Activity Based Costing (ABC) Case Study: Exxonmobil

Activity Based make uping ( rudiment) Case Study ExxonmobilSTRATEGIC MANAGEMENT history AND PERFORMANCE MANAGEMENTThis paper presents an esteemment of the set up of an activity- ground comprise (first principle) for Exxon Mobil, a global petroleum compe actu eachy. The discussion in the paper is structured as followsSetting up an activity-based embody for Exxon Mobil This first discussion partitioning presents an overview of activity-based costing and counseles on how such a body could be set up for Exxon Mobil.Stages involved in designing alphabet systems The second section of the paper presents the tiers involved in the set up of an activity-based costing system.Selection of cost capturers An important factor in the set up of an activity-based costing system is the filling of the cost mystifyrs. The third section of the paper discusses this.Calculation and Examples The fourth section presents an example slowness for the activity-based costing for Exxon Mobil.Limit ations of information from first rudiment systems The fifth section of the paper presents the limitations and issues in the use of activity-based costing.Conclusion Finally, the last section summ fig outs the arguments presented in the paper and highlights the experience points to conclude the paper.A.SETTING UP AN ACTIVITY-BASED COSTING FOR EXXON MOBILActivity-based costing is utilised to modify business transitiones through behavioural, business and accounting practices, and guidancees on be associated with activities, but overly evaluates whether those activities add value, indeed providing a means of understanding how to most effectively reduce cost (Maiga Jacobs, 2003).This paper discusses specific atomic build 18as that allow for help ExxonMobil in setting up an activity-based costing system. It is possible to set this up for ExxonMobil to drive its mental cognitive process but this will require two advert principles in pursuing this come upCommitment from major(postnominal) focal point Setting up the ABC system will require strong havement from higher-ranking management as on that point may be challenges and questions raised by different stakeholders as this approach is pursued.Transp atomic bend 18ncy in mea receiveds In addition to commitment, setting up an ABC system will also require that the organisation be transp atomic number 18nt in its m one and only(a)tary and operating figures in order to succeed the most benefit from implementing such a system.B.STAGES INVOLVED IN DESIGNING ABC SYSTEMSThere ar several key stages that organisations shoot to follow in designing ABC systems in organisations. The key stages in designing ABC systems ar as follows (Allott, 2004)Determine scope and key activities performed This stage involves the development of key objectives and activities for departments and the organisation. The challenge in this stage is to ensure that there arent too many activities that consequently bring forth the summary as inaccurate given the detail required.Apportion direct staff beat and assess the organisations resources required The management within the businesses then need to assess the resources required to work on the key activities defined in the first stage. This stage requires the evaluation of where employees spent their time, as this will be portion as part of the ABC system.Add different direct costs Aside from the costs related to the staff and their time, other direct costs will also need to be intromitd as part of the analysis and measurement.Allocate department and corporate overheads and identify the key out(a)puts produced The outputs for the activities determined in stage one should be defined. These outputs should be largely measur adequate though there could be many activities that wont absorb directly measurable outputs. From this, departmental and corporate overheads elicit then be allocated. set off into value-adding and non-value adding acti vities and also assess activity-level drivers and cost-input drivers The fourth stage is to assess the value-adding and non-value-adding activities, and also the factors that cause the activity to occur which includes some(prenominal) activity-level drivers and cost-input drivers. The activity-level drivers are related to the frequency of the occurrence of the activities while the cost-input drivers are related to the cost of performing the activities for the organisation. Cost drivers are particularly important in designing ABC systems and the adjacent section discusses this concept further. prognosticate unit cost Once all the measurements and factors have been defined, it is then possible to calculate the unit cost for various output measures. This will then drive the next stage.Use findings to determine improvement opportunities In designing and implementing an ABC system, there should be well define improvement opportunities that the organisations will target. This will be based on the findings that go away from the analysis and are important, as this will drive the actions of the employees and the organisation. Thus, these improvement opportunities should be initiatives that are achievable and, at the same time, could move the performance of the organisation significantly, if achieved.The stages defined above are the high-level key stages in designing and implementing an ABC system for organisations.C.SELECTION OF COST DRIVERSAs mentioned in the previous section on the stages of designing an ABC system, the identification of cost-input drivers is important in the comme il faut effectuation of the ABC system. This section discusses the selection of cost drivers in greater detail in the context of an ABC system. Cost drivers play an important role as the objective in identifying the cost drivers is to be able to determine how the organisations can manage and control the costs effectively and make beneficial changes to how these costs drive the org anisation. The end goal then is to have lower costs for the firm and better operational and financial performance which could lead to strong competitive advantages for organisations versus the competitors in a sector.There are some principles that are important in the identification of the cost drivers for an ABC system. The selection of cost drivers is important for the following reasons constrain performance of organisation The ABC system can be used through the cost drivers to drive the performance of the organisation.Improve internal understanding Having the right cost drivers selected for the ABC system will farm the understanding of the employees of the value-adding activities and be able to focus on the activities that merit the most time.Address external concerns Finally, some external stakeholders will need to be catered to in the selection of cost drivers. The next fewer paragraphs channelise how this is important.Aside from an internal assessment of the key cost dri vers for an organisation, there are also factors that could come into play. For example, one of the factors driving the selection of cost drivers is external pressure on these cost drivers. Given the increasing focus on the environment in youthful years, the pressure to control and manage the environmental costs especially in industries such as the oil sector has increased with investors concerned about potential liabilities that could adjoin the firm and the general public, including the government, concerned about the health consequences that may result from toxic emissions and materials (Lee, 2005).These environmental costs can be significant as seen from the following examples (Lee, 2005)W. R. Grace had charges totalling US$50 million in 1998 for environmental remediationKoch Petroleum Group spent significant amounts over the course of a few years for environmental impact and refinery pollution circa US$7 million in 1998, circa US$$8 million in 1999, and circa US$2 million in 2000NCH Corporation charged earnings in the amount of circa US$16 million in 2000 for environmental remediationUnocal provided provisions amounting to US$22 million in 2002 for environmental remediation and lowering earningsOverall for industries such as utilities, make and metals, oil, paper, and chemicals, which deal with environmentally-sensitive areas, estimates place environmental expenditures to be annual spending of over 1% of revenuesThus, with the pressure outwardly to manage environmental costs, this has become a cost driver that firms such as Exxon Mobil need to include in an activity-based costing system. The key reasons for including this cost driver are as follows (Lee, 2005)Environmental issues continue to be increasingly focused on by the public and environmental groups globallyEnvironmental decision-making is thus small and information to be able to manage and control this factor needs to be squirrel awayed by the relevant firmsA proactive stance in managing envi ronmental costs can be truly beneficial for firms in these environmentally-sensitive areas particularly in terms of encounter reduction, prevention of liabilities, and the preservation of firm constitutionD.CALCULATION AND EXAMPLEIn implementing an ABC system in ExxonMobil, it is important to have an initial check into of what the cost drivers for Exxon Mobil could be in terms of the design of an ABC system. Before continuing on this path, a number of assumptions have to be stated (1) this is a high level example of a calculation for ExxonMobil as an in-depth review has non been conducted to properly do an ABC system for the organisation, (2) only quick estimates are presented given that these are based on an outside-in perspective utilising alive financial reports, (3) no specific flesh out have been provided yet by the organisation.The focus of this analysis is only on the Upstream (Oil Gas geographic expedition and occupation) division. A review of their summary annual r eport indicates that the following could be the key cost drivers that Exxon Mobil would focus on for their ABC system2007CanadaOutsideRevenueUSSo. AmericaAmericaWorldwideProduction cost2,2752,2065,85210,333Depn and depletion1,4931,2566,1598,908Exploration Expenses2822739471,502Taxes1,3471268,2589,731Income tax2,4291,19023,92427,543Total Costs 7,826 5,051 45,140 58,017Number of units (mn)2321671,1261,526Unit Costs33.7030.1640.0938.03With re-allocationProduction Costs2,0481,9856,30010,333Depn and depletion1,4931,2566,1598,908Exploration Expenses2542461,0031,502Taxes1,2621188,3519,731Income tax2,2761,11124,15627,543Total Costs 7,332 4,716 45,969 58,017Number of units (mn)2321671,1261,526Unit Costs31.5728.1640.8338.03+ other central costs8.008.0012.0010.95(per unit)Total unit costs39.5736.1652.8348.98Revenue per unit52.4249.4055.5554.40Profit per unit12.8513.242.725.42The above calculations are based on a number of assumptions made for the purpose of showing how using an ABC system coul d alter the results of the performance of the regions and allow the organisation to then make better decisions. The assumptions were made up in this scenario and it could be the other way near in that the greater costs end up in the US and Canada / South America regions. The objective in showing these calculations were to highlight the impact that activity-based costing could have in generating a deeper understanding of the costs that are incorporated in the financials of organisations.The way the costs are then broken up and allocated to different cost divisions will have an impact on these divisions and the decisions made. The important conniption to consider is that the ABC system should identify the right allocation of the costs through an understanding of the time spent by the staff including other factors that the organisation may deem important in the ABC system.E.LIMITATIONS OF INFORMATION FROM ABC SYSTEMSThe limitations of information from ABC systems can be looked at in two slipway (1) limitations in establishing and implementing the ABC systems, and (2) limitations in the use of the information resulting from the ABC systems implemented in an organisation. This section looks at both of these limitations.E.1.Limitations in establishing and implementing the ABC systemsOne of the key challenges in implementing an activity-based costing system is the ability to collect the correct information for the proper use of the system. Throughout the years of the use of the ABC system, a number of limitations have come to the fore. The key limitations most lots cited have been the followingSubjectivity in dispersion of time. A key concern of users of the ABC system was the proper distribution of time among the key activities that employees worked on, and the subjectiveness in allotting the time raised some concerns and issues in the potential reliability of the system ( diary of Accountancy, 2008). In recent years, there have been improved processes which were designed to denigrate the subjectivity in the distribution of time by employees, particularly with the approach used in time-driven activity-based costing with a key benefit in simplifying the process (Lambino, 2007). However, this has not been well communicated and there is still a general concern about this issue for the ABC system.Complexity of retrieving information for the ABC system. Another factor that had hampered the use of the ABC system has been the general smell that the retrieval of information was too complex and that the input required in order to complete the process for the ABC system was too demanding (Max, 2008). Similar to the point above, there have been further developments which have tended to minimise the complexity surrounding the retrieval of the information needed for the ABC system but this has not been authentic widely though the trend is changing.The two limitations highlighted above are the key reasons that implementation of the ABC system has been limited. In organisations where the ABC system has been implemented, the two limitations identified have prompted the use of information churned out by the ABC system. This is discussed further in the next part.E.2.Limitations in the use of information resulting from ABC systemsFor the organisations which have made the decision to implement the ABC system, there are still limitations in the information that need to be considered as the information is utilised in the organisations decision-making. The key limitations are the followingCosting not an exact science. The output from the ABC system remain as estimates and are impacted by the subjectivity of some of the inputs as described in the previous part of the this section. The use of cost averages and estimates lessens the enhancer of the cost and profitability information and thus results in a key limitation in the use of the ABC system (Max, 2007).Potential misuse of information. This argument is not be construed as to be done intentionally. merely where the information is not properly linked between activities and processes, the potential exists to have inaccurate results which then impact on how the information is utilised (Crance, Castellano Roehm, 2001).F.CONCLUSIONIt is possible to implement an ABC system for ExxonMobil. A number of conclusions and follow up steps can be highlightedHigh level draft of implementing was shown to be possible. beside step is to have a proper review to follow the complete stages if the organisation were keen to go ahead.Detailed process is needed to complete an ABC system implementation ExxonMobil will need to commit to this and assign resources in order to push the effort to have the ABC system implemented.Commitment and transparency important for the implementation It is critical to get the buy-in and support of top management and the key managers of the organisation.Through these next steps, it is possible to move into the next stage of having the ABC approac h designed for ExxonMobil and implemented in the organisation.REFERENCESAllott, A. (2004), Activity-based management, New Straits Times, 3 July 2004, on get, accessed on 11 November from spherical Factiva Database, http//factiva.comCrance, J., Castellano, J., Roehm, H. A. (2001), SPC enhances ABC, Industrial Management, 43(6), online, accessed on 11 November from Global Factiva Database, http//factiva.comExxonMobil (2007), ExxonMobil Taking on the worlds toughest challenge, 2007 Summary Annual ReportJournal of Accountancy (2008), Linking Strategy to Operations, 206 (44), online, accessed on 11 November from Global Factiva Database, http//factiva.comLambino, C. (2008), Time-Driven activity-based costing, Government Finance Review, 23(4), online, accessed on 9 November from Global Factiva Database, http//factiva.comLee, T. (2005), Environmental issues and managerial accounting The IFAC exposure draft, Petroleum Accounting monetary Management Journal, 24(1), online, accessed on 10 November from Global Factiva Database, http//factiva.comMaiga, A. S., Jacobs, F. A. (2003), Balanced scorecard, activity-based costing and company performance An empirical analysis, Journal of Managerial Issues, 15(3), online, accessed on 10 November from Global Factiva Database, http//factiva.comMax, M. (2008), ABC Trends in the Banking Sector A Practitioners spatial relation, Journal of Bank Cost Management Accounting, 21(1), online, accessed on 10 November from Global Factiva Database, http//factiva.comMax, M. (2007), Leveraging Process funding for Time-Driven Activity Based Costing, Journal of Bank Cost Management Accounting, 20(3), online, accessed on 11 November from Global Factiva Database, http//factiva.comChronic render Causes, Effects and TreatmentsChronic Stress Causes, Effects and TreatmentsReport on Chronic StressIntroductionStress is an unavoidable part of life. Be it at home or the workplace, different challenges arise which ultimately lead to sample. There are various types of attempt related issues, one of which is inveterate air (American Psychological Association, 2015). Chronic render is that branch of direction when there is an overwhelming reaction emotionally to any situation which an individual deems to be out of his or her control. This type of dialect is characterized by the wrench of corticosteroids in the human body, especially the endocrine system which triggers the increase of stress. Though these hormones might be beneficial for a short period of time, continuous stress inducing activities can lead to a constant release of hormones which can cause fatal side effects (Bruno, 2012).Detection of chronic stressThere are various methods through which chronic stress can be detected early to ensure immediate correction. Our body begins to give us various warning signals during our daily life which can be a symptom of increased stress. It affects all the functioning of our body and makes us touch unbalanced and hypersensi tive (Chandola, Brunner Marmot, 2006). If a person is suffering from chronic stress, then he or she will be easily get to or overwhelmed by any situation (Sanders, 2014). These commonwealth will be unable to concentrate on anything for long and will constantly worry about the tasks ahead of them. Also, they will feel extremely separated and suffer from physical strain and nausea. These symptoms can also be related to other physical or psychological problems and therefore requires a full diagnosis by a doctor to be sure (Scott, 2014).Differences and wantities with other diseasesAlthough the physical and chemical reactions to various mental disorders can be similar, there is a big difference between them. For example, stress is similar yet different from fretting in many ways (The Stress Management Society, 2015). Stanford Universitys associate chair of psychiatry and sortal sciences David Spiegel says that while the line between stress and anxiety often gets blurred, there a re distinct things to be aware of-including how these emotions affect the body and the root causes of each (Holmes, 2014). The chemical reactions that occur in our body are very similar during chronic stress and anxiety. The physical reactions that occur in our body during both stress inducing and anxiety inducing causes include an increase of heartbeats, quick breathing and tightening of muscles. Yet anxiety and stress are different in various ways. He says that while we feel chronic stress we are very often aware of the causes behind it while in anxiety we usually do not hunch what exactly we are anxious about (Holmes, 2014).Another important psychological term which is often disjointed with chronic stress is depression. Laura J. Martin, MD and MPH, states that the causes behind both chronic stress and depression are often the same (McEwen Lasley, 2002) Any traumatic mishap in our lives, such as loss of a air or the death of a loved one, can lead to both chronic stress as we ll as depression. In fact, it is more deally that while chronic stress is the first response to any such life-changing situation, prolonged exposure to stress can also lead to depression. Stress, or being punctuate out, leads to behaviours and patterns that in turn can lead to chronic stress burden and increase the risk of major depression, states Bruce McEwen, PhD (McEwen Lasley, 2002). But it has also been noted that depression and chronic stress can be caused by different reasons. Most people who are resilient towards stressful activities are quite able to incline on with their lives without becoming downhearted (Segerstrom Miller, 2004). Also, people tend to become depressed even though there are little or no stressful incidents in their lives. While any one incident can cause chronic stress, it requires a combination of a few stressors to become clini blazon outy depressed (McEwen Lasley, 2002).Effects of chronic stressEffect on health Stressful activities are always ar ound us, yet people almost always find a way to deal with the stress. If you are stressed over a huge pile of work, deadlines to meet, a conflict with your spouse or any other incident, your body always reacts in the same way (Psychiatry, 2009). The release of stress hormones in our body helps us to respond to the chronic stress until it is resolved (Sincero, 2012). But a prolonged exposure to chronic stress can lead to a continuous flow of hormones in our body which can be harmful. It disturbs all the other systems of our body and causes a rise of blood pressure levels, increased risk of heart attacks or strokes, decrease in fertility and accelerated aging (Miller, Chen Zhou, 2007). The usual physical effects of chronic stress are pain, insomnia, loss of weight and skin conditions like eczema (Sanders, 2014). Also, Dr. Richard Weinstein, a private chiropractor and a ingredient of the American Chiropractic Associations Council on Nutrition and the National Institute of Chiropracti c Research, says that the adrenal glands have a nasty tendency to rebound, which means that the physical effects of chronic stress can harvest if the cause of the cortisol imbalance is not addressed. (Weinstein, 2004)Effect on behavior Chronic stress can lead to certain changes in our behavior pattern as well. Since chronic stress is a result of a prolonged exposure to stressors, many changes can be detected in the behavior of these people (Carthage, 2013). The patients who are suffering from chronic stress reveal particular habits and behavior, such as moodiness, irritability, agitated behavior or isolation from friends and family (Helpguide.org, 2015). These people are prone to angry outbursts and impulsive decisions and are generally dejected about everything around them. Their ingest and sleep patterns also change and they develop certain unhealthy habits like drinking alcohol, biting nails or pacing. This in turn affects their social and personal lives (Weinstein, 2004).Effe ct on genius According to the recent findings of the University of California, Berkeley, it has been found that due to the excess release of hormones due to chronic stress, certain unchangeable changes occur in the whiz which results in people becoming prone to other mental diseases (Lupien et al., 2009). after conducting a series of experiments, Daniela Kaufer, UC Berkeley associate professor of integrative biology, and her colleagues, have come to the conclusion that chronic stress causes the generation of more myelin-producing cells and fewer neurons than acceptable (Weinstein, 2004). This often leads to an increase of myelin or white way out in certain parts of the brain, which can cause a disruption in the critical functions of the brain like the neuronal system (Bergland, 2014)Treatment of chronic stressAt one point in our lives, everybody experiences stress due to one factor or another. Since avoiding stress is completely impossible, there are certain steps that can be ta ken to cope with it (Breazeale, 2012). Some of them includeConsult a proper psychologist or psychiatrist and ask him to do a full evaluation if you are experiencing overwhelming situations, self-destructive thoughts, etc.Seek help from a doctor and redress any new or existing health issues.Contact your friends, family, community or organization to share emotional issues and ask for help in dealing with stressful situations.Identify any symptoms that you might be going through, such as eating or sleeping disorder, anger, depression or loneliness, and try to solve these problems.Prioritise your tasks and decide what must be completed now and what you can do later. Refuse to take up any new tasks if you feel overburdened.Make a list of what you accomplished at the end of the day.Avoid spending too much time thinking about certain issues.Indulge in regular exercises daily and plan your workout and eating activities to make sure they are balanced.Take up certain stress reducing activiti es like yoga, meditation etc.(Thaker et al., 2006)ConclusionBeing stressed out, as many people would call it, and being actually stressed, both physically and mentally, is a significant issue, as highlighted in this article by the number of intricacies involved in chronic stress ( health check News Today, 2014). Whether the symptoms of stress are recent or have been continuing for a long period of time, it is important to immediately look into the problem and discover new forms and therapies to address and solve the issue (Holmes, 2014). To seek relief from the stressors, it would be better to consult a proficient therapist and examine the causes behind the stress and how to decrease it.ReferencesAmerican Psychological Association. (2015). Understanding chronic stress. Retrieved 10 abut 2015, from http//www.apa.org/helpcenter/understanding-chronic-stress.aspxBergland, C. (2014). Chronic Stress Can Damage Brain Structure and Connectivity. Psychology Today. Retrieved 10 March 2015, f rom https//www.psychologytoday.com/blog/the-athletes-way/201402/chronic-stress-can-damage-brain-structure-and-connectivityBreazeale, R. (2012). Ways To Manage Chronic Stress. Psychology Today. Retrieved 10 March 2015, from https//www.psychologytoday.com/blog/in-the-face-adversity/201202/ways-manage-chronic-stressBruno, K. (2012). The Stress-Depression tie-in Can Stress Cause Depression?. Webmd.com. Retrieved 10 March 2015, from http//www.webmd.com/depression/features/stress-depressionCarthage,. 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