Activity Based upon Costing (ABC) Case Study: Exxonmobil

E-Mail This Post/Page
July 24th, 2019 BG Shirsat

Activity Based upon Costing (ABC) Case Study: Exxonmobil


That paper positions an appraisal of the organise of an activity-based costing (ABC) for Exxon Mobil, an international oil corporation. The discussion during the paper is structured the examples below:

  • Setting up a strong activity-based costing for Exxon Mobil This unique first part presents an overview of activity-based costing plus focuses on the way in which such a structure could be setup for Exxon Mobil.
  • Stages included in designing BEGYNDERBOG systems The 2nd section of the paper positions the staging involved in the set up of an activity-based costing product.
  • Selection of cost motorists An important factor while in the set up of an activity-based that could be system is the selection of the cost drivers. The third a part of the newspaper discusses this specific.
  • Process and Articles The fourth internet sites presents a calculation for those activity-based charging for Exxon Mobil.
  • Limitations details from ABC systems The actual fifth element of the newspaper presents the restrictions and complications in the use of activity-based priced at.
  • Bottom line Finally, the past section summarises the justifications presented during the paper along with highlights one of the keys points to finish the document.


Activity-based costing is utilised to increase business operations through behavioural, business and even accounting techniques, and ‘focuses on costs associated with activities, but also evaluates whether people activities include value, therefore providing a technique of understanding how to most effectively greatly reduce costs‘ (Maiga & Jacobs, 2003).

This specific paper talks over specific spots that will help ExxonMobil in having an activity-based costing procedure. It is possible to fixed this up for ExxonMobil to ride around in its efficiency but this would require a couple of key concepts in going after this approach:

  • Responsibility from person management Putting together the ABC system will stipulate strong commitment from man or woman management while there may be difficulties and thoughts raised simply by different stakeholders as this tactic is pursued.
  • Clear appearance in options In addition to motivation, setting up a good ABC procedure will also will need that the organization be translucent in its monetary and using figures in order to achieve the most make use of implementing a real system.


There are several crucial stages that organisations ought to follow throughout designing BEGYNDERBOG systems for organisations. The key stages for designing ELEMENT?RVIDEN systems will be as follows (Allott, 2004):

  • Determine scope together with key routines performed This specific stage includes the development of important objectives and even activities pertaining to departments as well as the organisation. The dispute in this point is to make sure that there aren‘t too many actions that after that render the very analysis as inaccurate presented the fine detail required.
  • Apportion special staff some assess the organisations‘ resources expected The managing within the corporations then must assess the means required to work towards the key functions defined during the first period. This period requires the evaluation of exactly where employees wasted their time frame, as this is going to be apportioned a product of ABC technique.
  • Include other primary costs Apart from the costs relating to the staff and their time, different direct will cost you will also have to be included as a part of analysis and measurement.
  • Allocate team and corporate costs and determine the key results produced The very outputs for your activities decided in phase one should possibly be defined. These kinds of outputs really should be largely measurable though instantly some pursuits that won‘t have straight measurable outputs. From this, departmental and corporate runninhg costs can then be allocated.
  • Separated into value-adding in addition to non-value introducing activities as well as assess activity-level drivers in addition to cost-input driver operators The fourth phase is to evaluate the value-adding along with non-value-adding activities, and also the things that trigger the activity to happen which includes each of those activity-level individuals and cost-input drivers. The exact activity-level individuals are associated with the number of the incident of the routines while the cost-input drivers tend to be related to the buying price of performing exactly what for the company. Cost motorists are particularly necessary in building ABC systems and the then section takes up this concept additionally.
  • Evaluate unit price Once all the measurements plus factors were defined, it will be then feasible to assess the unit expense for several output steps. This will then simply drive our next stage.
  • Use discoveries to determine production opportunities Around designing along with implementing any ABC system, there should be effectively define improvement opportunities the fact that organisations may target. This is based on the investigations that be a consequence of the research and are vital, as this will drive what of the workforce and the organisation. Thus, all these improvement prospects should be projects that are obtainable and, as well, could affect the capabilities of the business significantly, when achieved.

The concentrations defined over are the high-level key phases in constructing and putting into action an GRUNDELEMENTER system regarding organisations.


Many tools in the previous internet sites on the stages of coming up with an GRUNDELEMENTER system, the actual identification connected with cost-input people is important inside the proper setup of the GRUNDELEMENTER system. It discusses picking a cost car owners in significantly greater detail in the context of the ABC system. Cost operators play a vital role because objective throughout identifying the fee drivers will be able to determine how the enterprises can handle and control the costs effectively and make advantageous changes to just how these fees drive the actual organisation. The end goal then is to experience lower costs in the firm as well as better operational and budgetary performance that could lead to tough competitive advantages of organisations versus the competitors inside a sector.

There are some principles that will be important during the identification with the cost owners for an ELEMENTARBOG system. Selecting cost individuals is important for those following purposes:

  • Drive efficiency of business The B?RNEL?RDOM system can be employed through the expense drivers to ride in the operation of the business.
  • Strengthen internal comprehending Having the correct cost drivers selected for that ABC system will improve the understanding of employees of the value-adding activities and be able to focus on the actions that worthiness the most moment.
  • Handle external considerations Finally, quite a few external stakeholders will need to be catered for you to in the variety of cost car owners. The next few paragraphs indicate how this will be significant.

Besides from an internal test of the key cost driver operators for an organization, there are also variables that could enter play. Like one of the things driving picking a cost car owners is outward pressure regarding these price drivers. Presented the escalating focus on the community in recent years, the main pressure to manipulate and process the environmental rates especially in market sectors such as the oil based sector has grown with shareholders concerned about prospective liabilities that might impact often the firm along with the general public, including the government, related to the health implications that may result of toxic emissions and items (Lee, 2005).

These external costs will be significant like seen from following illustrations (Lee, 2005):

  • W/. R. Leeway had charges totalling US$50 million in 1998 for environmental remediation
  • Koch Petroleum Class spent considerable amounts during your a few years for environmental effect and refinery pollution: circa US$7 zillion in 1998, circa US$$8 trillion in 99, and circa US$2 zillion in 2050
  • NCH Organization charged benefit in the volume of circa US$16 million with 2000 with regard to environmental remediation
  • Unocal presented provisions amounting to US$22 million within 2002 to get environmental remediation and lowering earnings
  • Over-all for companies such as attributes, steel together with metals, olive oil, paper, together with chemicals, which usually deal with environmentally-sensitive areas, guesses place ‘environmental expenditures that they are annual expending of around 1% about revenues‘

Thus, while using pressure outside the body to manage geographical costs, they have become a fee driver that firms for instance Exxon Mobil need to use in an activity-based costing procedure. The key factors that cause including this kind of cost car owner are below (Lee, 2005):

  • External issues swindles forever increasingly focused on by the general public and ecological groups around the globe
  • Environmental decision-making is hence critical and information to be able to handle and management this issue needs to be compiled by the useful firms
  • Some proactive pose in evening out environmental costs can be very very theraputic for firms during these environmentally-sensitive zones particularly ‘in terms of risk settlement, prevention connected with liabilities, and then the preservation associated with firm reputation‘


With implementing a ABC technique in ExxonMobil, it is important to present an initial can it what the cost drivers to get Exxon Mobil could be in terms of the design of a strong ABC method. Before moving forward on this avenue, a number of presumptions have to be claimed: (1) this can be a high level example of a calculations for ExxonMobil as an complex review is not conducted so that you can properly complete an GRUNDELEMENTER system to the organisation, (2) only swift estimates happen to be presented provided that these are determined an outside-in perspective making use of existing monetary reports, (3) no distinct details have already been provided however by the company.

The above car finance calculations are based on various assumptions manufactured for the purpose of expressing how with an ABC structure could affect the results of the actual performance in the regions and permit the enterprise to after that make better options. The assumptions were made in this scenario also it could be the various way close to in that the greater costs find yourself in the US and even Canada suggestions South America areas. The objective around showing these kind of calculations could highlight the effect that activity-based costing perhaps have in making a more deeply understanding of the expense that are integrated in the financial records of organizations.

The way the costs are next broken up and also allocated to different cost zone will have an effect on these divisions and also decisions produced. The important consideration is that the BEGYNDERBOG system need to identify the appropriate allocation of your costs through an understanding of enough time spent by staff like other factors the fact that the organisation may deem significant in the ELEMENT?RVIDEN system.


The limitations of information via ABC solutions can be investigated in 2 ways: (1) limitations on establishing plus implementing the very ABC devices, and (2) limitations from the use of the tips resulting from the main ABC products implemented in the organisation. This looks at quite a few limitations.

U. 1 . Restrictions in developing and utilizing the BEGYNDERBOG systems

One of the key complications in utilizing an activity-based costing strategy is the ability to get hold of the correct material for the appropriate use of the technique. Throughout the many the use of the ELEMENTARBOG system, numerous limitations have found the conscience. The key limits most often reported have been these:

  • Subjectivity in distribution of your time . The concern for users from the ABC program was the appropriate distribution your own time among the critical activities this employees worked tirelessly on, and the subjectivity in allotting the time higher some things and troubles in the possible reliability on the system (Journal of Accountancy, 2008). Usually, there have been increased processes that were designed to significantly lower the subjectivity in the distribution of time by means of employees, primarily with the tactic used in time-driven activity-based being with a essential benefit on simplifying the process (Lambino, 2007). However , it has not also been well corresponded and there is even now a general concern about this dilemma for the BEGYNDERBOG system.
  • Complexity involving retrieving data for the ELEMENT?RVIDEN system . Another aspect that acquired hampered the use of the ABC system has been the standard feeling that retrieval data was likewise complex and that the input required in order to full the process for your ABC procedure was likewise demanding (Max, 2008). Just like the point previously, there have been further more developments that contain tended to be able to minimise the exact complexity associated with the collection of the data needed for often the ABC product but it’s not already been accepted frequently though the style is switching.

The two main limitations pointed out above would be the key explanations that rendering of the ABC system may be limited. With organisations the place that the ABC structure has been enforced, the two constraints identified include affected the application of information created by the ELEMENT?RVIDEN system. This is certainly discussed more in the next portion.

E. minimal payments Limitations within the use of information and facts resulting from B?RNEL?RDOM systems

For any organisations that are fitted with made the decision that will implement the main ABC method, there are still restriction in the facts that need to be considered as the information will be utilised from the organisations‘ decision-making. The key restriction are the adhering to:

  • Costing definitely not an exact research . The output from the ABC system keep as prices and are counting the subjectivity of a few of the inputs simply because described in the previous part of the this. The use of fee averages plus estimates minimizes the clear appearance of the expense and profitability information and thus results in a key limitation within the use of the ABC system (Max, 2007).
  • Potential misuse of information . This question is not often be construed concerning be done blatantly. But the place that the information is not properly associated between hobbies and operations, the potential is present to have imprecise results which then impact on how the information is normally utilised (Crance, Castellano & Roehm, 2001).


It is easy to implement the ABC program for ExxonMobil. A number of findings and additional information steps is usually highlighted:

  1. High level version of putting into action was been shown to be possible. Next thing is to use a proper evaluation to follow the entire stages should the organisation have been keen to visit ahead.
  2. In depth process will be complete a strong ABC system implementation ExxonMobil will need to spend on this plus assign options in order to push the effort to offer the ABC structure implemented.
  3. Devotion and openness important for the particular implementation It is advisable to get the buy-in and assist of top notch management plus the key managers of the organization.

By means of these up coming steps, you are able to move into the subsequent stage associated with the ABC approach intended for ExxonMobil and also implemented from the organisation.

 Votes | Average: 0 out of 5 Votes | Average: 0 out of 5 Votes | Average: 0 out of 5 Votes | Average: 0 out of 5 Votes | Average: 0 out of 5 (No Ratings Yet)
Loading ... Loading ...


All the content posted in the 'Business Standard Blogs' section, unless specified otherwise, are made by Business Standard employees. The content posted in 'Business Standard Blogs' does not follow routine internal Business Standard reviews and editorial processes and should be considered only as the views and opinions of the employees and not of Business Standard. Activity Based upon Costing (ABC) Case Study: Exxonmobil  digg: Activity Based upon Costing (ABC) Case Study: Exxonmobil  newsvine: Activity Based upon Costing (ABC) Case Study: Exxonmobil  reddit: Activity Based upon Costing (ABC) Case Study: Exxonmobil  Y!: Activity Based upon Costing (ABC) Case Study: Exxonmobil

Leave a Reply