Discuss about the Economic Condition And Complex Busienss Structure.
With the changes in the economic condition and complex busienss structure, each and every organization should use proper costing model the recording the costs of the busienss in different process. If the cost of the production is distributed in different work department the nit will eventually increases the effectiveness and overall business functioning of organization. ABC costing is a technique that is basically used for reducing the overhead cost generating from different operations in an organization. Production process is a very huge process and it involves a number of activities. There are different resources that are needed to fulfill those activities like material, labor, electricity, water and so on. So, it is very important to check whether resources are not properly utilized and there should be an accurate and proper utilization of resources. Resources involve a cost factor. As the usage of resources increases the cost of the product also increases simultaneously. ABC costing helps an organization in the proper allocation of resources and suggests ways to reduce the overall cost of the product. This is a study about a Pacific Energy Limited that is a very renowned energy generation company in Australia (Pacific Energy, 2017). This company has gained momentum in market by offering best types of chemicals to clients throughout the time. Pacific Energy Limited wants to provide products to the customers that can satisfy their needs. It also wants to get famous all over the world. There are many organizations that possess very complex operations and it becomes very difficult to allocate resources as well as cost, so, in such organization this process helps a lot (Alsharari, 2016).
Activity based costing model is a very effective as well as efficient way used by the organization as it helps in analyzing the deviation of cost in relation to making things easier. This method helps organization to create a proper analysis on the cost. It majorly tracks all the activities happening in production process and the resource utilized in the same (Palmer & Hynard, 2007). By create a proper tracking record, cost incurred and resource involvement can be identified. ABC model is mainly known for its applicability on manufacturing units but it is also applicable on the organizations where there is a high complexity of operations (JUSZCZYK & LE?NIAK, 2016). Resource allocation is a very important task that is taken care by ABC costing as there are various organizations in which the increment of cost is related to the wastage of resources. Resource allocation to an activity directly refers to the allocation of the cost. Cost directly creates an impact on the revenues of the organization because people can buy products that are affordable for them (Lim, Noh & Mo, 2016). So it is important for Pacific Energy Limited to set a low price of the product. ABC costing assists in minimizing the cost of the product by using the same production technique and with the same quality of the products.
ABC costing is a very good method that provides assistance to the organization. There are certain features that make it different from the other methods and techniques of costing. It basically focuses in optimum utilization of resources and minimizing the overhead cost of production.it believes in separating different elements of cost that makes it simpler (Foolmaun & Ramjeeawon, 2012). It divides cost into two parts- Fixed cost and Variable cost. Fixed cost means the cost that remains same in every situation. If production process is going or not, but the fixed cost incurred will be the same. There is no connection of fixed cost with the quantity produced. On the other hand, Variable cost has a total dependency upon the units produced. It only depends upon the production activities. If there are no production activities, then there will be no variable cost. The separation of cost helps an organization to find out different cost drivers. Cost drivers attract cost and it helps in maintaining a proper record. It also enables an organization in planning and budgeting of different activities. There are different examples of fixed cost and variable cost (Jeli?, Ani?i?, ?urovi? & Radoji?i?, 2014).
There are several costs of the busienss which has to be paid by Pacific Energy Limited in its busienss. However, by using the effective cost drivers, company could increase the cost recording process.
The fixed cost expenses of the company such as depreciation, amortization, interest expenses and insurance. All these expenses incur irrespective of production process (“Contributions Published in Strategic Analysis in 2017”, 2018).
Variable cost: Commissions, Freight, cost of labor, freight out and direct material. These expenses incur by production activities only.
Every organization has some mission, vision, goals as well as objective and it works so hard to achieve the same. It is very important to have goals as there should be clarity in the organization. Pacific Energy Limited has a very clear mission and vision (Pacific Energy, 2017).
With its strong technical partnerships with two prominent power generation and electrical companies in China, Pacific Energy Limited has vision to foothold in the power sector (Pacific Energy, 2017).
The mission of Pacific Energy Limited is to attain leadership position in the industry by setting superior conduct of conduct and organization culture. It wants to be the most highly valued business by each and every stakeholder, customer and community in which it operates (Pacific Energy, 2017).
It wants to create an image that can be expected by each and every person connected to the company.
Consistent capacity improvement through innovation and development program by using the advance technologies is the major part to achieve the set goals and objective. By using the ABC model costing, company could win over the market and bifurcate its costing investment in different work process accordingly. They aimed at creating strategies department wise and then ensure that whether the goal has been achieved or not (Pacific Energy, 2017). They communicate all the goals and strategies to stakeholders so that it can inspire all the stakeholders and then they can motivate all the employees in a better way. By using the advance technologies and developed program, company deliver the trainings and learning’s to their employees which promotes innovation and creation in business. Employees are treated as a very important resource for every organization. They also help in facing the market competition by analyzing the competitive ideas. It is important for employees to keep motivated all the time and this is the reason Pacific Energy Limited creates a lot of efforts in motivating the employees by providing them rewards and recognition for their hard work. There is a very positive environment for the employees in the offices of Pacific Energy Limited so that employees do not face any difficulty in doing their work and can contribute their whole efforts for the growth and success of the organization.
ABC model is perfectly suitable for Pacific Energy Limited as it can help the organization in perfectly implementation of strategies in the organization. The main strategy of company is to consistent capacity improvement through innovation and development program by using the advance technologies. It can also help the company in the expansion plan and be famous all over the world (Pacific Energy, 2017).There is different type of expansion strategies that involved costs. It basically analyses the impact of expansion plan and developing innovation and creation in the value chain activities of Pacific Energy Limited. Pacific Energy Limited wants to have capacity improvement through innovation and development in its value chain activities. (Mwakiwa, 2011). ABC costing helps in setting the proper program in determining the costing of the business and assists in business improvement at large through the innovative and creative program. It wants to provide the best quality products as well. So, both the things can take place only when ABC method is used. It also focuses on providing cost effective offers that attracts customers to buy more products. So majorly, ABC costing eliminates all the extra cost involved in the production process by allocating the resources more effectively (Wouters, 2012).
ABC costing is the beast method that can be adopted by Pacific Energy Limited to accomplish the goals and objectives of the same. It proves to be very helpful for growing organization. It can also provide assistance to the company in its future expansion plan. It helps in serving the customers more efficiently and can increase customer satisfaction that can ultimately lead to brand loyalty. It is one of the simple methods of costing that is very easy to understand and implement. The main recommendation for Pacific Energy Limitedis related to how well company could undertake the possible functions to implement the strategic decision. It is observed that ABC model costing is the main suitable costing model which could be used by the Pacific Energy Limited to implement the effective decision making. The ABC costing model is used by Pacific Energy Limited to implement the effective strategic decision making. This method reduces the costing of the business and increase the overall efficiency of the busienss. The ABC costing should be used by company when it finds high complexity to manage the business and lower down the overall costing of the process. However, Pacific Energy Limited should take proper steps and analytical work program If It wants to set up new costing model in its business.
As we have discussed, there are many different methods of costing that can be applicable on Pacific Energy Limited but it has been determined that ABC costing is the best method for the company. This method can provide each and every feature that Pacific Energy Limited wants for the future growth and development. If it is not possible to adopt this method due to any reason then it can also adopt Life Cycle costing method. This method basically deals with the procurement cost and tries to find out the cheaper way of creating a task. It also calculates the expected return that the company can get from the investments made. It can also help in the online side of business (Lim, Noh, & Mo, 2016)
The life cycle costing method is most suitable method for the organization which has high complexity in the busienss. If these systems are used then it will eventually increases the overall outcomes and efficient busienss functioning. The life cycle costing method uses the positive and negative impact of the work process and bifurcate the costing in the different work process. However, the higher level of initial investment may result to high cost of capital for the busienss.
Conclusion
Here we conclude with the above study that it will be the best option for Pacific Energy Limited to adopt ABC costing method as it can fulfill all the requirements of the organization and can help them for future fulfillment of goals and objectives. It can be used to track all the activities and then do the analysis of cost and resources involved. It also provides measures to get the products available to the customers on an affordable price. Pacific Energy Limited used many historical costing methods that are not as beneficial as they do not include the modern costing techniques. It assists Pacific Energy Limited in optimum utilization of resources and the growth. Now in the end, it could be inferred that by using the ABC model, Pacific Energy Limited could increase the overall effectiveness of business and strengthen the costing recording system.
References
Alsharari, N. (2016). RESULTS BASED COSTING (RBC) SYSTEM: QUESTIONING THE UNIT OF ANALYSIS IN ABC. Corporate Ownership and Control, 13(2). doi: 10.22495/cocv13i2c3p8
Contributions Published in Strategic Analysis in 2017. (2018). Strategic Analysis, 42(1), 60-67. doi: 10.1080/09700161.2017.1418957
Dhillon, B. (2013). Life Cycle Costing. Hoboken: Taylor and Francis.
Foolmaun, R., & Ramjeeawon, T. (2012). Comparative life cycle assessment and life cycle costing of four disposal scenarios for used polyethylene terephthalate bottles in Mauritius. Environmental Technology, 33(17), 2007-2018. doi: 10.1080/09593330.2012.655321
Jeli?, M., Ani?i?, J., ?urovi?, J., & Radoji?i?, S. (2014). ABC COSTING METHOD. FBIM Transactions, 2(1), 91-100. doi: 10.12709/fbim.02.02.01.09
JUSZCZYK, M., & LE?NIAK, A. (2016). Site Overhead Cost Index Prediction Using RBF Neural Networks. Destech Transactions On Economics And Management, (icem). doi: 10.12783/dtem/icem2016/4096
Lim, J., Noh, W., & Mo, J. (2016). A Methodological Quality Evaluation of Nursing Cost Analysis Research based on Activity-based Costing in Korea. The Journal Of The Korea Contents Association, 16(7), 279-290. doi: 10.5392/jkca.2016.16.07.279
Mwakiwa, E. (2011). Cooperation or competition. [S.l.: s.n.].
Palmer, N., & Hynard, J. (2007). Comparing ONS’s retail sales index with the BRC’s retail sales monitor. Economic & Labour Market Review, 1(4), 47-49. doi: 10.1057/palgrave.elmr.1410060
Wouters, M. (2012). Cost management. New York: McGraw-Hill Professional.
Pacific Energy, 2017, Annual report, Retried from https://www.pacificenergy.com.au/images/files/asx-announcements/2016/2PEAR2016Final.pdf
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