Answer To: HI5017 MANAGERIAL ACCOUNTING INDIVIDUAL ASSIGNMENT T2 2020 HOLMES INSTITUTE FACULTY OF HIGHER...
Soumi answered on Sep 17 2021
HI5017— MANAGERIAL ACCOUNTING
Abstract
The report focuses on various aspects of the Activity based Costing system, which is a tool for determining the costs of overheads in the process of production. The report broadly explains the system, through which the ABC based model can be implemented and the ways, through which the benefits of the model can be reaped.
Table of Contents
Abstract 2
Introduction 4
Part A 4
Q1. Features of Activity-based Costing 4
Q2. Australian Companies Suitable for Activity-Based Costing 4
Q3. Use of Cost Information for Decision Making 5
Part B 6
Q1. Summary of ABC Costing System in Boeing Commercial Airplane Group (BCAG) Wichita Division 6
Q2. Features of Activity-based Costing used in Boeing Commercial Airplane Group Wichita Division 7
Q3. Usefulness of Costing Information in Boeing Commercial Airplane Group Wichita Division 7
Q4. Key Lessons Learned 8
Conclusion 9
References 10
Introduction
The report addresses the concept of Activity Based Costing (ABC) system. The features of the model, the usefulness and the real application of the stem are analysed broadly in the first half of the report. The second half of the report focuses on the case study based on the Boeing Commercial Airplane Group and its application of the ABC model in the system. The usefulness of the model and the effective measures taken through the implementation of the models is discussed along with key learning points from the case study analysis.
Part A
Q1. Features of Activity-based Costing
In the production process, there are a number of activities, which gives rise to certain costs. The activity-based costing system is the accounting technique, through which the organisation determines the actual costs that are associated with each product or the service provided by the organisation. There are several benefits, which are associated with this approach; one of the major benefits is that the system identifies the value-adding activities of the organisation.
The features of the Activity-based Costing (ABC) are—
Two-Stage process- The system is a two-stage process, in which the cost of the activities is determined on the first hand and then the products are associated with various activities. The activities specify which product takes what type of activity to be completed and thus adds value to the system (Pietrzak, Wnuk-Pel & Christauskas, 2020). The simple distinction of fixed cost and variable cost is not enough for large organisations and that is the reason why ABC is used.
Simple to use- the system of ABC is used widely and by different types of organisations. The process can be used by any organisation to have a better understanding of the cost of goods and the service it provides. The system comprehensively includes the manufacturing service and is even used by non- profit organisations
Cost pools- the cost pools are used in a two-stage process of the ABC system. The process includes an accumulation of activity related costs and having an enhanced knowledge of the actual cost that is required.
Resources and activities approach- the ABC system is based on the concept of using the activities consumed by the products. That is what activities are used in the total production process from manufacturing to selling. The activities are then analysed to determine, which resources are consumed.
Cost behaviour- the ABC system makes an appropriate distinction between the cost behaviour based on scale, time and scope as well as the decision-related. The cost behaviour in this process is determined through all the performance-related product cost.
Q2. Australian Companies Suitable for Activity-Based Costing
ABC costing is generally used by the manufacturing units and large commercial construction companies. The system of ABC allocates the fixed overheads and the administrative costs on activities that are required for the cost inducing events (Hofmann, & Bosshard, 2017). The ABC system takes into account the activities that directly affect the cause and relationship with a particular overhead. The system then allocates the cost determined for the activities important to the activities required for each service or product.
Manufacturing- Caltex
Caltex is the leading manufacturing company in Australia dealing in petroleum refining and petroleum fuel manufacturing. The company is suitable to use the ABC system for allocating overhead costs rather than using traditional methods of direct labour cost (Namazi, 2016). The industry has moved from a labour-intensive work pattern to automated machines and thus the old methods of direct cost cannot determine the true value of the acquired costs. The ABC system determines the costs of the capital-intensive facilities for the process of manufacturing and then distributes it for each activity. In this way, the operating environment of the company is more suited for determining the cost of each operation unit. For the Caltex operating costs total for a large portion of overall expenses and thus the ABC system is useful for cost determination. Apart from these, the company can use the system for products of varying quantities and complexity.
Construction- Lend Lease
The Lend-Lease is an Australian based multinational company, which deals in the construction and development of properties and infrastructures. The ABC system can be implemented in the large multinational construction company as it exhibits the characteristics that are practically needed for the implementation of the ABC system (Abu, Nor & Rahman, 2019). The construction companies have a number of overhead and as there is a complex range of activities related to the prices large equipment are even required in the process. The service lines in these companies are also of different size and complex in nature. The ABC costing is appropriate in the setup as it assigns the costs to particular items and rejects, which better enables the construction of the cost-sensitive projects.
Q3. Use of Cost Information for Decision Making
The management personnel are benefited from the knowledge of costs for each activity. The record of the data and its analysis related to the past activities is only a side of the cost accounting system (Hofmann & Bosshard, 2017). The managers also use other types of data, which may arise in the future. The managers often make decisions based on the supply and production as well as the pricing...