Answer To: HI5017 MANAGERIAL ACCOUNTING INDIVIDUAL ASSIGNMENT T2 2020 HOLMES INSTITUTE FACULTY OF HIGHER...
Pranjal answered on Sep 23 2021
HI5017 T2 2020
MANAGERIAL ACCOUNTING
Abstract
The given paper briefly analyses the utility of Activity-Based Costing (ABC) system in the context of two chosen Australian printing companies namely Australia Online Printing and The Printing Hub. The given assessment of usefulness of ABC has been conducted with reference to a chosen journal article. However, the given journal article does not clearly state whether those two companies have been adopting ABC as their costing methods, However, it has been assumed from the literature review that ABC is most suitable for these two organisations. The paper has been prepared in report format whether the theme of the paper has been introduced to the reader as the introduction and finally based on the discussion, the concluding note has been provided by the researcher.
Table of Contents
1.0 Introduction 4
2.0 Part A 5
2.1 Question 1: Features of ABC 5
2.2 Question 2: Suitability of ABC in Chosen Companies 7
2.3 Question 3: Use of ABC in Chosen Companies 9
3.0 PART B 11
3.1 Question 1: Implementation of ABC in Chosen Companies 11
3.2 Question 2: Features of ABC in Chosen Companies 12
3.3 Question 3: Usefulness of Cost Information 13
3.4 Question 4: Key Lessons 13
4.0 Conclusion 15
References 16
1.0 Introduction
Costing system is one of the most critical success factors (CSFs) for a business as it considers various internal and external factors impacting the business performance. If a cost structure for a business is not optimised, the same may lead to inefficiency within the operational process of the business. Hence, it becomes crucial for the management of a business to efficiently design the cost structure by way of implementation of a sound costing system. The given research paper focuses on analysis and evaluation of a chosen costing system in the context of real-world industry segment in Australia.
At the very beginning of the paper, the theme of the research has been introduced to the reader of the research paper by the author; followed by a brief discussion about the chosen costing system. In addition, the features of the chosen costing system have been presented by the researcher in the paper. In the subsequent sections of the paper, the researcher presents a chosen journal article which revolves around the analysis of actual costing system in the context of a given industry segment. Finally, based on the given assessment, the researcher wraps up the paper by way of recommendatory note.
For the purpose of the paper, the following may be stated:
· that the chosen costing system is Activity-Based Costing (ABC) system
· that the chosen industry segment is the Australian printing industry
· that the chosen two companies are Australia Online Printing and The Printing Hub (hereinafter may be referred to as AOP and TPH respectively).
2.0 Part A
2.1 Question 1: Features of ABC
Activity-based costing (ABC) is one of the most widely used costing systems all over the world which may be defined to be an accounting methodology for assigning overhead costs accurately to the product on the basis of value-adding activities performed under the overall operation process. As per the Chartered Institute of Management Accountants (CIMA), ABC may be defined to be as follows:
“cost attribution to cost units on the basis of the benefit received from indirect activities e.g. ordering, setting up, assuring quality” (ilearnlot, 2020).
ABC may be construed to be a costing system that aims to allocate overhead costs to the product on the basis of the activities performed by them (Burns et al, 2019). In other words, ABC uses activities as the basis for the allocation of overhead cost. Under ABC methodology, costs first assigned to the activities and then to the products. Some of the key features or characteristics of ABC may be stated as below:
ABC, unlike traditional costing method, does not distinguish between fixed and variable cost and focuses more on activities each cost element performs.
ABC is two-stage product costing system in which, in the first phase, costs are assigned to the activities and in the second phase the costs are allocated to the product based on the consumption of the activities. in short, ABC assumes that the products consume activities and activities consume costs.
Under the ABC system, cost drivers are important considerations which need to be identified by the management. The cost driver is a structural determinant affecting the cost activities based on the cost drivers (Accountlearning.com, 2020).
In the ABC framework, the cost behaviour is segregated in terms of timing, scale, scope, activities etc.
Figure 1: ABC Process
(Source: CGMA, 2020)
The process of ABC, as shown herein is relatively simple, yet involves few considerations by the management, which the traditional costing system does not focus on (Lu, Sridharan and Tse, 2016). Firstly, under ABC, all costs are being identified which are necessary to incur in order to manufacture a product or create a service. Secondly, the cost behaviours of all these costs are identified according to their activities. Then such activities are divided into the cost pools that may include all indirect costs or overheads (Laing and Perrin, 2018). Thereafter, each cost pool activities are assigned a cost driver such as direct labour hours or units or production. In short, this cost drover is the basis of allocation subsequently. Thereafter, the cost driver rate is being computed by dividing the total overhead by the total cost drivers to ger the per unit rate. Finally, the cost driver rate is being multiplied by the number of cost drivers in order to get the product cost apportioned to each product category (Investopedia, 2020).
2.2 Question 2: Suitability of ABC in Chosen Companies
As stated earlier as ABC is widely used costing system across the world because of its inherent benefits. The printing industry, on the other hand, may be defined to be an industry with specified operational process dealing with a number of cost elements with their varied nature and characteristics (Laing and Perrin, 2018). Different printing methods such as offset printing, screen printing etc are being used. For mass level production, different methods such as flexography etc are being used and the high speed compensates the heavy cost elements in the industry operations. In short, it has been observed that the printing industry has several types of cost drivers...