How ABC model can improve Longtable Group Limited’s Management Accounting Information to Its Top Management
Discuss About The Journal Of Accounting Organizational Change.
The paper is about evaluation of ABC model. The paper provides brief explanation of the ABC and highlights some of its features. In essence, the report presents description of the ABC, its scope, features, as well as its concept regarding its execution. It also highlights how the ABC model aligns with Longtable Group Limited’s strategies and current goals. It also provides some recommendations regarding implementation of ABC model to the company and concludes with explanation of how ABC model could be of assistance to the company.
- a) ABC model as well as its Chief Features
ABC is an accounting model used to charge indirect costs of an entity’s to different activities resulting from the costs that is incurred (Horngren 2009). In other words, ABC model is the costing system that introduced as alternative to shortcomings of the traditional costing methods which require more reliable and accurate costing information. The system permits overheads being allocated to the specific cost pools in line with their actual or real consumptions of the resources (Alawattage, Hopper & Wickramasinghe 2007). Therefore, it offer more useful and accurate costing information for the performance measurement, strategic, operational and cost control decision-making.
Moreover, as ABC concentrates on the cost related to different activities and evaluates such activities to the non-value-adding and value-adding activities, the system offers technique to understand clearly on how to decrease costs as well as how to monitor the on-going performance and improve organization’s profitability (Noreen, Brewer & Garrison 2011).
The ABC also entails an accounting model that helps in distributing activities costs to various products which in turn encourages activities being performed. The ABC assists in reducing costs of activities by providing significant information on chances of decreasing costs. Further, ABC includes preparation of financial statements linked with activities of various expenses and also comparing the costs with corresponding extra values to understand activities which required to be abolished or to be improved (Whitecotton, Libby & Phillips 2011). The model provides guidance to organization management in fixing prices by offering numerous information and data regarding cost of products and services. Additional to this implementation of ABC assists in making decision regarding purchase or selling of specific products within an organization. It helps in transfer pricing and enable management in gathering accurate information in assessing performance of transferor divisions and transferee (Epstein & Lee 2008).
Implementation of the ABC is significant since it assists in distinguishing in between patterns of the cost behaviour in volume, events and diversity (Garrison, Noreen, Brewer & McGowan 2010). The practice also assists in distinguishing forces behind overhead costs as the cost drivers. Therefore, through ABC, management attention as well as detailed analysis could take place very easily. ABC looks for cost drivers of the operational process or the cause of the costs and then traces them in sequence to the products (Alawattage, Hopper & Wickramasinghe 2007). Hence, it could assign manufacturing costs to the products and offer insightful information on the authentic costs of the operational process.
- b) How ABC model aligns with Longtable Group Limited’scurrent goals and strategies
- i) Longtable Group Limited’sc mission and objectives
How the ABC system helped in achieving Longtable Group Limited’s strategies
Longtable Group Limited is an Australian food and beverage firm. It operates as the investment firm investing in technology, beverages and food firms. Its brands include Maggie Beer and Paris Creek (Longtable Group 2017). It holds 48% interests in the Maggie Beer Product Ltd. On the other hand, its products under the Paris Creek comprises of flavoured milk, quark, hard cheese, milk, yogurt, butter and soft cheese. The company mission is usually to become the leader in matching high expectations of the clients for high, new quality beverages and food experiences in behavioural changes. This implies that the company mission is being at forefront of the mainstreams trends recognizing that any chances arising internationally and locally (Longtable Group 2017).
- ii) Longtable Group Limited’scorporate strategies
Longtable Group Limited corporate strategies include actively pursuing investments which fit within it mission framework. Presently, it holds 48% equity share in the Maggie Beer Products Ltd that was acquired by July 2016. Besides, its corporate strategies are to expand its chief operations to include those investments within sectors beyond technology to beverage and food sector with specific focus on the premium products (Longtable Group 2017).
Given that ABC permits overheads being allocated to the specific cost pools in line with their actual or real consumptions of the resources, it is evident that this system would assist the company in achieving its key strategies (Epstein & Lee 2008). This is based on the fact that the system concentrates on the cost related to different activities and evaluates such activities to the non-value-adding and value-adding activities; hence, offers offer the company technique to understand clearly on how to decrease costs as well as how to monitor the on-going performance and improve organization’s profitability. The ABC played a crucial role in helping Longtable Group Limited in achieve its strategies since it allowed the firm in estimating its products cost accurately which is crucial in achieving its control, planning and management of its costs. The system could assist the company in achieving its strategies since it enable managers to make use of the information provided more efficiently in determining the product cost as well as product-line profitability. It could assist Longtable Group Limited’s managers in identifying the causes of the costs or the resources consumed, the manners of economizing resources consumed as well as the trade-offs between production of the new products and decreasing costs of the absolete products and the desired performance (Alawattage, Hopper & Wickramasinghe 2007).
Recommendations for Implementing ABC Model in Longtable Group Limited
The system could help Longtable Group Limited in achieving it strategies since it offer cost information on differentiated products which managers could rank and compare by the profitability analysis such that they could determine which of the products would be most attractive. It could also help Longtable Group Limited’s management to understand which of the activities could be costing the firm more money where they are able to control and manage such costs.
- c) Recommendations regarding implementation of ABC to Longtable Group Limited’s
The company should implement the ABC model while allocating costs to different activities. This is based on the fact that the system would permit the company to allocate overheads to the specific cost pools in line with their actual or real consumptions of the resources. To be more specific, implementation of the ABC would assist the company in in distinguishing in between patterns of the cost behaviour in volume, events and diversity. It would also assist the firm in distinguishing forces behind overhead costs as the cost drivers (Langfield-Smith, Thorne & Hilton 2009). Therefore, through ABC, Longtable Group Limited’s management attention as well as detailed analysis could take place very easily. Secondly, the company should implement the ABC as its key costing system. This is founded by the notion that system provides guidance to organization management in fixing prices by offering numerous information and data regarding cost of products and services (Alawattage, Hopper & Wickramasinghe 2007). Additionally, the implementation would assist the company in making decision regarding purchase or selling of specific products. It would also assist the firm in transfer pricing and enable management in gathering accurate information in assessing performance of transferor divisions and transferee.
- d) Other management accounting tool for Longtable Group Limited’s
Cost accounting tools or systems are those frameworks employed by an organization in approximating cost of its products for the cost control, the inventory assessment as well as profitability analysis. Estimating accurate costs is crucial for the profitable operations within any organization (Alawattage, Hopper & Wickramasinghe 2007). An organization such as Longtable Group Ltd needs to understand which products are more profitable and the one that are not which could be ascertained when the firm has estimated correct costs of a specific product. Therefore, apart from ABC model Longtable Group Limited needs to utilize another costing system which would save it a significant amount of costs. In this case, the best alternative costing system would be process costing system. This is the costing system which is said to accumulate the production costs distinctly for ever process (Langfield-Smith, Thorne & Hilton 2009). This system is appropriate for Longtable Group Limited since it help the firm in assigning the production costs to individual production processes. The system would assist Longtable Group Limited in accumulating and tracing direct costs and allocating indirect costs of the production process. In this case, it would help Longtable Group Limited assign costs to products in large batches which may comprise of entire month’s production (Noreen, Brewer & Garrison 2011). The company would use this costing system in assigning average costs to every unit.
Conclusion
In conclusion ABC is a significant accounting model that assists in establishing that effectiveness and superiority of cost management is improved. It assists in altering product’s income margin and is also crucial in assessing price-related decisions. Besides, it can be concluded that ABC is a worthy accounting model for the modern manufacturing settings as it could offer relevant information for the organizations operating in the globally competitive markets. Through the analysis of the company main vision and objectives and explanation of the ABC model, it can be concluded that the system would be of greater importance to the company. In fact, there is need to implement the system within the company since it would assist in allocating costs to different activities. The system would also be of greater importance to the company since it would permit the company to allocate overheads to the specific cost pools in line with their actual or real consumptions of the resources. Besides, it can be stated that implementation of the ABC stands as the only option for Longtable Group Limited since it would assist the firm in distinguishing in between patterns of the cost behaviour in volume, events and diversity. It is also clear from the analysis that Longtable Group Limited needs the ABC in order to achieve its main strategies and objectives. This is based on the fact that, the systems would influence Longtable Group Limited in distinguishing forces behind overhead costs as the cost drivers. Therefore, through ABC, Longtable Group Limited’s management attention as well as detailed analysis could take place very easily and enable management in gathering accurate information in assessing performance of transferor divisions and transferee. In essence, based on the above analysis, ABC model is expected to bring about greater improved to Longtable Group Limited’s management accounting information, especially to its top management. This is because it would help the top management to understand which of the activities could be costing the firm more money where they are able to control and manage such costs. It would also offer guidance to the management in fixing prices by offering numerous information and data regarding cost of products and services. This would in turn enable management in gathering accurate information in assessing performance of transferor divisions and transferee.
References
Alawattage, C, Hopper, T & Wickramasinghe, D (2007), ‘Introduction to management accounting in less developed countries,’ Journal of Accounting & Organizational Change, 3(3), 183-191.
Bhimani, A & Horngren, CT (2008), Management and cost accounting (Vol. 1). Pearson Education.
Epstein, MJ & Lee, JY (2008), Advances in management accounting. Emerald Group Publishing.
Garrison, RH, Noreen, EW, Brewer, PC, & McGowan, A (2010), ‘Managerial accounting,’ Issues in Accounting Education, 25(4), 792-793.
Horngren, CT (2009), Cost accounting: A managerial emphasis, 13/e. Pearson Education India.
Langfield-Smith, K, Thorne, H & Hilton, RW (2009), Management accounting: Information for creating and managing value. McGraw-Hill Higher Education.
Longtable Group (2017), Longtable Group Limited Annual and Half Yearly Reports: Available from: https://www.longtablegroup.com/investors/company-reports/ [Access at 26th May 2018]
Noreen, EW, Brewer, PC & Garrison, RH (2011), Managerial accounting for managers. McGraw-Hill Irwin.
Whitecotton, S, Libby, R & Phillips, F (2011), Managerial accounting. McGraw-Hill Irwin.
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