Lynas Corporation is a mining Company that has gone through various changes for the past few years. The business uses a significant amount of equity funding and debt in establishing both the processing plant and mine, but the return on the investments was still low. The production department of the organization was also unstable. This is because there are high costs that are associated with particular activities that the organization performs. The current market price of its products also kept on fluctuating in the market. The organization experiences all these changes because the organization’s ways of operation and corporate structure were not in line with the modern market settings. Also, production and some of the activities that the organization performs were hindered by legal challenges and operating challenges. Therefore, to ensure that all the problems that face the organization are solved, the management has to developed appropriate model that will help in resetting the cost base of the Company as well as improving their functional performance while trading in the market. The management should also ensure that the traditional strategic framework that is in place support the financial house of the organization. Most of the issues that affect the Lynas Corporation relate to decisions regarding allocation of costs to activities. I will advise the management to implement and use the Activity-based costing model. This model will enable the organization cut the operations cost and increase the efficiency of the business. All these processes will ensure that there is the effective decision-making process in the organization. To help explain how Activity-based costing will enhance the performance of the Lynas Corporation; the paper is separated into different sections with each part narrates issues that deal with the implementation process. There is an indication of accounting tool that can be used together with the ABC to facilitate the performance of the organization.
ABC is the method of accounting that allocates costs to commodities, and the allocation process depends on the resources that are used in the process of production. Kaplan and Cooper introduced the concept of ABC system in the year of 1987. Activity-based costing is an approach that helps in the accurate allocation of overhead to the activities that use it (Taticchi, Tonelli and Cagnazzo 2010). The use of the ABC brings about the improvement in performance of all the organization. It causes an increase in the Organization’s financial performance explicitly. This approach is mostly being used to assign costs to services and products which depend on the resources and activities used. This approach uses cost drivers to apportion the value of different commodities (services as well as products). Activity-based costing model not only enhances the accuracy of various services and products, but it can also assist managers to have a good understanding on how to use the unlimited resources through financial performance, for example, the use of bottom line statement (BLI) and return on investment (ROI). ABC is the approach that will provide the organization with the accurate method of managing costs (Bauer et al. 2018). Activity-based costing uses innovative techniques to measure values of business activities as well as processes to allow for the cost saving of the individual organizations as well as the overall supply chain. Activity-based costing can be viewed in different ways. It can be considered to be in process view as well as cost assignment view. The cost assignment view offers information on activities, cost object, and resources (Amid, Ghodsypour and Brien 2011). The process view provides nonfinancial information about the events that are for the business as well as the business process.
The figure below shows a representation of the two views
According to Kaplan and Cooper Activity-based costing display the following features or characteristics: ABC divides the TC into variable cost and fixed cost which is crucial in the provision of the accurate data to help in developing appropriate cost system, the model made distinction by use of design of cost behavior, the approach restrict the identification of the cost drivers to assist in finding the overhead of a particular product, and lastly, the cost behavior is dictated by the cost drivers (Zimmerman and Yahya 2011).
Mission and objective of the Lynas Corporation
Lynas Corporation strives to be a universal leader in RE (Rare Earths) for a maintainable future (Hellman and Duncan 2018). Lynas Corporation fulfills this by seeking for the workforce and then meeting the requirements of their customers (Phua and Velu 2012). The company also aims at investing in the communities where it operates as well as protecting the environments where the operation of its activities takes place. The vision of the Lynas Corporation is to be the best in the industry.
The main objectives of the company include: development and exploration of Rare Earths deposits, The Company also aim at survey for other mineral resources, and designing, planning as well as the construction of the plant in the western parts of Australia. Another objective of the company is to facilitate the development of the modern processing plant to be used in the distribution and production of REO (Rare Earth Oxide). The company has a goal of committing zero damage in their workplace (Du and Graedel 2011).
Lynas Corporation has a policy of creating reliable, as well as becoming number one supplier of Rare Earths in the market. The Company also focuses on growing the benchmark for environmental standards and distributor of security in the global market. The company also makes debt and structured agreement with its lenders (Meyer and Bras 2011). This kind of deal will take the company to the next level. Lynas has a framework useful in concentrating workforce, and this process will ensure that there is a rise in revenues and ensure profitability of the production. There is also diversity in the organization. This type of strategy provides that the organization received varied experience to enrich the discussion process of different issues in the organization (Long, Van Gosen, Foley and Cordier 2012).
Lynas Corporation will depend on the inventive and strategic method of accounting as used by the Activity-based costing to remain profitable in the competitive industry. This method of cost accounting will enable the Company assess, analyze, evaluate and collect the overall investing as well as spending habit, with the intention of informing the management of ways of reducing the operational costs (Relich and Pawlewski 2018). The model will enable the Lynas Corporation a good understanding of its values as well as the actual factors that initiatives these costs. When both the employees and the Managers can identify the correct costs of activities, they should then use them in the decision-making process. Due to the rising competition in the market, the use of the model will assist the organization to improve or maintain their competitiveness in the market through the use of information on costs that will always be correct and accurate when the ABC model is used in the production process (Tavana, Yazdani and Caprio 2017). The approach will enable the organization to use more suitable accounting information (ABC) to control and planned its operations which will always reflect the actual costs of the services as well as the product of the company. When the company employs the use of the model, the costing system will provide accurate information which essential for managing the decision is making (John, Cullen, Jülicher and Price 2018). ABC will assist the Company to fulfill its target because the management will be able to increase its profit by saving the resources, time, and money of the business. This approach will significantly assist the organization in this environment where Lynas Corporation operates costs is the significant factor that the organization needs to consider during their daily operation. The use of the approach will also enable the organization to improve its financial performance (Brogi et al. 2018). The adoption will help the Company in making precise cost analysis, thereby assisting in the specification of constraints and reducing unnecessary costs. The technique will allow the organization to enhance their work process and perform according to the ISO 9000. This will give their customers enough confidence which then lead to increase profitability. The customers will be sure of getting quality products (Ahmadi, Ghahramani, Becerik and Soibelman 2018).
Effective communication is essential at all the departmental level of the organization. The firm should ensure that it communicates the deficits of the costing system that they are using, the effect of this alteration in the decision making by the management. The organization should also explain how the new approach can be used to offer accurate information on costs of particular activities in the organization. The organization should also state the effect of the new model on the rewarding and valuation of all the employees. Because communication involves getting feedback, the concerns of the employees should be addressed (Zhuang and Chang 2017).
The management should also look at the issues of the people particularly the employees that they will raise concerning the implementation of the Activity-based costing system as the new costing system (Leahy et al. 2017). This may include looking into the issues that the managers may forward that may prevent them from facilitating the changing process. It is also essential for the organization to address the influence of the new model on compensation system and measurement of performance. The existing performance metrics need to be revised, or new one devised, based on the data collected during the activity-based costing implementation (April and Murray 2017).
The most suitable management tool that the Lynas Corporation should use instead of the Activity-based costing is the Activity-based management. The organization can even use the two management tool at the same time since the approaches work best together. ABC system will perform the arithmetic of costs with the intention of providing precise cost information, while the focus of activity-based management (ABM) will be on using the information provided by the ABC system to manage different activities in the organization (Wang et al. 2018).
Conclusion
The implementation of the Activity-based costing can solve the challenges that the Lynas Corporation are facing. The approach will provide precise cost information to the management thereby improving the decision-making process. The paper also discusses some of the advantages that ABC system will offer to the organization. Some of the benefits conferred are the improvement of the decision-making process as well as increasing the profitability of the Company. Activity-based costing is more suitable for all the organization as it helps in the allocation of activity costs.
References
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