MANAGERIAL ACCOUNTING (HI5017M_T1_2018)
NAME: – PARDEEP KAUR
STUDENT ID: -GIM3037
MANAGERIAL ACCOUNTING IN ELX COMPANY
(ELLEX MEDICAL LASERS LIMITED)
(HEALTH CARE EQUIPMENT AND SERVICES)
Table of Contents
TOC o “1-3” h z u Executive summary PAGEREF _Toc514697915 h 3Introduction PAGEREF _Toc514697916 h 4ABC model and its key features PAGEREF _Toc514697917 h 4ABC model for ELX PAGEREF _Toc514697918 h 6Mission and objectives PAGEREF _Toc514697919 h 6Corporate strategies PAGEREF _Toc514697920 h 6ABC model and support to achieve strategic goals PAGEREF _Toc514697921 h 7Recommendations for ABC model implementation PAGEREF _Toc514697922 h 8Recommendations based on management accounting tools PAGEREF _Toc514697923 h 9Conclusion PAGEREF _Toc514697924 h 10References PAGEREF _Toc514697925 h 11
Executive summaryAim of the present report is to explain the ABC (Activity based costing) method and the way this model help in order to impart the accurate accounting information about the costing. Moreover, this report has been created by focusing the ELX Company, which uses the traditional methods of costing system, needs to improve their accounting system. Furthermore, the recommendations and suggestions based on ABC model have also been discussed for the ELX Company.
IntroductionAt ELX, they are the experts more from their professionals rather than being analytics, technology and the operations management (ELXservice.com, 2018). In the context of MAI (Management Accounting Information), the given organization having their financial accounting systems that focuses over preparing the information for their external parties, for instances, public regulators, stakeholders including the lenders according to accounting principles that ELX has usually adopted. However, their accounting system demands improvements, as their managerial accounting takes the financial information of the company along with develops the reports for the confidential and internal use by the ELX managers towards making of crucial decision and identifying the ways for running this company for efficiently and effectively. Thus, it is understood that this company needs to adopt effective tool such as ABC model for improving their managerial accounting system, thus, their confidential data & information could be secure from the external and unauthorized access (Weygandtet al. 2015). Hence, the aim of this report is to cover the ABC model along with its features that can help the organization for meeting their goals.
ABC model and key features
ABC that is also known as Activity Based Costing model is referred to a methodology of accounting system identifying the entire activities, which any organization needs to perform; moreover, finally, they assign all the indirect costs into their different products. According to Warrenet al. (2015), an ABC system focuses on recognizing the relationships amongst the activities, costs including the products; moreover, this relationship helps the organization is such a manner that the organization gets the ability of assigning their indirect costs within their products, which are less arbitrarily as compared to the traditional approaches that most of the organizations adopt. Some of the costs are difficult for assigning via the same methods based on the cost accounting, the indirect costs, for examples management including office staff’s salaries are found to be sometimes difficult for assigning few of the particular products that are produced by the company. Hence, for this reason, the ABC system having methods have found their niches within the sector of manufacturing. This model has objectives such as for rectifying the inaccurate costs information, for allocating the overheads over the activity based and for helping the management while taking the quality along with having a timely decision. As per the CIMA (Chartered Institute of Management Accountant), the given model can also refer to an approach or methodology to a company’s particular costing including monitoring process of various activities make involvement of tracing their consumptions in terms of different resources including the final outcomes of the costing system.
Figure 1: ABC model having different activities
In accordance with Malhotra (2015), the developer of this model gives a platform to the management accountant for using this model in a more convenient way, for that, the accountant needs to go through various steps such as:
Step 1: Identifying the activities of organization along with their activities pool
Step 2: Assigning the costs to each of the activities including the activity pools
Step 3: Identifying the products or services
Step 4: Assigning costs to the services or products
Focusing the features of ABC model
The characteristics or features of this model are explained below in brief:
The total cost is divided into two types such as Fixed cost along with variable cost that is necessary for providing the quality information for designing the suitable costing systems within the concerns of manufacturing
A proper distinction is usually made amongst the patterns of cost behaviour
The patterns based on cost behaviour are further related to diversity, volume, time and events
An appropriate cost driver needs to be identified to trace the overhead towards the products
The drivers of costing further dictate the patterns of cost behaviour
ABC Model for ELX
Mission and objectives
Mission of the chosen company is for maintaining the digital intelligence, which is the reason for the companies in terms of being the most complex industries across the world, from insurance to the healthcare to the transportation. Their digital intelligence focuses bringing the company their most difficult challenges, along with the impossible goals of this company. They call their outperformance as Digital Intelligence as the most important combination involved digital including domain knowledge, technology and human; all are coming together for creating the breakthroughs outcomes (ELXservice.com, 2018).
The digital intelligence can be the foundation based on all the things the organization does along with the inspiration for their ideas including research. Thus, the objectives of this company are achieving the triple aim by using the analytics, they need to analyse the way through which the health management of Total Population based health transforms the Care Coordination. Moreover, their objective also includes the marketing mix that has already been modelling for their retail sectors.
The Company has recently announced that they have formed their first strategic partnership with another company, NOVU, which is an industry that leads in the world in term of consumer-engagement along with reward platforms. In addition, ELX has aim of its strategic partnership, which is for providing the members of their health plans having greater access towards the content of the health, the social groups including the reward programs, which are integrated along with the programs involved the care management that are further powered by the Suite Care Radius of ELX.
Traditionally, accessing to the resources of health in the technology of management care has already been limited for the nurses including the care teams that conduct the outreach of the member, either by phone or by email. Thus, combining the suite of patent based Pending Carer Radius along with the best-in classes regarding consumer engagement based platforms offered by the NOVU Company that empowers the individuals for engaging fully with the health in the ways that is consumer-centric, which aligns directly along with the plan of their care management team. In addition, this game-changing based offering can enable the organizations, which are risk bearing for having a deeper including broader touches across the populations. Hence, the outcome of this plan gives an improved outcome, enhanced experiences of members, including the increased payments towards the payers including the providers. Thus, the Medicare, Medicaid and Commercial markets can benefit from the innovative approaches for the market delivery as this is often delivered via both the ACOs and the payers.
ABC model and support to achieve strategic objectives
The ELX Company can use the ABC in order to achieve the goals of their strategy. Thus, they can identify the costs, which this company needs for allocating. The organization needs to determine the entire costs based on their distribution channels, they can identify their advertising along with warehousing costs that are related to their channel, however, they need to ignore the costs of the resources, as they all are associated with the products, and not related to their channels. Now, the organization needs to create the cost pool for the costs incurred for providing the services to other partners of this company rather than supporting the services or products of ELX directly. In addition, the company needs to be focused over the customer profitability along with the activity and distribution costs.
Recommendations to achieve ABC model
According to Joseph (2014), ABC Costing model can be the supplemental methodology based on cost accounting, which provides the information based on the decision-making absent from the traditional methods of costing. However, this model is not limited by the boundaries of business units, thus, it can never be fully supplanting the costing having traditional methods as the model often fails for meeting the requirements regarding the financial reporting for any business. Hence, the chosen organization needs to be effective and alert while adopting the ABC model within their accounting system (Edmondset al. 2016). There are few recommendations that the given organization needs to go through for improving their accounting information system, which are given below-
Identification of the activities: While identifying the activities, the given organization needs to identify and group the activities together within the pools of activity. The pools of activities refer to the supporting activities, which can tie into their product lines or any services. In addition, the buckets of the pools can include the assigned cost fractionally in terms of supporting the activities to individual based products as an appropriate during the second steps. In addition, the chosen organization needs to be effective while assigning the costs to each of the activities, as the steps involved in this model is either cost effective or outcome-oriented. Moreover, the activities that measure the adopted in terms of attributing the costs towards the products of individual can further be summed for determining the total volumes based on the activity. Hence, there is a condition, which excludes the dependencies amongst the products for instance joint processes, interactions and synergies.
Analysing the activities: In order to analyse the activities, the ELX company having analyst needs to clearly identify all the processes that can support the product along with avoiding few of the systematic inaccuracies that are often found in the traditional methods of costing. Thus, they need to understand that the ABC model further requires for analysing the activities that are similar to the mapping of process, which is found in the manufacturing of lean. The analyst of activities hired by the ELX Company further needs to identify the relationships of indirect cost; moreover, they need to allow the assignment based on some of the percentages of the activities towards a product directly (Breweret al. 2014).
Recommendations based on management accounting tools
Changes within the business environment, which are triggered by the global competition including the technological innovation, have led to the innovations within the use of the financial including the non-financial information in the given organization. Moreover, demands of the new environment relevant information including data about the performance and costs within the activities, services, customers and processes of an organization. According to Weygandtet al. (2015), ELX as the leading company needs to use their costing system for designing the products including the services, which can meet the expectations of the customers; moreover, the products can further be produced including delivered at the profit. Moreover, the organizations need to use the ABC model, signals, where, either discontinuous or continuous improvements within the quality, speed and efficiency are required. The given organization needs to assist the employees within the learning including the activities based on the continuous improvements, the ELX organization needs to guide mix of products including the investment decisions (Warrenet al., 2015) have commented the organization needs for negotiating about features of their products, price including the quality and the services and delivery along with the customers; this needs to be followed by the given organization. The given organization needs to have effective and efficient distributions including the service that are processes towards the targeted markets including segmentation of the customers. This company needs to gain competitive advantage from their enhanced costing system; it is due to the organization needs to rely over the information from their costing system, which needs to be designed for the simpler technological ages while the competition has only the local instead of global. Furthermore, the company needs to produce the standardized products including services; moreover, when the quality, speed and performance have been less critical for the success.
ConclusionAfter analysing the objectives and mission of ELX Company, it can be concluded that they need to implement the ABC model in their accounting information system, which can improve their costing system. Furthermore, valuation based on the inventory including the measurements involving the costs of the products that are sold for the financial reporting system can further be improved. It is because the external circumstances including the investors, regulators, authorities and the creditors need to be involved within the information system. Furthermore, the traditional methods of costing system need to be replaced by the ABC model, however, the accountants, developer and analyst need to be aware of the challenges that are provided by the ABC model. In addition, estimation based on the costs of the activities, services, customers and services because of internal manager needs for understanding and improving the economics regarding the operations of the ELX Company.
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