Activity based costing in REA group
The objective of the ABC model is its effectiveness in addressing cost management since it contemplates how overhead can be allocated to products purposely to establish unit costs. As a result, ABC model is becoming inevitable in organizations that want to create more accurately how costs are incurred during the production process. Alternatively, the present report establishes grounds upon which REA group could adopt ABC model in a bid to improve the distribution of costs and eventual realization of its strategic objectives. REA group long-term objective of providing easy access to the property, and the stress-free living environment is dependent on how well the management will make decisions about controlling costs. ABC model answers the challenges that may thwart realization of those goals.
Features of the ABC system ABC system is a more accurate way to provide information and enhance decision making about prices and product mix, as well as for effective control of organizational operations. The techniques cuts across conventional boundaries of departments by ensuring that costs are grouped into pools concerning the activities that drive them (Krajnc, 2012). For instance, if the costs are attributed to procurement or design of a given software or office machines, such costs associated with ordering, inspection and storing are included in the cost pool, and cost driver identified. ABC system consists of three fundamental areas which include: product differentiation, activities and their associated cost drivers, and the identification of non-value-added cost. Through the identification of the key areas, the costing systems ensure precise determination of costs for each of the aspects of business activities that contribute to the final product (Hilton et al.
ABC operates from the standpoint of the overhead costs. The allocation of overhead expenses to multiple activities cost pools, as well as assigning the activity cost pools to the services using cost drivers. To effectively implement the ABC system, it is critical to highlight the cost drivers, specific activities, and the cost pools in REA. Kaplan and Cooper developed rules to help in the implementation of ABC (Krajnc, 2012). These include; (i) Focusing on valuable resources categories where adoption of the ABC will have the most significant impact. Aligning the Group strategies with ABC system REA group emphasizes on people and brands as a mechanism to increase its market dominance. The specific focus of the ABC system in REA group is to ensure accurate costing of the product pricing, costing staffing, and allocation of resources to various activities.
This will answer the organization’s strategic missions and objectives of leading property advertising through digital platforms. The aggregation of the human resource policies and the marketing strategies adopted has immensely influenced how the operations are undertaken (Swenson, 1995). Supported by a set of value system, the company is commanding the property market in Australia. It is quickly achieving this objective by undertaking investments in inventing digital utilities that could increase customer satisfaction. As the company continues expanding its operations by acquiring more of the property firms in Australia and yonder, it is crucial that active costing systems are in place to check on software costs, personnel and how the specific costs can be traced. Activity based-costing system perceptibly becomes a necessity in the management of costs and activity.
For the management to internalize costs and how they affect the profit levels, there is need to implement ABC system. The costs for specific utilities which the management deem effective such as the Okta and GitHub Enterprise which are used in the management of the company operations need accurate costing system (REA-group. It is very simple that decisions about controlling them may not be easy to determine. The report indicates costs as lump sums. However, the ABC view is comprehensive since it provides needed information that could be used in making decisions about the product, marketing or making customer-related choices (Škoda, 2009). Further, the ABC is discrete in the description that enables managers to gain an understanding of the cost drivers and pools flexibly.
This ensures the manager relate the work and the worker easily. This ensures costs standardization by ensuring that the resources consumed in the production match the output. Alternatively, the management will be able to control such costs as staff costs as well as the costs of maintaining the integrated information system independently. (iv) ABC system is an effective way to ensure the management control over all the operations of the business undertaking. Such costs as the handling of the digital platforms, continuous inspections by technologists, quality control among other activities are suitably apportioned costs in the order of the volume of output. Alternatively, implementation of ABC ensures the management adopts an activity-based management process where attention is yielded to costs reduction strategies while improving process and decision making.
Contrary to the simplistic and unclear costing policies that have been in place, ABC model establishes all costs involved in providing set advertising utilities to meet customer needs. As a result, besides using other costing methods like the conventional, traditional costing system, there are higher chances that ABC model is essential in promoting actualization of the company’s corporate and strategic objectives. Works cited Cooper, Robin, and Robert S. Kaplan. "Activity-based systems: Measuring the costs of resource usage. "A comparative analysis of utilizing activity-based costing and the theory of constraints for making product-mix decisions. " International journal of production economics 63. Krajnc, Julijana, Klavdij Logožar, and Bojana Korošec. "Activity-based management of logistic costs in a manufacturing company: a case of increased visibility of logistics costs in a Slovenian paper manufacturing company.
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