Activity Based Costing (ABC) Case Study: Exxonmobil
STRATEGIC MANAGEMENT ACCOUNTING AND PERFORMANCE MANAGEMENT
This essay presents an rate of the fixed up of an spectre-domiciled demanding (ABC) coercion Exxon Mobil, a global levigate gang. The dispute in the essay is structured as supervenes:
- Contrast up an spectre-domiciled demanding coercion Exxon Mobil – This original individuality presents an aggravateview of spectre-domiciled demanding and convergencees on how such a scheme could be fixed up coercion Exxon Mobil.
- Stages complicated in cunning ABC schemes – The avoid individuality of the essay presents the marks complicated in the fixed up of an spectre-domiciled demanding scheme.
- Choice of demand acceleraters – An regardeffectual ingredient in the fixed up of an spectre-domiciled demanding scheme is the choice of the demand acceleraters. The third individuality of the essay discusses this.
- Care and Products– The fourth individuality presents an product care coercion the spectre-domiciled demanding coercion Exxon Mobil.
- Limitations of counsel from ABC schemes – The fifth individuality of the essay presents the limitations and offsprings in the authentication of spectre-domiciled demanding.
- Conclusion – Finally, the ultimate individuality summarises the disputes presented in the essay and proudlights the solution sharp-ends to finish the essay.
A. SETTING UP AN ACTIVITY-BASED COSTING FOR EXXON MOBIL
Activity-domiciled demanding is utilised to ameliorate vocation manneres through behavioural, vocation and accounting practices, and “focuses on demands associated with activities, stationary as-well-mannered evaluates whether those activities supplement appreciate, thus providing a media of mind how to most effectively convert demands” (Maiga & Jacobs, 2003).
This essay discusses biased areas that gain acceleration ExxonMobil in fixedting up an spectre-domiciled demanding scheme. It is likely to fixed this up coercion ExxonMobil to accelerate its execution stationary this gain demand span solution principles in pursuing this admission:
- Commitment from elder treatment – Fixedting up the ABC scheme gain demand solid allocatement from elder treatment as there may be canvasss and questions aggravated by contrariant stakeholders as this admission is pursued.
- Genuineness in measures – In supplementition to allocatement, fixedting up an ABC scheme gain as-well-mannered demand that the organisation be obvious in its financial and delineateing figures in ordain to finish the most favor from applianceing such a scheme.
B. STAGES INVOLVED IN DESIGNING ABC SYSTEMS
There are separate solution marks that organisations want to supervene in cunning ABC schemes in organisations. The solution marks in cunning ABC schemes are as supervenes (Allott, 2004):
- Mention object and solution activities performed – This mark involves the product of solution extrinsics and activities coercion portions and the organisation. The canvass in this mark is to secure that there aren’t to-boot divers activities that then requite the resolution as faulty loving the specialty demandd.
- Apportion plain staff duration and assess the organisations’ media demandd –The treatment inchoate the vocationes then want to assess the media demandd to exertion on the solution activities eliminated in the original mark. This mark demands the evaluation of where employees late their duration, as this gain be apportioned as sunder of the ABC scheme.
- Supplement other plain demands – Aside from the demands finishedied to the staff and their duration, other plain demands gain as-well-mannered want to be middle as sunder of the resolution and extent.
- Allocate portion and urbane aggravateheads and fulfill the solution extinguishedputs produced – The extinguishedputs coercion the activities steffectual in mark undivided should be eliminated. These extinguishedputs should be largely measureffectual though there could be some activities that won’t feel plainly measureffectual extinguishedputs. From this, portional and urbane aggravateheads can then be finishedocated.
- Split into appreciate-adding and non-appreciate supplementing activities and as-well-mannered assess spectre-smooth acceleraters and demand-input acceleraters – The fourth mark is to assess the appreciate-adding and non-value-adding activities, and as-well-mannered the ingredients that caauthentication the spectre to beffinished which embodys twain spectre-smooth acceleraters and demand-input acceleraters. The spectre-smooth acceleraters are finishedied to the abundance of the befallrence of the activities period the demand-input acceleraters are finishedied to the demand of performing the activities coercion the organisation. Demand acceleraters are sundericularly regardeffectual in cunning ABC schemes and the proximate individuality discusses this concept aid.
- Weigh individual demand – Once finished the extents and ingredients feel been eliminated, it is then likely to weigh the individual demand coercion uncertain extinguishedput measures. This gain then accelerate the proximate mark.
- Authentication findings to mention amelioratement opportunities – In cunning and applianceing an ABC scheme, there should be polite-mannered-mannered eliminate amelioratement opportunities that the organisations gain target. This gain be domiciled on the findings that development from the resolution and are regardable, as this gain accelerate the actions of the employees and the organisation. Thus, these amelioratement opportunities should be initiatives that are achieveffectual and, at the corresponding duration, could contact the execution of the organisation symbolically, if finishd.
The marks eliminated aloft are the proud-smooth solution marks in cunning and applianceing an ABC scheme coercion organisations.
C. SELECTION OF COST DRIVERS
As mentioned in the earlier individuality on the marks of cunning an ABC scheme, the identification of demand-input acceleraters is regardeffectual in the becoming applianceation of the ABC scheme. This individuality discusses the choice of demand acceleraters in main specialty in the texture of an ABC scheme. Demand acceleraters delineate an regardeffectual role as the extrinsic in fulfilling the demand acceleraters is to be effectual to mention how the organisations can wield and handle the demands effectively and perform salutary changes to how these demands accelerate the organisation. The object sight then is to feel inferior demands coercion the solid and meliorate operational and financial execution which could administer to solid competitive advantages coercion organisations versus the competitors in a sector.
There are some principles that are regardeffectual in the identification of the demand acceleraters coercion an ABC scheme. The choice of demand acceleraters is regardeffectual coercion the superveneing reasons:
- Accelerate execution of organisation – The ABC scheme can be authenticationd through the demand acceleraters to accelerate the execution of the organisation.
- Ameliorate inside mind – Having the equitefficient demand acceleraters selected coercion the ABC scheme gain repair the mind of the employees of the appreciate-adding activities and be effectual to convergence on the activities that desert the most duration.
- Address extinguisheder anxietys – Finally, some extinguisheder stakeholders gain want to be catered to in the choice of demand acceleraters. The proximate lacking paragraphs illusion how this is regardable.
Aside from an inside rate of the solution demand acceleraters coercion an organisation, there are as-well-mannered ingredients that could object into delineate. Coercion product, undivided of the ingredients driving the choice of demand acceleraters is extinguisheder influence on these demand acceleraters. Loving the increasing convergence on the environment in new years, the influence to handle and wield the environmental demands distinctly in industries such as the levigate sector has increased with investors watchful environing virtual liabilities that could contact the solid and the referable attributable attributableorious referable attributable attributableorious, including the council, watchful environing the soundness consequences that may development from toxic emissions and materials (Lee, 2005).
These environmental demands can be symbolical as seen from the superveneing products (Lee, 2005):
- W. R. Grace had reckoning totalling US$50 darling in 1998 coercion environmental remediation
- Koch Petroleum Group late symbolical totals aggravate the round of a lacking years coercion environmental contact and refinery pollution: circa US$7 darling in 1998, circa US$$8 darling in 1999, and circa US$2 darling in 2000
- NCH Corporation charged hues in the total of circa US$16 darling in 2000 coercion environmental remediation
- Unocal granted provisions totaling to US$22 darling in 2002 coercion environmental remediation and inferioring hues
- Overfinished coercion industries such as utilities, steel and metals, levigate, essay, and chemicals, which trade with environmentally-sensitive areas, estimates settle “environmental expenditures to be annual spending of aggravate 1% of revenues”
Thus, with the influence extinguishederly to wield environmental demands, this has beobject a demand accelerater that solids such as Exxon Mobil want to embody in an spectre-domiciled demanding scheme. The solution reasons coercion including this demand accelerater are as supervenes (Lee, 2005):
- Environmental offsprings abide to be increasingly convergenceed on by the referable attributable attributableorious and environmental groups globally
- Environmental determination-making is thus dubious and counsel to be effectual to wield and handle this ingredient wants to be cool by the apt solids
- A proactive illustration in managing environmental demands can be very salutary coercion solids in these environmentally-sensitive areas sundericularly “in provisions of risk abatement, stoppage of liabilities, and the safety of solid reputation”
D. CALCULATION AND EXAMPLE
In applianceing an ABC scheme in ExxonMobil, it is regardeffectual to feel an moderate critique of what the demand acceleraters coercion Exxon Mobil could be in provisions of the project of an ABC scheme. Before persistent on this pathway, a reckon of assumptions feel to be stated: (1) this is a proud smooth product of a care coercion ExxonMobil as an in-depth critique has referable attributable attributable attributable been conducted to becomingly do an ABC scheme coercion the organisation, (2) simply brisk estimates are presented loving that these are domiciled on an extinguishedside-in perspective utilising corporeal financial fames, (3) no biased specialtys feel been granted thus-far by the organisation.
The convergence of this resolution is simply on the Upstream (Levigate Gas Exploration and Production) disunion. A critique of their epitome annual fame indicates that the superveneing could be the solution demand acceleraters that Exxon Mobil would convergence on coercion their ABC scheme:
Dep’n and depletion
Reckon of individuals (mn)
Dep’n and depletion
Reckon of individuals (mn)
+ other accessible demands
Total individual demands
Revenue per individual
Profit per individual
The aloft cares are domiciled on a reckon of assumptions made coercion the scope of illusioning how using an ABC scheme could change the developments of the execution of the regions and finishedow the organisation to then perform meliorate determinations. The assumptions were made up in this scenario and it could be the other method environing in that the main demands object up in the US and Canada / South America regions. The extrinsic in illusioning these cares were to proudlight the contact that spectre-domiciled demanding could feel in generating a deeper mind of the demands that are incorporated in the financials of organisations.
The method the demands are then tedious up and finishedocated to contrariant demand disunions gain feel an contact on these disunions and the determinations made. The regardeffectual feature to regard is that the ABC scheme should fulfill the equitefficient finishedocation of the demands through an mind of the duration late by the staff including other ingredients that the organisation may judge regardeffectual in the ABC scheme.
E. LIMITATIONS OF INFORMATION FROM ABC SYSTEMS
The limitations of counsel from ABC schemes can be looked at in span methods: (1) limitations in establishing and applianceing the ABC schemes, and (2) limitations in the authentication of the counsel developmenting from the ABC schemes applianceed in an organisation. This individuality looks at twain of these limitations.
E.1. Limitations in establishing and applianceing the ABC schemes
Undivided of the solution canvasss in applianceing an spectre-domiciled demanding scheme is the cece to muster the set-right counsel coercion the becoming authentication of the scheme. Throughextinguished the years of the authentication of the ABC scheme, a reckon of limitations feel object to the coercione. The solution limitations most repeatedly cited feel been the superveneing:
- Subjectivity in arrangement of duration. A solution anxiety of authenticationrs of the ABC scheme was the becoming arrangement of duration inchoate the solution activities that employees exertioned on, and the subjectivity in finishedotting the duration aggravated some anxietys and offsprings in the virtual reliforce of the scheme (Journal of Accountancy, 2008). In new years, there feel been ameliorated manneres which were projected to minimise the subjectivity in the arrangement of duration by employees, sundericularly with the admission authenticationd in duration-driven spectre-domiciled demanding with a solution favor in simplifying the manner (Lambino, 2007). However, this has referable attributable attributable attributable been polite-mannered-mannered catching and there is stationary a referable attributable attributableorious anxiety environing this offspring coercion the ABC scheme.
- Confusion of retrieving counsel coercion the ABC scheme. Another ingredient that had hampered the authentication of the ABC scheme has been the referable attributable attributableorious sensation that the reanimation of counsel was to-boot compound and that the input demandd in ordain to finished the manner coercion the ABC scheme was to-boot demanding (Max, 2008). Similar to the sharp-end aloft, there feel been aid products which feel tended to minimise the compoundity extreme the reanimation of the counsel wanted coercion the ABC scheme stationary this has referable attributable attributable attributable been veritable widely though the trobject is changing.
The span limitations proudlighted aloft are the solution reasons that applianceation of the ABC scheme has been poor. In organisations where the ABC scheme has been applianceed, the span limitations authorized feel abnormal the authentication of counsel churned extinguished by the ABC scheme. This is discussed aid in the proximate sunder.
E.2. Limitations in the authentication of counsel developmenting from ABC schemes
Coercion the organisations which feel made the determination to appliance the ABC scheme, there are stationary limitations in the counsel that want to be regarded as the counsel is utilised in the organisations’ determination-making. The solution limitations are the superveneing:
- Costing referable attributable attributable attributable an lawful science. The extinguishedput from the ABC scheme continue as estimates and are contacted by the subjectivity of some of the inputs as picturesque in the earlier sunder of the this individuality. The authentication of demand averages and estimates lessens the genuineness of the demand and profitforce counsel and thus developments in a solution limitation in the authentication of the ABC scheme (Max, 2007).
- Virtual misauthentication of counsel. This dispute is referable attributable attributable attributable be construed as to be dundivided intentionally. Stationary where the counsel is referable attributable attributable attributable becomingly linked betwixt activities and manneres, the virtual exists to feel faulty developments which then contact on how the counsel is utilised (Crance, Castellano & Roehm, 2001).
It is likely to appliance an ABC scheme coercion ExxonMobil. A reckon of conclusions and supervene up plods can be proudlighted:
- Proud smooth drain of applianceing was illusionn to be likely. Proximate plod is to feel a becoming critique to supervene the finished marks if the organisation were conscious to go afore.
- Detailed manner is wanted to finished an ABC scheme applianceation – ExxonMobil gain want to allocate to this and consign media in ordain to urge the attempt to feel the ABC scheme applianceed.
- Commitment and genuineness regardeffectual coercion the applianceation – It is dubious to gain the buy-in and buttress of apex treatment and the solution wieldrs of the organisation.
Through these proximate plods, it is likely to change into the proximate mark of having the ABC admission projected coercion ExxonMobil and applianceed in the organisation.
Allott, A. (2004), ‘Activity-domiciled treatment’, New Straits Durations, 3 July 2004, [online], accessed on 11 November from Global Factiva Database, http://factiva.com
Crance, J., Castellano, J., & Roehm, H. A. (2001), ‘SPC repairs ABC’, Industrial Treatment, 43(6), [online], accessed on 11 November from Global Factiva Database, http://factiva.com
ExxonMobil (2007), ‘ExxonMobil: Taking on the world’s toughest canvass’, 2007 Epitome Annual Fame
Journal of Accountancy (2008), ‘Linking Strategy to Operations’, 206 (44), [online], accessed on 11 November from Global Factiva Database, http://factiva.com
Lambino, C. (2008), ‘Time-Driven spectre-domiciled demanding’, Council Finance Critique, 23(4), [online], accessed on 9 November from Global Factiva Database, http://factiva.com
Lee, T. (2005), ‘Environmental offsprings and wieldrial accounting: The IFAC inhospitableness drain’, Petroleum Accounting & Financial Treatment Journal, 24(1), [online], accessed on 10 November from Global Factiva Database, http://factiva.com
Maiga, A. S., & Jacobs, F. A. (2003), ‘Balanced scorecard, spectre-domiciled demanding and gang execution: An tentative resolution’, Journal of Wieldrial Offsprings, 15(3), [online], accessed on 10 November from Global Factiva Database, http://factiva.com
Max, M. (2008), ‘ABC Curves in the Banking Sector: A Practitioner’s Perspective’, Journal of Bank Demand & Treatment Accounting, 21(1), [online], accessed on 10 November from Global Factiva Database, http://factiva.com
Max, M. (2007), ‘Leveraging Manner Documentation coercion Duration-Driven Spectre Domiciled Demanding’, Journal of Bank Demand & Treatment Accounting, 20(3), [online], accessed on 11 November from Global Factiva Database, http://factiva.com