Activity-Based Costing (ABC) Model And Its Implementation For Ooh Media Limited

Activity-based costing (ABC) model and its characteristics

Discuss about the Accounting Research Of Australian Securities Exchange.

In this report, sincere attempt is taken for providing a brief discussion of the variety of aspects, which are inherent in the model of activity-based costing (ABC). The report is prepared with the intent to shed light on the above-stated model with regards to one of the entities listed in the “Australian Securities Exchange (ASX)”. To meet this intent, Ooh Media Limited is considered in this paper. Ooh Media Limited is considered as a leading provider of the rapidly growing out-of-home advertising sector in Australia and New Zealand. It has unparalleled portfolio of digital and classic signs throughout roadside, airport, retail and place-based media offering in cafes, office towers, bars, universities and fitness venues (oOh!media AU 2018). Hence, this paper would provide a detailed account of the characteristics of the ABC model and its implementation process by offering apt suggestions.

One of the popular costing tools is the ABC model helping the enterprises to identify activities carried out forming a part of the business operations. It assigns the products with indirect costs and importance is laid on the relation among products, activities and costs so that the goods produced could be assigned with indirect costs with much efficacy, which is not possible under the conventional costing model (Brooks 2015). Exceptions could be found where the managers of the enterprises find it extremely hard to assign the products with some indirect costs in accordance with this model. For instance, it becomes complicated for the managers and as a result, it might minimise their ability in assign the same with indirect cost. However, all the necessary cost information are provided under the ABC model due to which popularity is gained in almost all global industries and companies irrespective of their nature and size (Benson et al. 2015). The role of ABC model is significant in some major business areas that include product line profitability analysis, analysis of customer profitability, target costing and others. Hence, the applicability of the ABC model is widely popular in all types of business organisations. This model has a certain set of characteristics, which are described as follows:

• It is possible to distribute the overall costs as variable costs and fixed costs with the help of ABC model application. As a result, this division of cost eases the process of the organisations in enforcing effective pricing strategies based on their industry movements and cost operations (Edmonds et al. 2016).
• The patterns in cost behaviour could be compared easily in the costing operations of the organisations.
• Adequate benefits could be obtained by using this model, as the patterns of cost behaviour could be associated with different aspects like volume, time, diversity and other events related to cost.
• In order to trace the overhead costs to the products or services, the cost drivers are identified under the ABC model (Gitman 2014).
• The managers of the business firms find it relatively easy to state the cost behaviour patterns with the help of the identified cost drivers.

If the ABC model is applied, it becomes easy for the firms in meeting their set objectives and strategies. The current section highlights the mission, objectives and corporate strategies of Ooh Media Limited, which is associated with the said ABC model:

Alignment of ABC model with the present goals and strategies of Ooh Media Limited

For Ooh Media Limited, a clear purpose is presented so that it could conduct its business operations in the most appropriate fashion. The mission of the company is to ensure rapid and on-time services to its wide range of customers. For ensuring the stated mission, three significant business dimensions are developed and they are safety, sustainability and responsibility. Hence, the company is committed to work collectively in order to assure the growth and value development for the shareholders (Heisinger and Hoyle 2015).

Along with this, it has laid out various specific objectives as well. The primary objective is to assure the safety and health of its employees by creating various safety principles and standards. The second objective takes into account the achievement of the business targets and objectives by working in combination. Finally, it intends to assure business integrity and mutual respect with the associated stakeholders.

Ooh Media Limited has a range of activities that help in driving the business operations. Based on the significant strategies, the organisation intends to become the leading advertising provider by providing effective out-of-home advertising services. Hence, the company is needed to raise its level of productivity by gaining adequate knowledge of the critical risks. Hence, the company is involved in working with combination so that the overall objectives could be achieved. When these strategies are applied, Ooh Media Limited could ensure competitive advantage in the out-of-home advertising sector.

It has already been dissected that the popularity of ABC model has increased over the years widely, especially in manufacturing sector, mining sector, service sector and others. In this respect, it is to be mentioned that Ooh Media Limited is considered as a leading provider of the rapidly growing out-of-home advertising sector in Australia and New Zealand. This helps in developing an organisational strategy through which certain advantages are bound to be sought by implementing the ABC model and ultimately, this would result in accomplishment of business objectives and goals (Lawrence 2016).

The adoption of the ABC system in Ooh Media Limited would classify the out-of-home advertising industry into certain significant categories. The main categories are the following:

• Processing activities
• Input activities
• Administrative activities
• Support activities

The enforcement of the ABC model in the organisation would recognise five various activity levels that constitute of batch-level activities, unit-level activities, factory-level activities, service-level activities and consumer-level activities. The unit-level activities take place when each service is formulated within the organisation. The batch-level activities are inherent when the organisation carries out the production process in unit groups. The service-level activities are those that support the service formulation design for specific services. For seeking advantages from the service formulation process, the use of facility-level activities is made (Narayanaswamy 2017). Hence, it could be cited that the ABC system would help Ooh Media Limited for assisting the classification of repetitive and non-repetitive production activities.

Role of ABC model in accomplishing the strategies of Ooh Media Limited

In addition, ABC model helps the organisation in developing relationship between cost activities and cost drivers. The development of cause and effect relation could be made through the cost drivers and from this relationship; it would be possible to develop the cost objectives. After seeking help from the resource drivers, the management of Ooh Media Limited finds it easy to measure the services that each activity has consumed. On the other hand, these activities would assist Ooh Media Limited to measure the demand intensity and frequency developed on the basis of the ABC model (Osadchy and Akhmetshin 2015).

However, the adoption of the ABC system might place the cost accountants of Ooh Media Limited in a position where certain problems are bound to be inherent while selecting the cost drivers. This mandates the need for trade-off accuracy in contrast to the issues inherent in the ABC model. As a result, all the similar cost drivers are to be grouped in a single pool of cost. When the process is complete, the management of Ooh Media Limited is needed to apply the cost pools in the service line by making application of the rates of cost driver based on the number of transactions (Titman and Martin 2014).

When the ABC system is applied in the context of the above-depicted processes, the managers of Ooh Media Limited would possess all the essential cost information about the total manufacturing system. At the time there is presence of required costing information, the managers of the organisation might find it easy in optimising the costs of the products so as to ensure its business objectives and goals.

Several techniques are present through which it is possible to implement the ABC model for Ooh Media Limited. Out of them, two most feasible recommendations are provided in the context of the organisation, which are enumerated briefly as follows:

• Initially, it is recommended to the higher-level management of Ooh Media Limited to support the implementation of this model within the organisation. Therefore, it is crucial for the organisation to consider the role of the cross-functional team to handle the aspects associated with the adoption of the ABC system. Hence, the top management of the organisation is needed to deliver all the required resources to the formulated team so as to ensure suitable implementation of the ABC system within the organisation (Warren and Jones 2018).
• There is presence of two important factors because of which the top management of Ooh Media Limited is advised to support the implementation of this system. At the time the management fails to provide considerable support, the employees of the organisation might not be willing to accept the change. Moreover, they would perceive that the system is not important, if the management does not provide considerable importance to the ABC model (Weygandt, Kimmel and Kieso 2015).

Except the ABC model, there is availability of certain management accounting tools available for use of the global business organisations. Among them, budgetary control is deemed to be the most suitable for Ooh Media Limited. The adoption of this technique would help the organisation in planning and controlling various business operations by utilising the tool of management accounting. By implementing the tool of budgetary control, the management of the organisation finds it easy in terms of planning, controlling and follow-up of the different business operations of the organisation (Weygandt, Kimmel and Kieso 2015).  The budgetary control is observed to have certain benefits, which are demonstrated briefly as follows:

• The corporate firms are able to increase the overall staff performance so that their business objectives and strategies could be accomplished (White 2014).
• In case, the actual expenses exceed the overall expense budgeted for each department, it would be possible for the management of Ooh Media Limited in undertaking remedial actions for ensuring better performance and expense control.
• When budgetary control is enforced in the business activities of Ooh Media Limited, adequate amount of information could be obtained about the past events, since it is possible to develop effective strategies by utilising the information in order to assure the non-repeat of such mistakes (Zhang, Hoque and Isa 2015).

Recommendations regarding the implementation of ABC model for Ooh Media Limited

Conclusion:

Based on the above discussion, it could be stated that all the business organisations are adopting the ABC model for enhancing their overall costing system. Moreover, with the help of this model, it is possible to divide the total costs into fixed costs and variable costs. Furthermore, the management of Ooh Media Limited could seek essential costing information by utilising the ABC model. The reason is that such system would help the company in creating effective costing techniques. Thus, in order to ensure the appropriate enforcement and adoption of the ABC model, the top management of the company is required to support the entire process.

However, the adoption of the ABC system might place the cost accountants of Ooh Media Limited in a position where certain problems are bound to be inherent while selecting the cost drivers. This mandates the need for trade-off accuracy in contrast to the issues inherent in the ABC model. As a result, all the similar cost drivers are to be grouped in a single pool of cost. When the process is complete, the management of Ooh Media Limited is needed to apply the cost pools in the service line by making application of the rates of cost driver based on the number of transactions.

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