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How to apply Activity-Based Costing on a brand level in a multi-brand portfolio

Landare, Louise (2017) MIOM05
Production Management
Abstract
Background Activity-Based Costing is a costing method arisen in 1980’s as a
response to changed cost structures. As business had become
less labour intensive, Kaplan and Johnson argued that the
traditional management accounting methods, using direct
labour as cost base, were out-dated. Instead, Activity-Based
Costing is based on the costs for the activities that the products
require. The methodology has been proposed for costing of
products, customers, plants and brands, among others.
However, most research has been made on the use of ABC on a
product level and not brand level.
AusCosmetic Group is a fast growing distribution company,
which is now also developing their own brands within
cosmetics and personal care. Their brand... (More)
Background Activity-Based Costing is a costing method arisen in 1980’s as a
response to changed cost structures. As business had become
less labour intensive, Kaplan and Johnson argued that the
traditional management accounting methods, using direct
labour as cost base, were out-dated. Instead, Activity-Based
Costing is based on the costs for the activities that the products
require. The methodology has been proposed for costing of
products, customers, plants and brands, among others.
However, most research has been made on the use of ABC on a
product level and not brand level.
AusCosmetic Group is a fast growing distribution company,
which is now also developing their own brands within
cosmetics and personal care. Their brand portfolio consists of
six own brands, which yields 40% of their gross sales, but they
currently have no allocation of their overhead costs and thus
lack knowledge on their brands’ true profitability.
Purpose The purpose of the Master Thesis Project was to examine how
Activity-Based Costing can be applied at a brand level in a
multi-brand company, and how it can be used to analyse the
company’s brand portfolio management.
Research Questions Four questions were formulated, of which the project was
conducted around. The research questions were as followed:
Q1: What is required of a company for a successful
implementation of Activity-Based Costing on brands?
Q2: How can the ABC results be used for an Activity-Based
Management analysis?
Q3: What are the potential drawbacks of applying Activity-
Based Costing in this case study?
Q4: How can the ABC result be used in order to evaluate the
new opportunity NewBrand?
Delimitations This thesis will investigate how ABC can be used in brand
management and will therefore not apply ABC on a product
level. In addition, it will not examine AusCosmetic Group’s
business as a wholesaler, which implies that the 100
distributing brands coming from PharmaGroup will not be in
the scope of this thesis.
The Master Thesis Project is limited to 20 weeks and areas that
are not investigated in this case study are suggested as areas
for future research.
Methodology The Master Thesis consisted of a literature review and the case
study of AusCosmetic Group. The case study was carried out
using qualitative data, obtained from formal and informal
interviews, time trials and observations, and quantitative data,
found in AusCosmetic Group’s internal data systems. The
research applied an inductive approach and triangulation
using the qualitative and quantitative data was performed to
verify the study’s findings.
Conclusion The Master Thesis Project was a successful implementation of
ABC costing at a brand level and much more accurate result
than if traditional costing would have been used. Not much is
necessarily required by the company prior to the
implementation but the more detailed the tracking system is
the smoother and better the implementation will be. The ABC
result will discover and quantify inefficiencies, which can form
the basis for an operational Activity-Based Management. The
result can also be used to track profitability, which in turn can
be used as foundation for a strategic Activity-Based
Management. Drawbacks from using an ABC system in this study are that it only considers the costs for products, which
can create bias. It is also possible that the case study suggests
that there are bigger savings to be made, than what is actually
possible to change. When evaluating the new opportunity
NewBrand, the ABC result has shed lights on some important
issues to take into account. These are how it will affect the
overhead costs and whether NewBrand will encourage
economy of scale. This case study also highlighted the
importance of thoughtful brand architecture; hence
NewBrand’s effect on the architecture should be examined
closely. (Less)
Please use this url to cite or link to this publication:
author
Landare, Louise
supervisor
organization
course
MIOM05
year
type
M1 - University Diploma
subject
keywords
Activity-Based Costing, Activity-Based Management, brand portfolio management, brand portfolio architecture, Distribution Company
other publication id
17/5591
language
English
id
8935632
date added to LUP
2018-02-12 14:59:13
date last changed
2018-02-12 14:59:13
@misc{8935632,
  abstract     = {Background Activity-Based Costing is a costing method arisen in 1980’s as a
response to changed cost structures. As business had become
less labour intensive, Kaplan and Johnson argued that the
traditional management accounting methods, using direct
labour as cost base, were out-dated. Instead, Activity-Based
Costing is based on the costs for the activities that the products
require. The methodology has been proposed for costing of
products, customers, plants and brands, among others.
However, most research has been made on the use of ABC on a
product level and not brand level.
AusCosmetic Group is a fast growing distribution company,
which is now also developing their own brands within
cosmetics and personal care. Their brand portfolio consists of
six own brands, which yields 40% of their gross sales, but they
currently have no allocation of their overhead costs and thus
lack knowledge on their brands’ true profitability.
Purpose The purpose of the Master Thesis Project was to examine how
Activity-Based Costing can be applied at a brand level in a
multi-brand company, and how it can be used to analyse the
company’s brand portfolio management.
Research Questions Four questions were formulated, of which the project was
conducted around. The research questions were as followed:
Q1: What is required of a company for a successful
implementation of Activity-Based Costing on brands?
Q2: How can the ABC results be used for an Activity-Based
Management analysis?
Q3: What are the potential drawbacks of applying Activity-
Based Costing in this case study?
Q4: How can the ABC result be used in order to evaluate the
new opportunity NewBrand?
Delimitations This thesis will investigate how ABC can be used in brand
management and will therefore not apply ABC on a product
level. In addition, it will not examine AusCosmetic Group’s
business as a wholesaler, which implies that the 100
distributing brands coming from PharmaGroup will not be in
the scope of this thesis.
The Master Thesis Project is limited to 20 weeks and areas that
are not investigated in this case study are suggested as areas
for future research.
Methodology The Master Thesis consisted of a literature review and the case
study of AusCosmetic Group. The case study was carried out
using qualitative data, obtained from formal and informal
interviews, time trials and observations, and quantitative data,
found in AusCosmetic Group’s internal data systems. The
research applied an inductive approach and triangulation
using the qualitative and quantitative data was performed to
verify the study’s findings.
Conclusion The Master Thesis Project was a successful implementation of
ABC costing at a brand level and much more accurate result
than if traditional costing would have been used. Not much is
necessarily required by the company prior to the
implementation but the more detailed the tracking system is
the smoother and better the implementation will be. The ABC
result will discover and quantify inefficiencies, which can form
the basis for an operational Activity-Based Management. The
result can also be used to track profitability, which in turn can
be used as foundation for a strategic Activity-Based
Management. Drawbacks from using an ABC system in this study are that it only considers the costs for products, which
can create bias. It is also possible that the case study suggests
that there are bigger savings to be made, than what is actually
possible to change. When evaluating the new opportunity
NewBrand, the ABC result has shed lights on some important
issues to take into account. These are how it will affect the
overhead costs and whether NewBrand will encourage
economy of scale. This case study also highlighted the
importance of thoughtful brand architecture; hence
NewBrand’s effect on the architecture should be examined
closely.},
  author       = {Landare, Louise},
  keyword      = {Activity-Based Costing,Activity-Based Management,brand portfolio management,brand portfolio architecture,Distribution Company},
  language     = {eng},
  note         = {Student Paper},
  title        = {How to apply Activity-Based Costing on a brand level in a multi-brand portfolio},
  year         = {2017},
}