Overview of the Company
Discuss about the Managerial Accounting for Ausdrill Ltd Australian Based Company.
The main purpose of this assignment s to analyze the financial statements of Ausdrill ltd to ascertain which cost method the business uses for measurement of costs which are related to the business. The assignment will bring out the meaning of ABC costing method and what are the features of such a method. Then the method will be analyzed from the view point of the internal processes of Ausdrill ltd.
Ausdrill ltd is an Australian based company which has its headquarters in Australia and has a diversified mining business. The company has grown significantly and has operation which ranges across Australia. Africa and United Kingdom. The company is regarded as leaders in drill mining, drill and blast explorations and mineral analysis and contract mining activities. The company has become one of the leading companies in the mining industry of Australia (Ausdrill.com.au. 2018).
Activity Based Costing (ABC) method may be defined as tool or method which is sued by the businesses to identify the activities of the business and the allocate the indirect costs which are associated with the business on the basis of the activities thus identified (Khataie and Bulgak 2013). The technique used in ABC model tends to recognize the relationship which exists between costs, activities and products. This facilitates the method to allocate indirect costs to different activities and not on an arbitrary basis which is the case in traditional costing method. The use of activity-based costing is mostly found used in manufacturing industries as such a method enhances the reliability of cost data. The method is known to promote better classification of cost data. The technique of activity based costing is said to improve the overall costing process in three ways that is it expands the cost pools that assembles the overhead costs. The overhead costs which are accumulated are then related with the activities of the business and allocated in the same manner. Lastly ABC model alters certain fixed overhead costs such as depreciation which under ABC model can be traced backed to an activity (Lindemann et al. 2013
). The features or characteristics of Activity-Based Costing are given below in point format:
- The total costs which is attributable to the company is divided on the basis of the nature of the costs which is on the basis of fixed costs and variable costs of the business in order to facilitate a better presentation of the cost elements which is associated with the business (Hardan and Shatnawi 2013).
- In the case of ABC model of costing, proper distinction needs to made between the cost behavior patterns.
- The cost behavior patterns of the business can be related to the volume, diversity, an event which is related the plan perfectly.
- The different cost drivers of the business dictate the cost allocation and recognition of costs under ABC method.
Ausdrill ltd is a mining and exploration company which has a variety of activities and so naturally the company also has a number of indirect costs which are attributable to different activities of the business (Ausdrill.com.au. 2018).. In order to suggest to the management, the benefits which ABC method of costing brings about, the first thing which is to be understood is the nature of the company, goals and objectives of the business and internal cost structure of the business. The mission and objectives of Ausdrill ltd is provided below.
ABC Model and Features of ABC Model
The mission of the company is to become one of the top mining and exploration company in the industry. The company aims to provide the best services to its clients and wants to maximize the profits of the business. In addition to this, the business aims to expand its scale of operations and expand the business of the company in other countries as well (Ausdrill.com.au. 2018). The company is already established in Africa and is regarded as the leading company of Africa. As per the financial statements of the company, the clients of the business are satisfied with the services which are provided by the company (Ausdrill.com.au. 2018). The company follows the objective of establishing strong personal relations with the clients of the business and thereby become the number one choice of the contractors for underground and surface mining.
The corporate objectives of the business is to provide quality service to its customers and to different mining industries. As per the policy of the business, the company has built up strong personal long-term relationship with the leading world’s resource companies some of which are BHP Billiton, AngloGold Ashanti and other companies (Ausdrill.com.au. 2018). The relationship will some of these companies extend up to 25 years which shows that the company has build a name of itself among the top companies in mining and mineral resources industries. As per the financial statement of Ausdrill ltd, around 80% of the revenues which the company has generated is from gold provision companies where Ausdrill ltd has provided mining services (Ausdrill.com.au. 2018).
The company in addition to this has earned considerable revenue from Africa and aims to general significant earnings which will be growing tremendously when the pipeline which is set in Africa will continue its operations. The strategy of the business is to establish long mutually beneficial relation with the other companies in the mining industries and also support industries which is engaged in extraction of minerals or the work process of the business depends on the mineral resources from such mining companies. In addition to this, the company has recognizes the importance of the employees of the business which forms the life blood of the organization and therefore has the policy of rewarding the employees for their exceptional services and loyalty towards the operation of the business (Stefano and Casarotto Filho 2013). In addition to this, the corporate strategies of the business also include making the services which is offered by the business unique which includes the company’s expertise in underground and surface mining and exploration drilling and drill and blast mining activities of the business. Moreover, the company is committed towards health and safety standards of the employees of the business. This forms part of the core value of the business.
Implementation of ABC techniques in Ausdrill ltd
The future prospects of the business will be focusing on the core value which the business can generate and with the help of innovations and developments of new business sites, the company plans to get competitive advantage. The management of the company believes that the employees of the business are skilled experts who will be contributing to any requirement of the client in future. In order to ensure the safety of the employees of the business, it is compulsory for all the employees of the business to undergo a safety training so that necessary skills and workplace health and safety awareness is developed for the business. The company also plans to further strengthen the ties which the business has with other companies so that all the companies can work in a collaborative manner and which can be of mutual interest to all.
As for the financial strategy of the business, the management of the company plans to maintain a prudent and sustainable capital structure that would allow the business financial and operational flexibility. The business intends to continue to provide services to other companies in the industry so that the business is able to generate more revenue for the business.
With the introduction of the ABC model of costing the management of the business will be able to identify better the cost drivers of the business and also relate different indirect costs of the business with the different activities of the business (Tsai et al. 2013). The management of the company will able be able to better understand and classify the cost structure of the business and thereby make the recording and summarizing of the cost data more effective (Öker and Ad?güzel 2016). The application of ABC model will allow the business to identify which activities of the business is incurring more costs and which business activity is incurring less amount of costs (Oseifuah 2013). Similarly, the business will also be able to identify which activities of the business generate more revenues for the business so that the company can focus more on such activities and invest more resources in such activities in order to generate more revenues for the business. In addition to this, at the time of implementation of ABC Model all the process of the business will be review which will give the management a clear idea about the working of all processes of the business (Cannavacciuolo et al. 2015). The model is also very effective in identifying any wastage of resources which in turns reduces the overhead costs related to the business
Mission and Objectives of Ausdrill Ltd
In addition to this, the model will be helpful in achieving the financial strategy of the business as the model improves the pricing of the business for the services which are offered by the company (Özkan and Karaibrahimo?lu 2013). Another inherent benefit of the model is that the method is quite easy to understand and simple for the employees of the business to follow.
The business should definitely incorporate ABC model so that the management is able to bring about a change in the internal process of the company. With the introduction of ABC model, the business will be able to bring about a change in the pricing system of the company and also reduces wastage. The overhead costs include significant amount of wastage and therefore ABC process will help the business to reduce the indirect cost of the business. The recommendations which can be suggested to the management of Ausdrill ltd for implementation of ABC model of costing are given below:
- Ausdrill ltd has business which extends to 8 countries and has a different variety of activities which the business performs for its clients such as drill and blast mining, exploration for minerals, underground mining. With the implementation of ABC model, the management will be able to better identify the costs which is subjected to each activity which also includes apportion of indirect costs of the business.
- In addition to this, the model is also useful in decision making process as to which activity will the business will be continuing based on the profitability of the activity and take decisions whether to continue or discontinue a certain activity.
Thus, from the above discussions it is clear that the management of Ausdrill ltd needs to implement ABC model of costing so that the appropriate changes in the costing and pricing strategies of the business can be made (Mahal and Hossain 2015).
The management of Ausdrill Ltd can alternatively implement Balance Scorecard which can have significant effect on the process of the business. Balance Scorecard is a performance management tool which can be used to monitor the activities of the business and also measure the external outcomes of the same. Balance Scorecard can be used by the management to identify areas where values are added and also identify what are the factors which are hindering the performance of the business to its full potential (Boscia and McAfee 2014). In addition to this, it can be used for supervision purposes and also help the management to understand the four perspectives of the balance scorecard which can be used to measure the performance of the business (Kartalis, Velentzas and Broni 2013).
Reference
Ausdrill.com.au. (2018). Home : Ausdrill. [online] Available at: https://www.ausdrill.com.au/ [Accessed 20 May 2018].
Boscia, M.W. and McAfee, R.B., 2014. Using the balance scorecard approach: A group exercise. Developments in Business Simulation and Experiential Learning, 35.
Cannavacciuolo, L., Illario, M., Ippolito, A. and Ponsiglione, C., 2015. An activity-based costing approach for detecting inefficiencies of healthcare processes. Business Process Management Journal, 21(1), pp.55-79.
Hardan, A.S. and Shatnawi, T.M., 2013. Impact of applying the ABC on improving the financial performance in telecom companies. International Journal of Business and Management, 8(12), p.48.
Kartalis, N., Velentzas, J. and Broni, G., 2013. Balance scorecard and performance measurement in a greek industry. Procedia Economics and finance, 5, pp.413-422.
Khataie, A.H. and Bulgak, A.A., 2013. A cost of quality decision support model for lean manufacturing: activity-based costing application. International Journal of Quality & Reliability Management, 30(7), pp.751-764.
Lindemann, C., Jahnke, U., Moi, M. and Koch, R., 2013. Impact and influence factors of additive manufacturing on product lifecycle costs. In Solid Freeform Fabrication Symposium, University of Texas, Austin, TX (pp. 998-1009).
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.
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.
Oseifuah, E.K., 2013. Activity based costing approach to financial management in the public sector: the South Africa experience. European Scientific Journal, ESJ, 9(1).
Özkan, S. and Karaibrahimo?lu, Y.Z., 2013. Activity-based costing approach in the measurement of cost of quality in SMEs: a case study. Total Quality Management & Business Excellence, 24(3-4), pp.420-431.
Stefano, N.M. and Casarotto Filho, N., 2013. Activity-based costing in services: literature bibliometric review. SpringerPlus, 2(1), p.80.
Tsai, W.H., Chen, H.C., Leu, J.D., Chang, Y.C. and Lin, T.W., 2013. A product-mix decision model using green manufacturing technologies under activity-based costing. Journal of cleaner production, 57, pp.178-187.
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