinking and remarkably develops products, services, strategies and procedures as a whole. Thus, it enables Breville Group Limited to offer the baseline settings and aspects meant for the price.
- Initially, the company is required to identify how much of consumption is done by activities in terms of resources, which thereby helps in supporting the overall production of expected costs outputs. Further, the company must distribute the costs related to resources in the similar ratio that they have consumers to identify the activity costs and thus attribution of the costs must be done to the costs objects.
- Moreover, Breville Group Limited must better change management process in place before the application of ABC model. The aim of this procedure is to ensure there these if the appropriate flow of support for the overall system at all organizational level. The company must also focus on communication low at each level, of the need for change. The implementation of ABC model is required to be justified on the basis of cost-benefit or any other related system; further, this will enable the company to make improvement in manufacturing decisions.
- With the implementation of ABC, company cam develops its manufacturing process by making tactical and statistical decisions; it will ensure the long-term success of the company. This enables the organization to provide behavioural incentives for improving the contemporary performance. Hence this implementation facilitates the overall actions and workings of pricing and costs.
- The company is recommended to identify and consider the needs of ABC and then identify the reliability of the same method in the organization. Along with this, they must also assess training required from senior to junior managers. It is also essential that company defined the overall scope of the project, with analyzing mission and goals of the project.
- The company is suggested to determine activities as well as drivers while formulating costs and operational activities related to products and services. Further, they are required to collect data and analyzing a model with proper validation. This interprets accurate management reports and combines reporting and data collection.
Standard costing is engaged in substituting predictable costs for the fair costs in the accounting records, and then recording factors in a period manner which shows the variance between the predictable and fair costs(Öker and Ad?güzel, 2016). It is said to be an accounting tool that some producer implement to determine the variances among actual costs of production and the costs that must have incurred for those products. This tool is meant for planning management and budgets, directing costs and analysing costs management performance.
The Benefits of Implementing the Activity-Based Costing Model for Breville Group Limited
Moreover, this system is engaged with the estimation of needed costs of a production process. It involves the formulation of estimated costs for activities in a company. The main rationale for the implementation of strategies is that there is the presence of several applications which demand high time consumptions to reach to actual costs, so this system is implemented to get a close estimation of actual costs.
It will help the company in determining the estimated cost of production which can be very useful for planning and budgeting. Along with this, it will assist in determining the variances between the actual cost of the production and the estimated cost of production. It also helps the managers in the detailed analysis of the variances which in turn aids them in taking important decisions regarding the production of goods in a cost-effective manner (Hoozée and Bruggeman, 2010). It leads to optimum savings of each department while helping in producing goods efficiently. management, it promotes the efficiency of labour for cost-effective production whilst it also creates cost awareness both in the minds of labour and upper-level management of the company alongside.
Apart from the ABC model, standard costing is also considered as a better accounting management tool that can be used by the Breville Group Limited. This is the tool of management in which the budget of the organisation needs to be prepared for planning and controlling the fund. All the budgets are made with the historical data and expectations from the future. After this, a budgeted data is compared with the actual accounting data, and the performance is calculated on the basis of the variation between the actual and the expected performance (Dale and Plunkett, 2017). The budgets are also useful in giving an in-depth understanding of where the money is being spent. It also helps to reduce the troubles of the debt. If the debts are already to the control, it will become easier to implement the budget. Therefore, a budget is like a blueprint of the organisation’s revenue and the expenditure. This eventually helps in examining the total funds available for the company to expense on the investments (Klychova, Faskhutdinova and Sadrieva, 2014). It shall be used by the Breville Group Limited since its business is engaged in dealing with electric appliances for the global industry. Therefore a budgetary control will help in determining the utilisation of funds.
Conclusion
The present study shows that ABC model results highly beneficial for the companies when it comes to making pricing and cost decisions, while it also supports strategies to ensure optimum use of resources. On the other hand, standard costing is also a management accounting option that can be implemented by Breville Group Limited for the better formulation of budgets and cost management in order to conduct operations and activities.
References
Ayvaz, E. and Pehlivanl, D., 2011. The use of time driven activity based costing and analytic hierarchy process method in the balanced scorecard implementation. International Journal of Business and Management, 6(3), p.146.
Babnik, K., Breznik, K., Dermol, V. and Trunk Širca, N., 2014. The mission statement: organisational culture perspective. Industrial Management & Data Systems, 114(4), pp.612-627.
Belghitar, Y., Clark, E. and Kassimatis, K., 2016. A Measure of Total Firm Performance: New Insights for the Corporate Objective.
Breville Group Limited (BRG), 2018. [Online]. Available through < https://www.investsmart.com.au/shares/asx-brg/breville-group-limited >. [Accessed on 24th May 2018].
BREVILLE GROUP LIMITED, 2018. [Online]. Available through < https://www.asx.com.au/asx/share-price-research/company/BRG>. [Accessed on 24th May 2018].
Cardos, I.R. and Pete, S., 2011. Activity-based Costing (ABC) and Activity-based Management (ABM) Implementation–Is This the Solution for Organizations to Gain Profitability?. Romanian Journal of Economics, 32(1), p.41.
Chea, A., 2011. Activity-based costing system in the service sector: A strategic approach for enhancing managerial decision making and competitiveness. International Journal of Business and Management, 6(11), p.3.
Dale, B.G. and Plunkett, J.J., 2017. Quality costing. Routledge.
Fei, Z.Y. and Isa, C.R., 2010. Factors influencing activity-based costing success: A research framework. International Journal of Trade, Economics and Finance, 1(2), p.144.
Hoozée, S. and Bruggeman, W., 2010. Identifying operational improvements during the design process of a time-driven ABC system: The role of collective worker participation and leadership style. Management Accounting Research, 21(3), pp.185-198.
Klychova, G.S., Faskhutdinova, ?.S. and Sadrieva, E.R., 2014. Budget efficiency for cost control purposes in management accounting system. Mediterranean journal of social sciences, 5(24), p.79.
Öker, F. and Ad?güzel, H., 2016. Time?driven activity?based costing: An implementation in a manufacturing company. Journal of Corporate Accounting & Finance, 27(3), pp.39-56.
Rugman, A. and Verbeke, A., 2017. Global corporate strategy and trade policy. Routledge.
Szychta, A., 2010. Time-Driven Activity-Based Costing in Service Industries. Social Sciences (1392-0758), 67(1).
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