Explanation of ABC model and its features

Discuss about the Application of Activity Based Costing in Oohmedia Company.

The management of a company is essential for its performance. Management staffs of the various companies spend a lot of money in training their personnel during every financial year. Sometimes the training is considered to be expensive if compared to the output and profit made by them. For this reason, most companies have decided to come up with different management tools which form part of the management system. A good example is the Ooh media company in Australia which has a plan for implementing the Activity Based Costing (ABC) and train the top leadership within the company. The report, therefore, talks about this management tool and how it can be applied with the line of the company’s strategic plan .Different recommendations are also given to direct the company on the full implementation of this kind of management tool. The report also acknowledges that apart of Activity Based Costing (ABC), there are also other types of the management tools in companies. Some of these include Time Driven Activity Based Costing (TDABC) and Balanced Score Card methods. The implementation of the ABC in the ooh media company, the company will be able to maximize its output at the same time a sign every product to the attached cost and the time required to attend to it. This new system is much efficient than the traditional management methods which use the manual ways of attending to the products. The new management tool will bring a lot of improvement to the oohmedia company in Australia. Being one of the advertising companies in the country, the Activity Based Costing will be of great importance to its operations. For this reason, the company should move with speed to ensure the full implementation of this new system.

The Activity Based Costing is a management method which identifies and assigns the cost of the respective activities. The assignment of the costs is then done to the products. The system recognizes the relationship that exists between the costs and the assigned activities with respect to the manufacturing products. Activity Based Costing plays a very great role in the management system (Beebe 2018). The assigning of the cost to the activity together with the products assist a lot in time management during the manufacturing process. Through the assigning of the cost to the activity with respect to the products, the system is considered effective than the traditional methods. In the current practice, some of the costs were considered difficult to assign through the method. For example, indirect costs which include the management and salaries of the staff are also difficult to assign using the same method because they keep on changing. For this reason, the method has been very effective both in the manufacturing and the management sectors of the company (Fatah 2013). The Activity Based Costing is mostly used in manufacturing and management sectors. This is due to its reliability in cost data, which help the company to produce the true cost. The other reason for its application in manufacturing industries is because it has a better way of classifying all the cost incurred by the company at the production stages. The Activity Based Costing is also used in the target costing, cost related to products, the analysis of the product line with its profitability and the service pricing of the company. The companies and cooperate also uses the tool in the formulation of the strategies for the quality services (Hitchner 2010).

Features of the Activity Based Costing (ABC)

The Activity Based Costing is an accounting and management tool that was designed by the two scholars that are Kaplan and Coopers. This new system has a variety of features that make it efficient for its functionality. The following represents some the features that make the Activity Based Costing suitable tool for use in the management system (Kaplan Robert 2012). The ABC’s system has two types of total costs. For the quality information, this new system is divided into two types. These include the fixed cost and the variable costs. The classifications help the system to design the suitable cost system for the quality service delivery.

The behavior pattern regarding cost different related systems. These include the volume of the products, the relationship regarding system diversity, and the activity related issues and finally the time for the events. The overhead to the product is identified by the appropriate cost drivers at the same time these drivers must always dictate the cost patterns (Marks 2012).

The above features make the Activity Based Costing to be more effective by some companies. Each product is assigned an appropriate cost together with the overhead time. The managerial staffs and the Chief Executive Officers on some occasions have proposed the use of the Activity Based Systems in their management system (Mohammed 2011). A company that utilizes this method of the management system is in a better position of improving on the quality and service on its operations. Under this new method, there is two important classification which is short-term variable costs and the long-term variables costs respectively. The short-term allocation uses the products allocation to the related products volume costs. These include the following: the labor hour, the direct costs methods and working hours of the machine of an industry (Salem and Mazhar 2010). From the Kaplan and Coppers recommendations, the volume-related costs are not used for the long-term classification. This is because the long-term has a lot of complexity in the running of the business.

The top management staffs of the oohmedia an Australian company is willing to implement the Activity Based Costing in their management system. The ooh media company is considered as one of the most dynamic, creative and dynamic industry in Australia. It is preferred as one of the companies that connect some companies to their customers. The oohmedia company helps in the advertisement. This makes them engage properly with the customers by providing the intelligent and creative solutions (Terungwa 2012). Oh media being an advertising company, the company does the following functions: Provision and advertisement of large format of billboards, provision of the mobile billboards, Service delivery to the retail media and also to the entire marketing. With the laud down strategies and objectives, the company will be much fruitful in the event of implementing Activity Based Costing in its management system. Through the implementation, both the Chief Executive Officer and the top management will find it easy during the analysis of the final output.

Implementation of the Activity in company’s Management System

To an advocate, aggressive and be passionate leadership that protects and advances the interest of the entire ooh media industry. The company is aiming to unite all the responsible oohmedia and the related advertising industry on the service to the advertisers. This is to be done across the border that is both consumers and communities.

The following represents the strategic plan and objective of the Oohmedia company.With the help of the Activity Based Costing, the company’s management department is planning to achieve the best. These are some of the strategies the company has for its operation.

They are willing to create the positive legislation and good legal environment which protects and enhance the value to the service delivery of the oohmedia.

To promote education and information on the powers bestowed on the ooh media industry.

They are to offer service delivery which is in the interest of the customers. This is to be done through the provision of tools and available resources which will support the members’ interest throughout the advertising field.

To create all the policies and the standards which protect and improve the quality of the advertisement of the oohmedia company. The operation must be effective and safe to customers.

For the company to realize a faster and quality service delivery, the top managers must ensure that the ABC management tool is accompanied by the existing management system. This new management tool is simple to implement. In any application of the Activity Based Costing, the implementation must comply with the company’s mission, objectives, and the strategic plans. Activity Based Costing is very effective in the following ways (Terungwa 2012). The Activity Based Costing can bring the accuracy and the product cost reliability to the oohmedia advertising company. This will focus on the relationship and the effects of the activities and cost. The company can also use the Activity Based Costing in fixing the prices the products since the prices are readily available. This will help in improving the marketing and operation of the company. By use of the ABC system, the managers can make right decisions. This will be done mostly in the section of pricing. The availability of the cost data makes it easy for this function.

The presence of the cost data in the ABC system may help the company to ensure that the company’s regulations are complying with those of the States. This is achieved by ensuring the constant update in the system. The top managers are also trained on the changes that may occur within the company. The ABC system will also help the company to make a trace of the cost data related to the managerial positions, customers and the prices of the products. By use of the ABC system, the company will be able to accomplish all the objectives and strategies within the shortest time possible (Terzioglu 2012). The ABC system also enables the company to trace its cost data beyond the set objectives. The Activity Based Costing system being an Automatic model that is implemented, and that comes after the set objective is achieved. Finally, the system is very efficient than the traditional methods which are characterized by estimations rather than automatic implementation.

The mission of the oohmedia company

For the effective e implementation of the ABC system, the following recommendations are necessary. Firstly, the company should start by persuading the top management staff by telling them the importance and the advantages of the system. By being aware of the benefits and importance of the Activity Based Costing, the company will realize the ease of the implementation (Terzioglu 2012). The company must ensure that the managers such as accountants are trained on the new program. The training must be accompanied by the unexpected changes regarding technology.

Apart from the Activity Based Costing, there are other types of the management tools. A good example of the system is the Time Drive Activity Based Costing (TDABC). This is an improvement of the Activity Based Costing. Despite the cost and time, the system has a time driven feature in it. The TDABC is an approach which involves the calculation of the product cost and also the time allocation of the product. The system does not suffer additional cost as compared to the ABC system (Testa, Iraldo, Frey and O’Connor 2011). The Time Drive Activity Costing improves the value and the resource allocation of the company. The TDABC also improves the functionality by handling the more complex transactions than the Activity Based Costing System. With the power of handling the complex functions, the TDABC can handle the changes in salary and other related products. Due to additional of the time driven factor, the TDABC system is good for logical decision making than ABC system. The product is assigned both the time and cost (Torres 2014).

Conclusions

From the report, it is evident that the Activity Based Costing beneficial compared to the Traditional management systems. The Activity Based Costing helps in improving the management and function of the oohmedia company. The ABC system has some advantages to the company. Some of them include; improving the decision making in the management regarding pricing. The system also improves the quality of the products offered by the company. For example in this advertising company, there is time and cost allocation for the products. When the company invests much in this system, there will be a realization in the full implementation of the Activity Based Costing. Finally, the Logistics being the Activity Based Costing; the activities consume the resources, but the product also consumes the activities. The ABC system should, therefore, be used in the Oohmedia Company. It is considered as the best compared to the traditional method which is very expensive.

References

Beebe, N.H., 2018. A Bibliography of O’Reilly & Associates and O’Reilly Media. Inc. Publishers.

Fatah, A.M.A., 2013. An empirical study of the use of cost accounting systems in the Libyan agricultural firms (Doctoral dissertation, Universiti Utara Malaysia).

Hitchner, J.R., 2010. Financial Valuation,+ Website: Applications and Models (Vol. 545). John Wiley & Sons.

Kaplan Robert. (2012). In Defense Of Activity – Based Cost Management. Management Accounting, 58-63.

Marks, M.A., M. Com-(Hons.) Five Years Integrated Scheme of Examinations & Syllabi wef session 2012-13 First Semester Sr. No. Paper Code Nomenclature of the Paper Theory Int. Total Time Marks Ass. Marks.

Mohammed, I.A., 2011. The Practicability of Activity Based-Costing in Nigeria: A Case of GOFCECON Limited.

Salem, M.S.E. and Mazhar, S., 2010. The Benefits of the Application of Activity Based Cost System-Field Study on Manufacturing Companies Operating In Allahabad City–India. OSR Journal of Business and Management, 16(11).

Terungwa, A., 2012. Time-driven activity-based costing and effective business management: evidence from benue state, Nigeria. The Business & Management Review, 3(1), p.292.

Terzioglu, B., 2012. Intricacies of overhead cost allocations and distortion in costing: A synthesis of the literature. ASIA-PACIFIC MANAGEMENT ACCOUNTING.

Testa, F., Iraldo, F., Frey, M. and O’Connor, R., 2011. Life cycle costing, a view of potential applications: from cost management tool to eco-efficiency measurement. In Supply chain management. InTech.

Torres, R., 2014. The effect of current activity-based costing (ABC) implementation in Eskom’s finance field (Doctoral dissertation, University of the Free State).