The Individual Reflective Journal is to ensure each student is able to provide a critical reflection of their personal learning process, as experienced during this unit. A significant aspect of the reflective journal will be your reflections on what you learnt and experienced from your individual assignment. Assignment Task: 1. Reflections on any topics covered in the unit that interests you the most. Why was it interesting and what did you learn from it? 2. Reflections on what you learned from the individual assignment, including the relevance of your chosen costing system to businesses. What insights did you gain and what had you learnt from it? 3. Reflections on your overall research experience from the individual assignment (e.g. looking for journal articles, reading and reviewing the literature etc.) What was enjoyable, what was difficult, and any challenges you experienced?
Faculty of Higher Education Assignment Cover Sheet Unit Code HI5017 Unit Name Managerial Accounting Your campus and class (e.g. M2) Brisbane and T2 2020 Your Lecturer Ajay Rana Assignment Number Individual Assignment Is this a Group or Individual assignment Individual Assignment________ Due Date 17th September 2020, 11:59 pm Declaration Complete this and attach as a front cover sheet to your Blackboard submission We certify that: 1. This assignment is our own work. We have acknowledged and disclosed any assistance received in its preparation and cited all sources from which data, ideas, words (whether quoted directly or paraphrased) were taken. 2. This assignment was prepared specifically for this unit only. 3. The reference list is truthful and accurate and in Harvard referencing style. Student name/s Student number [must be correct] Which section(s) did each person work on Deepak Sharma HCR8039 100% Abstract: In this assignment I have used the Activity Based Costing Method to conduct a literature review and increase the understanding of management accounting systems. The assignment has been divided into two parts. Part A consists of the features of the Activity Based Costing System, the two companies for which the Activity Based Costing System is suitable, I have chosen Caltex Limited, A company engaged in the manufacturing of the petroleum products and the Amcor Limited, A company engaged in the manufacturing of packages for packaging different products. In the last part of Part, A, I have discussed the potential uses of the cost information for decision making to the managers. In Part B, in have discussed how the costing system was designed and implemented in a Higher learning Institution established in Malaysia. Further I have analyzed whether the costing system after being implemented was able to satisfy the features of the Activity Based Costing System mentioned in the Part A. Also, I have discussed whether the cost information generating through the Activity Based Costing System was useful to the internal users of the Organization. Table of Contents 1. Introduction 2. Main Body: (a). Part A (b). Part B 3. Conclusion 4. List of References Introduction: Prior to the introduction of ABC costing system, a number of companies, particularly manufacturing sectors, used a traditional costing system called volume- based costing system, which is volume-based cost driver such as direct-labor hours, direct labor cost, or machine hours. At most the cost is classified into two main parts that are Product cost which is a cost assigned to goods that were either purchased or manufactured for resale and Period cost where administration and selling are recognized as expenses during the period in which they are incurred. Activity based costing method is the costing method of allocating the overheads, indirect costs relating to the production of goods and services incurred by the company during a year on the basis of the activities of the company. An Activity can be defined as any event, unit of work or task with specific goal. An activity is also known as the Cost Driver. Some of the examples of the cost driver are Purchase Orders, Machine Setups, etc. Since the Activity Based Costing System of costing is based on the activities, which can be defined as the events, units of work, or tasks with a specific goal such as setting up machines for production, designing products, distributing finished goods, or operating machines. Activities consume overhead resources and are considered cost objects. The Activity Based Costing system is ideal for the large companies which have a number of products and services. Since the small companies do not have a number of products or services, the Activity Based Costing system will not provide much support to such small Companies. Hence it is best for large companies since the Activity Based Costing method will give the large companies more benefits than the actual cost of deploying the costing system. Activity Based Costing System is the most relevant and accurate costing system for the Companies which are engaged in the business of providing service to the customers rather than any product. The example of Service Organizations are Banks, Hospitals, Government Departments, etc. The cost structure of the service companies is dominated by the labor costs and the overhead costs as well. The service companies have no material cost because they are not engaged in the process of manufacturing rather just providing of services. Traditional costing has generally been considered inappropriate for these organizations, because the traditional costing methods are based on the material cost and the service industry does not have any material cost, hence the traditional costing methods are not that relevant and useful for the service companies. Part A 1. Activity based costing system was first identified in the 1930s. It is much better than the traditional costing system. Activity based costing method is the costing method of allocating the overheads, indirect costs relating to the production of goods and services incurred by the company during a year on the basis of the activities of the company. An Activity can be defined as any event, unit of work or task with specific goal. An activity is also known as the Cost Driver. Some of the examples of the cost driver are Purchase Orders, Machine Setups, etc. Since the Activity Based Costing System of costing is based on the activities, which can be defined as the events, units of work, or tasks with a specific goal such as setting up machines for production, designing products, distributing finished goods, or operating machines. Activities consume overhead resources and are considered cost objects. To calculate the Overhead cost the following steps are taken: (i). The first step is to identify all the relevant activities required to produce a product. (ii). Then the activities are divided into cost pools based on the activity of the company. (iii). The next step is to assign the cost drivers such as hours or units. (iv). The next step is to divide the total activity cost by the total number of cost drivers, to calculate the cost driver rate. 2. The two chosen Australian companies are: (a). Caltex: Caltex is an Australian based company engaged in the business of selling petroleum products. The company started its operations in the year 1941 in Australia. Since then the company has now expanded its operations in over 29 countries in the Asia-Pacific region, the Middle East and the Southern Africa. The reasons why the Activity based costing should be applied in the Company are: (i). The Oil Industry is facing a lot of issue due to the decreasing oil price and hence the Activity Based Costing can help to allocate the cost in the most appropriate method, so that the managers can use the costing information in determining the cost of producing the oil, based on which the managers can decide the sales price for the company and the to achieve the overall strategic goals of the company as well. (ii). The Activity Based Costing Method is a good fit for the companies having more than one activity in the manufacturing process. Since in the Oil industry there are many activities involved in the manufacture of the oil, hence the Activity based Costing system will be beneficial for the company. (b). Amcor: Amcor is one of the largest manufacturing companies listed in Australia. The company is engaged in the process and development of packaging for use in the packing of snacks, confectionary, cheese, yoghurt, etc. The reasons why the Activity Based Costing method should be applied to the company are: (i). Since the company is engaged in the process of manufacturing the packaging, the entire consists of many different activities. Activity Based Costing Method can allocate the costs efficiently, so that the company can sell the packing to the potential clients at the lowest prices, so that the company can gain competitive advantage over its competitors. 3. The potential uses of the Activity Based Costing Method for the Caltex Company are: (a). Accurate Product Cost: Under the ACTIVITY BASED costing method the product cost can be predicted accurately using the cause and effect relationship. Under the ACTIVITY BASED costing method, it is assumed that in the cost accounting the costs are actually incurred by the activities in the company not by the products of the company, hence the costs should be allocated based on the activity in the company and not on product basis. Hence the ACTIVITY BASED costing method provides a more reliable and accurate product cost. ACTIVITY BASED costing method also provides correct product cost in case of different products being produced by the company in different quantities. Under the traditional method costs would be inaccurately apportioned between the products in such cases. (b). Information About cost Behavior: ACTIVITY BASED costing method helps in understanding the cost behavior and in identification of activities which do not add to the product. Hence by using the ACTIVITY BASED costing methods, the managers are able to identify the activities which are not relevant or are either consuming more resources and take appropriate actions upon it. This is not possible in the traditional method of costing being followed by the company. The potential uses of the Activity Based Costing Method for the Amcor Company are: (a). Better Decision Making: ACTIVITY BASED costing method provides more and relevant information to the managers, so that they can use the information in improving the overall operations of the company. The most important information provided by the ACTIVITY BASED costing method is the data about setting the selling prices of the products. Since in the real environment the company which has the lowest selling price has a huge competitive advantage over its competitors, hence ACTIVITY BASED costing method helps in settling the price of the products. (b). Increases the Value of Enterprise: Activity based Costing system helps in allocating the resources of the company effectively and efficiently, such that the company is able to increase the overall profitability of the company. Once the profitability is increased, the value of the company will also increase. Part B 1. The steps followed by the Organization in Designing and Implementing the Activity Based Costing System are: (i). The first step by the Organization was to identify the activities followed by the company in each of its departments. A deep analysis was done to identify why the activity was conducted in the Organization, how times the activity of the conducted, how the activity was performed in the Organization, how much resources were consumed in the activity and finally what factors or the cost drivers were affecting the activity. This analysis was done for each and every activity of the organization separately. (ii). The next step in the analysis is to develop the Activity Based Costing Method for the Organization. The cost model of the Organization consisted of the following information: (a). Resources: The economic resources needed to perform the activities