ABC MODEL FOR Brambles Limited
ABC Model and Its Features:
The ABC model for accounting stands for activity based costing system. This is the most advanced way to measure the activity of a firm and allocate funds as per the activity level. With the activity based accounting system the indirect and direct cost of the production of the product can be controlled. In this assignment, the supply-chain logistics group Brambles Limited have been taken. The ABC systems are also known as the linking factor between cost and activity of the firm and the products (Cokins, 2014). The main objective of every firm is to produce best quality goods in less cost for optimum level of consumer satisfaction. Achieving sustainable growth is the primary aim of every organization, and the ABC model of accounting can help the organizations to achieve that.
Organizations like Brambles Limited have interest in dealing with unit-load equipment and associated services. They deal with different types of associated services and they also have interest in logistic as well. The supply-chain logistics group is a lucrative market, and these are being used for making high-end products like laptop, cell phones etc. though, this market is highly risky as well (Cokins, 2014).
The ABC model will help the organizations to identify and eliminate the non-profit goods and services effectively. The ABC model of accounting can estimate the profitability of the product, and help the firm to take decisions regarding that product. Some costs are critical to asses. Often calculating the managing cost of the management team, and the salaries of the office staffs are critical to link with the production cost of a product. And that time this ABC model of costing comes into play and effective role.
ABC model of costing helps the management body to critically analyse the different costs of the organization, and it also helps to determine them the actual cost of the product. The ABC model of costing is mostly being used by the organizations which deal with huge number of customers and it is being used to analyse the product costing, product line costing, profitability analysis etc. this model of accounting helps the organization to provide market based pricing.
ABC Model of Accounting & Brambles Limited
Brambles Limited is one of the major supply chain logistic groups which is specialised in associated services and unit load equipments. This organization deals in outsourced management of pallets, crates and containers. That is why, the accounting process of this organization is bit complicated. The main objective of this organization is achieving sustainability through good quality products and services. This organization is also interested in transporting and winning the resources. Supply chain logistic projects require a lot of human resource. The safety and security of the employees and staff is also a responsibility of the supply chain logistic managing organizations.
Objective of Brambles Limited:
The Supply chain logistic projects are not straight forward process, and a lot of things need to be taken care of. That is why these organizations have to spend a lot of money for the fund management. The raw material related to supply chain management business is a lucrative business, but it is highly risky business too. Especially the safety and security of the employees, ensuring the use best quality and efficient equipment and methods for the Supply chain logistic projects. Also the scarcity of the raw materials increases the market risk of these organizations. Wrong management of the fund can ruin the organization completely.
To grab the market share, this organization tries to enhance their distribution facilities at a huge amount. The main objective of this organization is to achieve a sustainable growth in terms of production capabilities and reliability. That is why; this organization should opt for a reliable model for accounting projects. Without the right allocation of fund, no organization can achieve a sustainable model of growth.
Corporate Strategies of Brambles Limited:
The main objective of the Brambles Limited is to gain maximum level of profit by acquiring highly profitable Supply chain logistic market. That is why; the organization has recently invested in different process to maximise their Supply chain logistic projects. The marketing strategy of this organization is also aggressive and it is willing to gain a secure market place in the international Supply chain logistic market. This organization will never be able to achieve its goals without the right allocation of the fund.
This organization raises its funds through share holders. It decreases the risk for the organization, and it also conveys the message that this organization is interested in maximising its profit margins through mass production (Gupta, Pevzner and Seethamraj, 2010). To raise fund for the new projects, this organization has made its funds available for the common people at low price.
The organizations, which are involve in mass production face difficulties at the time of managing the funds for their projects. The mass production process helps the organization to provide a large amount of product at a low price. This increases the risk for the organization, yet this process is helpful for large organization because this process helps the organization to achieve a sustainable model of growth. The action based model of accounting will help the organization to determine the price of their goods and services through the performance of the organization and demand for the product.
As the Supply chain logistic market is a highly volatile in nature in the market place that is why the organizations should adopt right accounting strategies in order to maximise their productivity and profit margins. The activity based costing system is highly recommended for the supply chain logistic industry based organizations. It helps the organization to reduce all the extra unnecessary cost, so that the organization can have maximum profit for its goods and services (Gupta, Pevzner, and Seethamraj, 2010).
In the activity based costing system, the cost of managing the employees or every small cost driving factor can be identified. If helps the organization to assess every cost driving factor for optimum level of efficiency. If the goods and services don’t provide enough profit to the organization, the organization can eliminate the cost driving factors. The activity based costing system also helps the organization to efficiently manage the cost driving factors, for optimum level of output for their investment.
How The ABC Model Of Costing Works:
The ABC model of costing, helps the organization to assess and analyse their production cost in three different ways.
At first, the accounting process creates cost pool for different production and supply chain companies. After that this system links those cost pools with the main manufacturing cost. This system helps the accountants to analyze different cost driving factors in order to have a transparent idea about the different cost driving factors. On the other hand the conventional cost assent press counts the entire sot at once and finally adds them with the main cost.
Secondly, this system helps to analyse the critical cost factors, which can’t be determined easily. This system also count the cost driving factors like increasing wage of the labours, decreasing cost of mechanical equipment nod machine etc. then all these cost driving factors are linked to the main overhead cost.
Third, this activity based costing system also evaluates the critical cost factors like indirect cost. In the indirect cost accounting system, the account system counts the maintenance of the equipments, and other external cost driving factors.
After critically counting different cost counting factors, the organization can take various important accounting related decisions easily. This procedure makes the accounting system transparent, and makes every cost driving factor noticeable to the managing authorities.
Recommendations for the Brambles Limited:
Brambles Limited used to follow the conventional accounting method. That is why; this organization was unable to achieve its goals and a sustainable market place. This organization was overlooking multiple costs driving factors, which were directly or indirectly increasing the cost of their production. Also, the scarcity of the raw materials and fragile market was also affecting their growth and other important aspects of their business.
The Brambles Limited can opt for ABC model for accounting to increase the production of raw materials. The supply chain logistic projects are highly profitable business that can help to gain competitive advantage from the market. Previously, this organization was using the conventional indirect cost calculating process. As it has been found that, in most of the case, the supply chain group require complicated tools in order to maintain huge list related to their supply and distribution goods, it is not possible to maintain the conventional way of accounting to calculate their direct and indirect cost. The activity based accounting model will help to analyse the annual depreciation and the maintenance of the tools and other equipment used for the supply chain logistic project.
The Brambles Limited can also use this activity based costing system to analyze the internal cost of the organization for better accounting of the cost driving factors. Internal costs like the wage of the labours, the salary hike of the employees. This will help the organization to provide salary packages to the employees based upon their performance not on their experience. This step will also help the organization to cut down multiple unnecessary cost, which is affecting their profit margins and cost driving factors.
The activity based costing model is very much helpful for the organizations, to critically analyse their accounting procedure. This helps the organizations to allocate and manage their funds in a better way. But, this procedure is extremely costly and the organization also needs to introduce this cost accounting system to calculate the cost driving factors in every aspect of their business. In order to introduce this accounting system, the organization need to change the accounting infrastructure completely is a time consuming and costly process too. Also this accounting process makes the accounting process more complicated.
Alternative Accounting Process for Brambles Limited:
The Brambles Limited may also opt for Absorption costing method to analyse its manufacturing cost. The absorption costing procedure is a very good alternative of the ABC model of accounting. The ABC model of accounting is a complicated process and it is costly too. The Brambles Limited is a supply chain logistic based organization, and it belongs to the supply chain industry (Yang et al. 2014). The Brambles Limited is also an ASX listed organization, and it has to take care of its investors as well. That is why, absorption based accounting system will be the perfect solution for this organization. The absorption costing system will help the organization to critically asses all the indirect cost. The Brambles Limited organization already has opted for marginal cost accounting to critically analyse all its cost driving factors. But this organization need an effective accounting method to calculate all the indirect cost related to the supply chain procedure. The supply chain logistic industry is a highly risky industry, because most of the cost driving factors are highly variable. Especially the labour wages, the maintenance of the tools etc. to calculate the external variable cost driving factors, the absorption costing is the perfect tool.
The organizations are constantly looking for more innovative and effective way, which can help them to manage and allocated their funds easily and effectively. Though the activity based accounting system is a costly and complicated process, it is the most effective way to measure the production cost of an organization. The ASX listed organizations are completely dependent upon the share holders, to raise its funds. That is why; this organization has to manage its funds well through the right accounting strategy. The supply chain logistic company is being driven by multiple external cost driving factors and the organizations cannot optimize their profit merging because of the inefficient counting procedures. Organizations like Brambles Limited can easily optimise their profit margins and roué their production cost by efficiently controlling the cost driving factors. There are two types of cost driving factors, one is internal and the there one is external. The organization should manage these both cost driving factors effectively in order to maximise their profit margins. The activity based costing process will help the organization to indentify the less profitable products and activates, and cut down the cost of the production by eliminating those factors from the process.
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