NORTHERN STAR RESOURCES ABC MODEL
For this project proposal, it will be based on a case study focusing on Northern Star Resources Limited (NSRL) and how use of the activity based costing model (ABC) can improve its operational agility. The ABC has gained greater applicability among mineral mining and milling firms since effective control mechanisms for costs has been noted as one of the surest ways of enhancing general profitability of any entity. The analysis report will eventually highlight how the strategic framework of NSRL relates with the ABC model and suggest other possible ways of improving cost management. Table of Contents The Executive Summary 1 Introduction 3 Understanding Activity Based Costing 3 Features of the ABC Model 4 Vision 4 Mission 4 Key objective 5 Specific objectives 5 Benefits of the activity based costing to Northern Star Resources Ltd.
6 The ABC Model and Corporate Strategy of Northern Star Resources Ltd. This is because the technique is based on established casual relationships between products, costs and the associated activities (Sartorius, 2007). By using the method, it is possible to allocate indirect costs generally known to be difficult to allocate such as management support staff salaries in manufacturing entities. ABC is highly applicable in manufacturing firms such as mining enterprises since enhanced reliability of expense data is of great essence. Some aspects which largely require the ABC model are pricing of services, costing for analysis of product as well as customer profitability targets. The most significant cost measurement under ABC are the activities since resources are required to undertake them. IV. The model requires proper identification of the cost drivers, which enables easy tracing of product overheads.
V. Also, the model is based on the fact that cost behavior patterns are entirely dependent on cost drivers, which can either be transaction based on duration based. The various characteristics of the ABC model are founded on the various objectives that manufacturing firms seek in relation to their expenses. ) Key objective The main objective of the firms’ management is to ensure that it grows and brands itself as a responsible corporate with ability to attract global investors (Anon. , n. d. The key of objective however is formulated into several specific objectives which are key for stability of Northern Star. The objectives are highlighted below; Specific objectives a) Ensuring of a stable critical output by having sustainable yearly production of 485,000 ounces of gold.
Guided by the vision, mission and objectives, the top management of Northern Star mining Resources Ltd. has been able to make outstanding decisions that have resulted in meeting targeted operational measures such as production level, earnings level and costs. (Feridum, 2005) However, with its strategy largely focused on realizing greater returns from opportunistic gold mine growth, low operational cost bases, stable inventories and less leverage, the use of ABC model will be of greater value. (Anon. , n. • It will be easier to fix gold prices given properly computed costs that are based on the ABC model. • The model will also help in setting and calculating reliable transfer prices between various gold mines thereby resulting in operating on cost effective and sustainable mines only.
• The model will also form as an essential measure against which decisions to mine gold or buy it from other miners will be evaluated. With the mining technology changing each day, where mining costs are likely to increase, Northern Star Resources Ltd will subcontract the mining activities or rather buy the gold and save on extensive exploration costs which not be viable. • The ABC model will also further help in creating a reliable balance between the workforce required in relation to mining activities and the machines available so that greater emphasis is put on high value activities while eliminating costly less-value adding activities. Also, since Northern Star Resources Ltd operates on diversified portfolio of mines, the model will be useful in creating a workable marketing plan in terms of pricing and product mix for the various types of gold obtained from different mines based on their respective total costs.
Implementation of ABC Model The basic understanding of the working of ABC is that it helps in apportioning resources to certain activities before it allocates to each product (Feridum, 2005). Based on this therefore, the model should be systematically implemented in order to be successful. Some of the steps to be followed are; a. The functional areas Northern should be clearly known b. • When mining in certain mines results in high margins, yet not undertaken by key competitors, the ABC model should be used to assess whether the cost is bearable, since it could be higher than expected (Askarany, 2011). • Also, the CEO and the top management should consider using the ABC model where other mining competitors sell their gold other at combatively lower prices that those of Northern Star, since this could indicate an operational inefficiency.
Recommendations for study on the ABC Model The study is limited to one firm, that is, Northern Star Resources Limited, which is in the mining industrial sector. Therefore, it does not fully reflect how the ABC model can improve operational agility. Also, it will be important to consider conducting a comparative study of the two firms so as to have a varied opinion on the impact of the ABC Model (Feridum, 2005). By understanding the related cost benefit of using a given system, a model can be applied. However, the model chosen should fit the current situation, the processes involved, the complexity and time needed to execute it. References List Anon. , n. d. Kont, K. -R. Activity-Based Costing (ABC) and Time-Driven Activity-Based Costing (TDABC): Applicable Methods for University Libraries?.
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