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Management Accounting Research
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Chosen Topic: Activity Based Costing (ABC)

Table of Contents
TOC o “1-3” h z u Introduction PAGEREF _Toc525726012 h 3Implementation of the Activity-Based Costing Model for a Farm: An Australian Case PAGEREF _Toc525726013 h 3Application of Time-Driven ABC Model in Hospitality Industry PAGEREF _Toc525726014 h 6Similarities between the two articles PAGEREF _Toc525726015 h 10Differences between the two articles PAGEREF _Toc525726016 h 11Outcome of the Study PAGEREF _Toc525726017 h 12Implementation of the Activity-Based Costing Model for a Farm: An Australian Case PAGEREF _Toc525726018 h 12Application of Time-Driven ABC Model in Hospitality Industry PAGEREF _Toc525726019 h 12Conclusion PAGEREF _Toc525726020 h 12References PAGEREF _Toc525726021 h 14

Activity Based Costing or ABC is a method or technique that is used in costing that is capable of identifying different activities that are taking place in an organization as well as assigns the cost of each of the activities along with the resources to all other products and services according to their actual consumption (Dong, Liu and Lin 2014). When compared to conventional costing practices, it can be analyzed that this model assigns indirect costs into the direct costs.
Implementation of the Activity-Based Costing Model for a Farm: An Australian CaseIn the words of Credic, Sridharan and Michael (2016), the authors of the article, the practices of accounting and agriculture are the two most important and influential sectors in the field of economics and are capable of making significant contributions to the economy globally. There had been very little research regarding the application of the practices of accounting in the field of agriculture. The study has formulated a case study on the development of a model of costing- Activity-based costing. This model of costing has been implemented into a far in Australia that is run by a family. The study developed an understanding of the facts and the challenges that are faced by the people if the mode is being implemented into the farming practices.
In most of the developed countries, mostly of the lands of farming are operated and maintained by the families and there are no proper systems of maintain accounts and costing. These farms are not involved in preparation of very lengthy and complicated reports but rather do provide reports that are very simple and keep the records of the basics. However, unlike the manufactured goods that are mostly obtained from the companies, it is not possible for the farm managers to determine the accurate value of the all the inputs or the raw materials that have been used during the production of the farming outputs such as the crops. There are certain inputs that are required in the process of farming such as the seeds that have been sown, the seeds that are derived from the plants that are already existing the farm land and there are no additional or hidden cost that have been incurred to produce the materials. The products that are produced in the firm are not capable of further being sold into the market as the operators or managers of the farms keep these along with themselves are used later on for the same purpose. Moreover, the future benefits that can be derived from these inputs are completely uncertain due various risks that are involved in the age-old practice of farming.
The research was conducted in a farm, S Ltd., located in the State of Victoria in Australia. This farm is a family owned, the establishment of which can be traced back to the 19th century and is a large producer of berries, flowers and plants. The farm was looked after by a full time employee as well as few staff members who came down seasonally especially during the times of cultivation of the flowers and seeds and was mainly in the activities such as potting and pruning. The farm was as large as plot of 21 acres of land and produced more than a hundred types of flowers, fruits and berries. These were the orders that needed to be delivered at various points of the country such as those in the local nurseries, supermarkets and recreational centers. As most of the plants in the farm had been continued to be cultivated for many years, there are very less accounting records associated with the farm. The owner of the farm stated that they never knew the accurate costs of each of the products and the cost that involved in making these flowers and other farm products. Rather the method used by them to sell these products involved age-old practices of estimating the value of the goods and the labor and pricing the final products. According tie the researchers, this site had been selected for three main reasons. Firstly, the site would be giving a clear picture and description of the nature farms in Australia. Moreover, a family owned the farm for many generations, which included a small size farm and few employees working in it. Secondly, the site had very strong stimuli towards the implementation of the ABC model, as the owner was already aware of the fact that the lack of information of the cost incurred created problem in the process of decision-making. Lastly, the site had lots of knowledge that would be allowing the application of the proposed model effectively.
The uncertainty in the production of agriculture has further increased the difficulty of calculating the costs of the agricultural products. The production of commodities in this field includes systematic performances such as soiling, sowing of the seeds, watering, planting of the crops, cultivating and lastly harvesting the crops and each of the processes includes different types of uncertainties associated with them, which includes both external and internal. The natural environment of the country of the region has a great influence over the practice of agriculture and has significance in the outcome concerning the prices of the commodities and profitability.
A possible solution that can be used for the costing of the commodities derived from the practice of agriculture is the model of Activity-based Costing. The limitations of the traditional models of costing had been discussed for long and each of the models of costing have been based on the overall view of the functioning of the organizations. The authors, Credic, Sridharan and Michael (2016) states that the traditional costing processes such as the process costing as well as job costing are built up on the assumptions that the production costs of the merchandise items are driven directly as well as indirectly by the volume or the quantity of the items that are being produced. As it is clear that the traditional models are not suited to be applied in analyzing the cost of the products of the farm, the Activity based costing (ABC) model are considered to be operated and applicable to activities as the key drivers of the costs incurred in the process of manufacturing and production. Under this particular model, the costs of production have been allocated under two-stage process. Firstly, the costs are allocated to the large number of activities according to the way that the activities of the operations would be consuming. After this, the costs are finally allocated from each of the pool to the individual cost objects that are based on the usage and consumption of activities. The volume of production is the only possible driver of operation activities. In addition to this, allocation of the costs derived from a pool of activities is termed to contingent on the actual use of the activities involved in the manufacturing of the object.

The features of the ABC model has been capable to put the costs at a better position so that they are able to cope with the issues involved in the practice of costing of the agricultural products. The double staged process of allocation of the model has enabled the farmers to avoid forceful involvement and inclusion of all the overhead costs. This has also enabled the ability of using the non-volume driven activity drivers so that the farms itself area capable of selecting the drivers that would reflect the patterns involved in consumption of the resources in a much better way. The potentiality of the adoption of the model as the best solution for the analysis of cost of the agricultural outputs and costing, it is worthy to consider the issues that are associated with the implementation of the model as well. A wide range of behavioral as well as technical factors have influenced in the success of the ABC model of costing. Besides, the gaps involved in the process of communication also have a great effect on the application of the ABC model.
Application of Time-Driven ABC Model in Hospitality IndustryDuring the recent years, there has been an increase in the lateral mobility of the people and most of them are visiting in the big cities of the world with the purpose of having a business trip or spending a few days just for having vacation. In the opinion of Basuki and Riediansyaf (2014), this has lead to widespread of establishment of home stays, motels, hotels and other facilities that have been arranged for the accommodation of the people in the cities. Moreover, the more and more accommodation and visiting of people in these big cities have forced the hotels to develop themselves every year especially in the city of Malang, East Java, which has further developed into a famous tourist destination in the country of Indonesia. The research is conducted in order to concentrate on the calculations of costs that are based on the divisions of the rooms in the hotel. The study focuses on Hotel Graha Cakra, which earns about 80 percent of the total revenue from the practice of room division.
The current method of calculating the cost that is prominently used by the hotel is very simple and traditional. It has been analyzed that the modern methods of calculating the cost such as Activity based costing (ABC) are more accurate and effective methods compared to the traditional methods in both the sectors of service organizations as well as in the organizations of which the primary part is manufacturing the goods. However, certain difficulties in the process of application of the ABC model of costing has further lead to the development of a new and innovative approach towards costing, which is called Time-Driven Activity-Based Costing.
In the view of Basuki and Riediansyaf (2014) the new approach was invented and applied after analyzing the following defects in the conventional ABC model of costing.
The data for the models of ABC were more subjective and was very difficult to validate.
The processes of surveying as well as conducting interviews were very costly as well as time consuming.
The model was theoretically incorrect and ignored the potentiality of using it for the unused capacity.
The processing, storage as well as preparing report of data collected was very costly.

Most of the ABC models were local, did not concentrate on the integrated view of opportunities of gaining profit based on specific enterprises, and was not updated to accommodate to the changes in the circumstances in the organizations.
Basuki and Riediansyaf (2014) stated that the building of the ABC systems of costing were very expensive. It was more critical to modify and as well as complex for it to sustain. These drawbacks of the model resulted in innovation of the shortcoming of the ABC model- TDABC. The researchers who formulated the new model stated that implementation of the new model, TDABC was far more powerful, simpler and cheaper compared to the old model and the new model have been able to overcome many difficulties and has the following advantages.
It is the easiest and the fastest way of building a model.
The model is effective to drive the costs towards different orders and transactions by using certain specific characteristics of particular orders, customers, suppliers and processes.
The model has a good way of integrating with the data that are available from the customer relationship management and ERP systems.
Runs smoothly in order to capture all the economy of the most recent operations and provides clear visibility that is required to process efficiencies and utilize the capacities.
It easily forecasts the demands in the resources, allowing the firms to make clear budgets for the capacity of the resources that are based on the quantities and complexity of the predicted orders.
The model can easily be scalable for the wide models of the enterprises through the applications of enterprise-scalable as well as software and database technologies and enables the firms with the fastest and the low cost maintenance.
The model is capable of supplying granular information in order to assist the users of the model by identifying the root cause of the problems. The model can also be used in any of the industries and organizations where there are more and different types of customers, channels, products, processes, segments and deal with a lot of people and expenditures.
Like the earlier models of the ABC, the present model, TDABC also involves two-step implementation process. Firstly, it calculates the cost of supplying certain capacities of the resources and then divides the total cost acquired by the capacity of the specific department or section in order to obtain the volume of the sector and obtains the cost rate of the same. Secondly, the model, TDABC uses the following capacity cost rate to drive the allocated resources in the department to the objects of cost after estimating the demand for the capacity of the resources that each of the objects requires.
Some of the essential components of the TDABC model in the implementation stage are:
It includes definition of various activities, cost pools of these activities and the measures of the activities.

Definition of the Cost of Capacity that are being supplied
Definition of the practical capacity
Determination of the Cost Rate of the capacity
Estimation of the time required to complete the above-mentioned functions and final application of the model.
Like the older versions of ABC, TDABC also uses the range of activities that are performed as the base. In the field of conducting research, in Hotel Graha Cakra, the services provided by the labors had been standardized. Every customer who is paying rent to the rooms is eligible of receiving the same services. The TDABC model was designed in the following pattern:
Identification of the activities that are being carried out in the main and the supporting units- room servicing in a hotel.
Identification of the time required in each of the activity, which means the time required by the labors in the hotel to eservice each of the rooms. This was analyzed through observing the object of research. The researchers brought a stopwatch along with them so that they can calculate the time required to carry on each of the activity (Houghton 2013).
The next step involves determining the practical capacity of the resources that are being used.
By defining the Cost Rate of the capacity for indirect labor.
Calculating the TDABC cost driver rate that is based on the time required of carrying out the activities.
By calculating the TDABC Cost of Performing Activities that is based on the cost driver rate.
These time driven equations would help the organizations to identify better the actual time required to perform the processes. The key elements of creating the time equations include estimation of the standard time that would be required to perform a specific process as well as addition of factors that would increase the performance time of the tasks.
Similarities between the two articles
Both the articles focus on the application of the Activity based costing model. These articles are of the view that this model of costing can be applied to any types of organizations.

Bot the articles state that the ABC model of costing is the best than the traditional ways of costing. These articles went on to state that the traditional ways of costing are more time taking and involves lots of efforts for the processes of calculation and maintaining the records.

Bothe the researches state similar methods of implementation and processes involved in the calculation of the costs of the merchandize products using the ABC model of costing.
Differences between the two articlesThe first article, “Implementation of the Activity-Based Costing Model for a Farm: An Australian Case” focuses mainly on the costing of the farm products. The min study had been conducted in S Ltd., a typical Australian farm that covers a small area of land that is owned by a family and runs the farm for a couple of generations as the farm was established during the 19th century. The farm is typical because it pictures all the characteristics that an Australian farm normally possesses. It has a very few full time employees and most of the employees working in the farm do arrive during specific seasons when the plants and the trees are needed to be punned and plotted. The owner describes the process of calculation of the costs of the final products that they do sell into the markets and deliver the orders on certain recreational centres and supermarkets round the city (Govindan, Khodaverdi and Jafarian 2013). The study has evaluated how the implementation of the new model of costing, the ABC model will help and ease the way of calculating the cost of the commodities.
The second article, “Application of Time-Driven ABC Model in Hospitality Industry” shifted its focus to the more complex operations within organizations such as hotels where hospitability or welcoming of guests plays an important part of the organization. The study analyzed the room service activities in the Hotel Graha Cakra in the city of Malang, East Java in the country of Indonesia as most of the travelers and business people love to stay or spend their holidays in large cities. The study states described the flaws that are prominent while storing, processing and recording information of ABC model of costing and focuses more on the time driven model of the same (Casadesus?Masanell and Zhu 2013). The study described the TDABC model or the time driven activity based costing model is more beneficial as it requires less time, effort and is easier to implement.
Outcome of the StudyImplementation of the Activity-Based Costing Model for a Farm: An Australian CaseDuring the process of data collection, 75 lines of the products were identified. The major problem was difficulty in identification of the volume of the products. The exact quantity of the agricultural products that were ready for harvesting was not known before the process was completed.
Application of Time-Driven ABC Model in Hospitality IndustryThe site of the study, Hotel Graha Cakra is located in the most luxurious residential area and is an example of the beauty of the colonial structure of the 1930s. In order to determine the accurate cost of their rooms and a basic target pricing approach was applied in which the prices were set according to the cost and a rate of return based on turnover.
The report concludes that application of the ABC model of costing in an organization starts with the measurement and analysis of the volume of labour and activities that are provided. The determinants of the cost=t of the primary labour involved in the process of production will help to assess the cost of the final products. The latter study that has been considered states that inclusion of activity based costing that are driven by time will give the accurate results while the cost of the final production items will be determined.
ReferencesBasuki, B. and Riediansyaf, M. (2014). 27 The Application of Time- Driven Activity-Based Costing In the Hospitality Industry: An Exploratory Case Study. Journal of Applied Management Accounting Research, 12(1), pp.27-54.Casadesus?Masanell, R. and Zhu, F., 2013. Business model innovation and competitive imitation: The case of sponsor?based business models. Strategic management journal, 34(4), pp.464-482.Credic, L., Sridharan, V. and Michael, S. (2016). Implementation of the Activity-Based Costing Model for a Farm: An Australian Case. Journal of Applied Management Accounting Research, 14(2), pp.29-36.Dong, J., Liu, C. and Lin, Z., 2014. Charging infrastructure planning for promoting battery electric vehicles: An activity-based approach using multiday travel data. Transportation Research Part C: Emerging Technologies, 38, pp.44-55.Govindan, K., Khodaverdi, R. and Jafarian, A., 2013. A fuzzy multi criteria approach for measuring sustainability performance of a supplier based on triple bottom line approach. Journal of Cleaner production, 47, pp.345-354.Houghton, J.W., 2013. Economic implications of alternative scholarly publishing models. In A Handbook of Digital Library Economics (pp. 125-141).

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