Usage of Activity Based Management-Free-Samples for Students

Questions: 1.For any Hong Kong Organisation/Company of your choice, discuss which characteristics make the use of Activity Based techniques particularly useful, and give one detailed example of how ABM couldbe used effectively at this Organisation/Company. 2.Discuss the Issues that might cause an Organisation/Company not to use, or abandon the use of Activity Based techniques. Answers: Hip Chong Toys Manufacturers Ltd. Established in the year 1978, Hip Chong Toys manufactures and deals with price-competitive, high quality toys those are operated by batteries and features the motorcycles, radio controlled vehicles, play sets and train sets. From its establishment the company developed an exceptionally well reputation among the customers all over the world. Over the years, it successfully created the wide range of toys with the great values. These involves Buggy, Big wheels, Snow mobiles, Go-Karts, Racing cars, trucks, pottery sets and construction series. With more than 30 high calibre engineers and 12 production lines under their research and development centre, the company brings the strongest assets in the product development and manufacturers together for optimization of the productivity with minimization of cost (Hipchong.com 2017). 1.Characteristics of the company that makes the activity based technique useful The usefulness for activity based technique is dependent upon the companys characteristics, particularly the environment, product range and the cost structure. Cost structure the activity based technique is particularly useful for Hip Chong Toys as the overheads of the company is a considerable part of the total costs. Further, the allocation of the direct labour costs and material costs is straightforward and the apportionment on the basis of traditional method is misleading for the company (Kali?anin and KneÃ… ¾evi? 2013). Moreover, with the increase in overhead level the accuracy of product cost are expected to be reduced. Further, if the company introduced any new technique that may lead to reduction in the labour cost and overheads significantly or the process of business re-engineering, for instance, investigation is needed to decide whether the existing system of costing provides the reasonable estimates for the costs of services or products and whether the activity based technique can be adopted to analyse the process of allocating the cost (Elhamma and Zhang 2013). Product range and the diversity if any company just produces only one product or small number of product, the decision related to product mix can be taken based on the relevant cost. However, as Hip Chong Toys produces various individual products and various combined products analysis on the basis of relevant cost is not possible. Further, the general purpose activity based approach can be used for analysing the costs of long-run product. However, cost of the product that is reported are not designed to be used for the purpose of making the decisions rather they shall deliver the information regarding attention-directing and focus on the issues that require more detailed evaluation and the attention from the management. With the focus on the issues regarding customer satisfaction Hip Chong produces wide range of toys. Therefore, activity-based technique is used if the company produces different products of low volume and standards products of high volume. In the same way, as the cus tomer base of the company is wide, the ABC techniques can deliver the information related to the analysis of customers profitability. Further, the costs associated with the travelling, after sales services, and the special system of delivery are recognized that assist in indentifying the customers that are making profits or losses (Tanis and zyapici 2012). Environment the increase in the competition Hong Kong retail sector is rapidly increasing as the competitors are also aware of the fact related to the potentiality of companys profit from services or products. Further, as the company is operating under highly competitive environment, it is required to present the cost report more accurately through activity based techniques as the competitors are expected to take the advantages from any errors that nay arise from using of distorted information regarding cost. Usage of activity based management (ABM) The ABM approach delivers 3 steps for the managers to use the approach that will improve the profitability and efficiency of the operations. The steps are follows Step 1 Identifying the activities required for completing the products This step includes interviewing the personnel involved in the organization. The ABM approach requires the recognition of the key activities. However, the ABM allows for the more detailed approach of analysis as the estimation for the costs and the related overhead rates are not needed while using the ABM approach (Kang and Kim 2012). Step 2 determining whether the activities are non-value added or value added Activities that can be added to the performance and quality of the product are known as the value-added activities. On the other hand, the activities that cannot be added to the performance and quality of the product are known as non-value added activities. For instance, the value added activities in Hip Chong includes machines and material for producing the toys and assembling them. On the other hand, the examples for the non-value added activities include storing the toys parts in the warehouse and letting the machineries keep idle (Janiesch, Matzner and Mller 2012). Step 3 Improving the value added activities with minimization of non value added activities on continuous basis Even if the activity is recognized as the value-added, the ABM approach requires improvement on continuous basis for the activities. For instance, the Hip Chongs toys manufacturing process that is a value added activity requires the workers for shifting back and fourth among the motorcycles and racing cards all over the day, each part of which requires different types of tools and different parts for the toys. Perhaps, the effectiveness of the procedures can be improved through assembling the toys in batches that is working one day in the motorcycles and working another day in the racing cars (Kaspina, Khapugina and Zakirov 2014). The activities those falls under the non-value added activities shall be eliminated or minimized. For instance, the storing parts in the warehouse at Hip Chong that falls under the non-value added category of activities can be minimized through adoption of just-in-time approach that needs the suppliers to provide the parts immediately before they are required for the purpose of production. 2.Problems in implementing the activity based technique Despite of various advantages, numbers of reasons are there why any organization may decide not to implement the ABC technique or abandon the use of ABC techniques. These reasons may be as follows Instruction of any kind of new technique will definitely meet with some resistance from the employees who are in the view that any change in the system will create problem and the existing system is most appropriate and adequate. However, such resistance can be minimized if session is undertaken to inform the employees fully regarding the new system, its process and techniques (Weygandt, Kimmel and Kieso 2015). Implementation of ABC is expensive and time consuming procedure. Further, the cost drivers and the activities shall be recognized that will include the observation, data collection, interviews. However, the management may be in the view that the expected advantages will be out weighted by associated costs (Warren, Reeve and Duchac 2013). Even if the overheads consist of a significant portion of the organizational costs and those costs are not traceable and allocable easily to the services and products owing to the identification of cost driver is not easy and majority of those costs are administration costs, the introduction of the ABC technique may not enhance the accuracy of the cost information related to product and therefore will not be accepted by the management (Estampe et al. 2013). Any kind of alteration in the established approaches of doing the activities is not expected to get success unless the alterations have the powerful championship in the organization. Further, the championship of the ABC technique is expected to be the finance director. Therefore, if the finance director does not support the introduction of new system she or he will get replaced by any other director who will support the introduction and implementation, the system is expected to fail (Dong, Liu and Lin 2014). Reports prepared under the ABC techniques include the information like product margin that generally varies from the reports prepared under the traditional method of cost. Chances are there that some of the costs based on activities are irrelevant under certain scenarios for making the decisions, for instance, the ABC technique does not match the accounting standards and therefore shall not be used for the purpose of external reporting (Plank 2017). As the figures under the traditional norm are the benchmarking, interpreting the data under ABC along with the regular information for accounting may be confusing and may lead to the making of bad decisions. Further, the use of software may streamline the procedures for maintaining the ABC systems and then simplify the integration with the regular information related to cost accounting (Van Petten and Luka 2012). Therefore, though the implementation of ABC techniques will assist Hip Chong Toys to attribute the costs in more accurate way to all types of toys and will assist in prepare the budgets, various disadvantages shall be taken into consideration before implementing the ABC technique. However, the management may discuss the matter with the finance directors and the employees of the company to make them understand the benefits that may arrive from implementation of ABC techniques, so that the implementation process can be smooth and successful. 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