Definition

Discuss about the Activity Based Costing For Harvey Norman Company.

Harvey Norman is a multinational retailer of furniture, bedding, computers, communications and consumer electrical products. The company is based in Australia. It is a franchisee of the mother company, Harvey Norman holdings limited. The company runs other retail outlets all over Australia and outside Australia. This coupled up with the fact that different departments of the company are managed differently, implies that the company y must be run using the most effective and efficient. The following report will be discussing activity based costing and management tool and its applicability in Harvey Norman Company. The evaluation of compatibility of the system to the company’s operations is done by first understanding the company’s mission and objectives as well as strategies laid down towards achieving the objectives. The alignment of activity based costing system to the strategies of Harvey Norman company is then discussed in the report. Apart from activity based costing management and costing system, the report also addresses alternative system that can be used in the place of activity based costing.

Activity based costing tool identifies company’s activities and assigns cost to each activity with respect to resources to all products and services that each activity has consumed. Activity based costing approach involves tracing resource consumption and costing the final product and services in a company or an organization. ABC system appreciates the relationship between cost, activities and products and from this relationship, indirect costs are assigned to products. The method applies best in manufacturing sector. This is because some costs such as salaries and administrative cost incurred in a company are hard to assign (Demeere, Stouthuysen, and Roodhooft 2009).

Some of the common feature of ABC costing tool that differentiate it from other traditional costing tools are as follows.

In ABC costing method, total cost is divide into types, that is, fixed cost and variable cost. The division of total cost is important in providing quality information to design a cost system. The method also distinguishes the cost behavior patterns. Cost behaviors patterns are volume related, diversity related, events related and time related (Tse and Gong 2009). The appropriate cost drivers are identified to ensure track on the overhead to a product. The cost drivers determine the cost behavior pattern.

Harvey Norman main mission is to be the dominant company in retail of the home used products. To acquire the largest market share all over the world is the key mission that the company is working toward s achieving. Maintaining the growing trends in terms of financial performance of the company is also Harvey Norman’s operational mission. The company has been recording exemplary performance since 2013 to last financial year (Kaplan et.al. 2014). This growing trend does the company good therefore the management aims at maintaining the trend.  The company is also focused at giving back to the society by supporting women empowerment programs. Harvey Norman Company supports the Harvey women’s rugby team. With the company’s sponsorship the team has achieved a lot and has helped in exploitation of women’s talents. The company is aiming at continued society participation. Harvey Norman Company aims at being a global company with locations everywhere on the globe. Opening up new retail outlets will increase the company’s market share over the world (Shander et.al 2010).

Key features of activity based costing

The main objective behind the formation of Harvey Norman Company is to retail hose appliances and other furniture products used domestically.  The company has over year strived to achieve this objective. Adding and maintaining shareholders value is always another objective of Harvey Norman Company. The shareholder’s value is added by ensuring excellent performance of the company in terms of amount of profit generated. Harvey Norman Company has laid down a number of strategies to improve shareholders incomes and revenues (Zott and Amit 2010). Providing highest quality and latest design of products has always been Harvey’s objective since its establishment. The company wants to deliver the best products such that the consumer’s demands are fully addressed. This objective aims at keeping the company on revolution with changes in consumer’s preferences.

The chart below depicts Harvey’s performance; 

In order to achieve the company’s objectives and to uphold its mission, Harvey Norman Company has laid down several strategies. The company main business is to make as much sales as possible. To improve on that, the company’s management believes that best sales person remuneration will transform to high sales (Garrison et.al. 2010). As a result, the company has established best commissions for its employees as well as the best working conditions and better working terms. Harvey Norman Company most revenues have been improving since this strategy was put in place.

To address the objective of a wider market share, Harvey Norman is opening new retail centers all over the globe. No doubt that house hold products are in demand in every country. Especially in the developing countries, the demand for these products has not been fully addressed. Harvey Norman Company is strategically opening up in these countries to take advantage of this demand gaps. Harvey Norman has most of its retail centers in developed countries where it has been performing well (Garrison et.al. 2010). This performance could even be made better by opening in developing countries too.

The market for household products is quickly transforming. There are new innovations each day. So as to keep up with these innovations, the company is going one step ahead of competitors to ensure a wide range of products in their retail centers (Zimmerman and Yahya-Zadeh 2011). This is due to divergent nature of consumers preferences in terms of designs and quality. The companies suppliers are also filtered out depending on their innovations and development made on their products. 

How activity based costing aligns with corporate strategies and objectives of Harvey Norman limited company

Participation on society’s activities and supporting governments programs is another strategy that Harvey Norman is deploying so as to ensure acceptability and popularity. How acceptable the company is to its target market. The company is currently towards women empowerment programs which are under world’s millennial goals. By so doing, the team acts as a promotion tool (Dale and Plunkett 2017). On the other hand, more investors and customers are attracted to the company. By participating and being successful in sports, the company has created awareness on its existence and the products it deals with. With this popularity, the company is in a better position to receive best supply proposal from more advanced suppliers so that it is always at par with consumer’s trends and demands.

Alliance and franchising with other corporations is a strategic move that Harvey Norman Company is making. Since the company is working towards expansion, it will be easier and cheaper to make alliances with other business so as to boost its acceptability and guarantee its success in new locations. Alliances with suppliers and other m marketing companies will not only ensure steady supply of products but will also play a great role in improving the company’s revenues and performance trends. Franchising is the easiest way for the company to achieve acceptability in the quickest way possible (Drury 2013). Harvey Norman’s success can be based on the franchisee. Working as a franchisee of another company is a guarantee of consumer’s loyalty. The company is also forming partnership with an aim of replacing is old management infrastructure without losing its functionality.

Harvey Norman Company is also working towards strategically improvement of management as well costing systems. With so much activities going in its various department and also its locations, the current system is undermining efficiency (Drury 2013). A new system that can fully address the company’s activities needs to be put in place to counter this challenge.

An effective and efficient management and costing tool is all that Harvey Company requires. Activity based costing system is ideal for this company. Its alignment with company’s goals and strategies is discussed below. The company runs multiple departments as well as outlets all over Australia and outside. This implies that there are many activities going on that the company needs to evaluate. That activity based system will help the company in assigning cost to these activities (Van Der Laan and Dean 2010).

Corporate strategies of Harvey Norman Company limited

With cost assigned to this activities, better decisions can be made on cost planning can be reached so as to cut down the operation cost and maximize on revenues. Activity based costing does not only help in assigning cost but it is a management tool. Harvey is on the move to open up new retail centers in new locations. With activity based costing, the company can make sound strategic decisions. Activity based costing system provides the management with ample information on the expected cost to be incurred in implementation of this strategy the expected rewards can also be evaluated using this tool (Zutshi, Creed, Holmes and Brain 2016).

 The system will also add an extra advantage to the company’s operational decisions making process. Activity based costing can be used to evaluate the possible returns of engaging in a certain operation or activity. This way, the company will avoid engaging in activities that will see it in losses. Harvey’s strategy to form alliances needs a lot of information to back it up. The benefit of this move needs to be evaluated. That’s where activity based costing come in. with this tool; the company can point out the possible loopholes and the chances of success of this strategy. With this information, the company can evaluate the effectiveness of this, move towards achieving its objectives (Taticchi, Tonelli and Cagnazzo 2010). 

The benefits of incorporating this system as a management and costing tool over the current systems needs to be evaluated. This will create a better picture of what Harvey Norman Company will gain from making these changes. Evaluation of this system will also help the company avoid unnecessary loses as a result of failure of the system (Tavana, Yazdani and Di Caprio 2017). The limits of these systems can also be pointed out so as to come up with necessary solutions to cope up with limits. Training the staff on the application of this system is very vital. This strategy is new to Harvey Norman Company. Therefore creating awareness on how to handle the system for the best results needs to be passed down to the staff.  Training the employees and management staff will ensure full effectiveness of the company (Verhagen et.al 2012). The employees should also be given an opportunity to build experience on the same. With necessary skills and experience, the staff and employs can use the tool efficiently which translate to efficient operations of the company (Garrison and Noreen 2009).

In case the activity based costing fails, Harvey Norman Company could employ time driven activity based costing management system. The tool mainly estimates the practical capacity of committed resources and their cost and the unit times for performing transactional activities. The system require less information and resources as compare to activity based costing system hence  more cost effective. However, its incorporation is largely determined by the nature of business a company engages (Shander et.al. 2010).

Conclusion

Harvey Norman’s management issue can all be solved by activity based costing. The system as seen above is in alignment with most of the company’s strategies and objectives. The large number of activities in Harvey Norman company makes activity based costing ideal management and costing tool. The tool will help the company achieve its expansion strategies and also help build more on shareholder’s value. The financial performance will also improve greatly with incorporation of this system.

References

Dale, B.G. and Plunkett, J.J., 2017. Quality costing. Routledge.

Demeere, N., Stouthuysen, K. and Roodhooft, F., 2009. Time-driven activity-based costing in an outpatient clinic environment: development, relevance and managerial impact. Health policy, 92(2), pp.296-304.

Drury, C.M., 2013. Management and cost accounting. Springer.

Garrison, R.H., Noreen, E.W., Brewer, P.C. and McGowan, A., 2010. Managerial accounting. Issues in Accounting Education, 25(4), pp.792-793.

Kaplan, R.S., Witkowski, M., Abbott, M., Guzman, A.B., Higgins, L.D., Meara, J.G., Padden, E., Shah, A.S., Waters, P., Weidemeier, M. and Wertheimer, S., 2014. Using time-driven activity-based costing to identify value improvement opportunities in healthcare. Journal of Healthcare Management, 59(6), pp.399-412.

Shander, A., Hofmann, A., Ozawa, S., Theusinger, O.M., Gombotz, H. and Spahn, D.R., 2010. Activity?based costs of blood transfusions in surgical patients at four hospitals. Transfusion, 50(4), pp.753-765.

Shander, A., Hofmann, A., Ozawa, S., Theusinger, O.M., Gombotz, H. and Spahn, D.R., 2010. Activity?based costs of blood transfusions in surgical patients at four hospitals. Transfusion, 50(4), pp.753-765.

Taticchi, P., Tonelli, F. and Cagnazzo, L., 2010. Performance measurement and management: a literature review and a research agenda. Measuring business excellence, 14(1), pp.4-18.

Tavana, M., Yazdani, M. and Di Caprio, D., 2017. An application of an integrated ANP–QFD framework for sustainable supplier selection. International Journal of Logistics Research and Applications, 20(3), pp.254-275.

Tse, M. and Gong, M., 2009. Recognition of idle resources in time-driven activity-based costing and resource consumption accounting models. Journal of applied management accounting research, 7(2), pp.41-54.

Van Der Laan, S. and Dean, G., 2010. Corporate groups in Australia: State of play. Australian Accounting Review, 20(2), pp.121-133.

Verhagen, W.J., Bermell-Garcia, P., van Dijk, R.E. and Curran, R., 2012. A critical review of Knowledge-Based Engineering: An identification of research challenges. Advanced Engineering Informatics, 26(1), pp.5-15.

Zimmerman, J.L. and Yahya-Zadeh, M., 2011. Accounting for decision making and control. Issues in Accounting Education, 26(1), pp.258-259.

Zott, C. and Amit, R., 2010. Business model design: an activity system perspective. Long range planning, 43(2-3), pp.216-226.

Zutshi, A., Creed, A., Holmes, M. and Brain, J., 2016. Reflections of environmental management implementation in furniture. International Journal of Retail & Distribution Management, 44(8), pp.840-859.