Activity Centered Costing (ABC) Case Study: Exxonmobil

Activity Centered Costing (ABC) Case Study: Exxonmobil


This specific paper provides an test of the established of an activity-based costing (ABC) for Exxon Mobil, a universal oil firm. The discussion while in the paper can be structured the following:

  • Setting up a activity-based pricing for Exxon Mobil This specific first portion presents a of activity-based costing and even focuses on how such a system could be organise for Exxon Mobil.
  • Stages involved in designing ABC systems The next section of the particular paper positions the development involved in the set up of an activity-based costing system.
  • Array of cost operators An important factor within the set up associated with an activity-based costing system is the selection of the cost driver operators. The third portion of the paper discusses this.
  • Mathematics and Cases The fourth section presents an example calculation in the activity-based losing for Exxon Mobil.
  • Limitations info from ELEMENT?RVIDEN systems The particular fifth portion of the pieces of paper presents the limitations and difficulties in the usage of activity-based costing.
  • Realization Finally, a final section summarises the fights presented inside paper in addition to highlights the main factor points to acquire avail of the pieces of paper.


Activity-based costing is actually utilised to enhance business techniques through behavioural, business plus accounting methods, and ‘focuses on charges associated with routines, but also analyse whether those people activities put value, thus providing a technique of understanding how to a good number of effectively lower costs‘ (Maiga & Jacobs, 2003).

This kind of paper covers specific places that will help ExxonMobil in creating an activity-based costing procedure. It is possible to fixed this on with ExxonMobil to operate a vehicle its overall performance but this would require two key concepts in chasing this approach:

  • Responsibility from more mature management Creating the ELEMENT?RVIDEN system will have to have strong determination from person management simply because there may be issues and queries raised by different stakeholders as this solution is attacked.
  • Clear appearance in diets In addition to responsibility, setting up any ABC structure will also necessitate that the organisation be see-through in its fiscal and working figures to have the most gain from implementing a great system.


There are several critical stages of which organisations must follow within designing BEGYNDERBOG systems on organisations. The main factor stages on designing B?RNEL?RDOM systems are generally as follows (Allott, 2004):

  • Decide scope and even key routines performed That stage consists of the development of key element objectives and also activities with regard to departments as well as organisation. Task in this time is to be certain that there aren‘t too many functions that next render the exact analysis seeing that inaccurate provided the fine detail required.
  • Apportion immediate staff time and assess the organisations‘ resources essential The control within the companies then need to assess the assets required to work with the key exercises defined in the first phase. This period requires the exact evaluation of where employees expended their moment, as this would be apportioned a product of ABC system.
  • Insert other special costs Besides the costs related to the staff and their time, some other direct expenses will also has to be included as a part of analysis together with measurement.
  • Allocate office and corporate outgoings and indicate the key outputs produced Typically the outputs for any activities motivated in phase one should end up being defined. Most of these outputs really should be largely measurable though there will probably be some functions that won‘t have direct measurable results. From this, department and corporate costs can then be issued.
  • Separated into value-adding together with non-value placing activities along with assess activity-level drivers as well as cost-input drivers The fourth step is to determine the value-adding along with non-value-adding functions, and also the issues that bring about the activity that occur which includes together activity-level driver operators and cost-input drivers. The particular activity-level driver operators are in connection with the number of the frequency of the hobbies while the cost-input drivers are related to the fee for performing those things for the group. Cost car owners are particularly very important in planning ABC devices and the upcoming section takes up this concept deeper.
  • Calculate unit price Once the whole set of measurements together with factors have been defined, it can be then possible to figure out the unit value for a variety of output steps. This will next drive the next stage.
  • Use results to determine refurbishment opportunities Around designing as well as implementing a strong ABC product, there should be good define improvement opportunities that this organisations definitely will target. This will be based on the information that derive from the examination and are significant, as this will drive the actions of the individuals and the large business. Thus, all these improvement potentials should be initiatives that are obtainable and, as well, could result the operation of the setup significantly, whenever achieved.

The stages defined earlier are the high-level key staging in building and applying an B?RNEL?RDOM system just for organisations.


As mentioned in the previous spot on the phases of designing an ELEMENTARBOG system, the identification about cost-input car owners is important inside the proper guidelines of the B?RNEL?RDOM system. It discusses picking a cost owners in increased detail inside context of each ABC program. Cost drivers play a vital role because the objective within identifying the value drivers will be able to determine how the companies can manage and control the costs proficiently and make advantageous changes to precisely how these expenses drive the exact organisation. The bottom goal and then is to include lower costs with the firm and also better expenses and economical performance which might lead to solid competitive advantages of organisations compared to competitors from a sector.

Usually there are some principles that will be important while in the identification belonging to the cost motorists for an B?RNEL?RDOM system. Picking a cost motorists is important for any following good reasons:

  • Drive operation of organisation The BEGYNDERBOG system can be utilized through the charge drivers they are driving the overall performance of the setup.
  • Enhance internal knowledge Having the perfect cost driver operators selected in the ABC product will boost the understanding of employees of the value-adding activities and also focus on those actions that worthiness the most period.
  • Address external concerns Finally, a number of external stakeholders will need to always be catered to in the offering of cost people. The next few paragraphs display how this will be significant.

Other than an internal evaluation of the important cost car owners for an group, there are also aspects that could receive play. For example , one of the issues driving selecting cost motorists is alternative pressure on these cost drivers. Supplied the boosting focus on the surroundings in recent years, the very pressure to overpower and handle the environmental charges especially in business such as the petroleum sector has grown with traders concerned about opportunity liabilities which can impact the firm and also general public, for example the government, seeking to the health penalties that may result from toxic emissions and materials (Lee, 2005).

These ecological costs could be significant like seen through the following examples (Lee, 2005):

  • With. R. Acceptance had fees totalling US$50 million 13 years ago for eco remediation
  • Koch Petroleum Team spent essential amounts during the period of a few years meant for environmental result and refinery pollution: circa US$7 million dollars in 1998, circa US$$8 mil in the 90s, and circa US$2 mil in 2100
  • NCH Business charged benefit in the quantity of circa US$16 million with 2000 regarding environmental remediation
  • Unocal offered provisions amounting to US$22 million on 2002 regarding environmental remediation and lessening earnings
  • In general for industries such as utilities, steel and metals, essential oil, paper, and chemicals, which will deal with environmentally-sensitive areas, reports place ‘environmental expenditures for being annual wasting of through 1% connected with revenues‘

Thus, considering the pressure externally to manage environmental costs, it has become a price driver of which firms for example Exxon Mobil need to include in an activity-based costing structure. The key reasons behind including this specific cost drivers are the following (Lee, 2005):

  • Environmental issues keep on being increasingly devoted to by the people and geographical groups worldwide
  • Environmental decision-making is and so critical and information to be able to handle and command this aspect needs to be stored by the related firms
  • Some sort of proactive profile in taking care of environmental rates can be very therapeutic for firms in these environmentally-sensitive sections particularly ‘in terms regarding risk lessening, prevention about liabilities, and also the preservation of firm reputation‘


Around implementing any ABC product in ExxonMobil, it is important to come with an initial can it what the expense drivers pertaining to Exxon Mobil could be the design of a great ABC structure. Before ongoing on this path, a number of presumptions have to be mentioned: (1) that is the high level example of a solution for ExxonMobil as an in-depth review has not been conducted that will properly carry out an GRUNDELEMENTER system for that organisation, (2) only rapid estimates are usually presented given that these are determined by an outside-in perspective by way of existing economical reports, (3) no precise details are actually provided but still by the setup.

The above car loans calculations are based on a variety of assumptions created for the purpose of exhibiting how having an ABC method could alter the results of the actual performance from the regions and also the large business to then simply make better options. The assumptions were made up in this scenario therefore could be the several other way approximately in that the higher quality costs find themselves in the US in addition to Canada or South America areas. The objective with showing these types of calculations was to highlight the effect that activity-based costing would have in finding a much lower understanding of these prices that are included in the financial records of organisations.

The way the rates are then simply broken up as well as allocated to diverse cost cells will have a visible impact on these kinds of divisions and the decisions created. The important interest is that the GRUNDELEMENTER system will need to identify the suitable allocation of the costs via an understanding of the hands of time spent by staff together with other factors which the organisation may well deem very important in the GRUNDELEMENTER system.


The constraints of information from ABC products can be thought about in a couple of ways: (1) limitations around establishing along with implementing the ABC models, and (2) limitations on the use of the information and facts resulting from the actual ABC products implemented in the organisation. It looks at numerous limitations.

Vitamin e. 1 . Disadvantages in putting together and putting into action the BEGYNDERBOG systems

Among the list of key difficulties in utilizing an activity-based costing strategy is the ability to pick up the correct facts for the right use of the system. Throughout the many years of the use of the ELEMENTARBOG system, various limitations have come to the experience. The key disadvantages most often cited have been the following:

  • Subjectivity within distribution associated with your . An important concern with users with the ABC method was the good distribution of your energy among the key activities which will employees handled, and the subjectivity in allotting the time higher some priorities and concerns in the likely reliability from the system (Journal of Accountancy, 2008). Lately, there have been improved upon processes which can be designed to decrease the subjectivity in the supply of time by way of employees, particularly with the strategy used in time-driven activity-based that could be with a key element benefit in simplifying the process (Lambino, 2007). However , it’s not also been well proclaimed and there is even now a general consternation about this dilemma for the GRUNDELEMENTER system.
  • Complexity for retrieving details for the GRUNDELEMENTER system . Another factor that have hampered their use of the ABC technique has been the typical feeling that this retrieval data was too complex and that the input expected in order to finish the process to the ABC structure was overly demanding (Max, 2008). Automobile overnight point above, there have been even further developments seem to be tended in order to minimise the particular complexity associated with the recuperation of the data needed for often the ABC procedure but it has not happen to be accepted frequently though the tendency is altering.

The 2 main limitations outlined above are definitely the key factors that rendering of the BEGYNDERBOG system has been limited. With organisations in which the ABC program has been carried out, the two restriction identified own affected use of information created by the GRUNDELEMENTER system. This is exactly discussed even more in the next element.

E. 2 . Limitations inside use of data resulting from ELEMENTARBOG systems

For any organisations that contain made the decision for you to implement the main ABC structure, there are still policies in the information that need to be throught as the information will be utilised during the organisations‘ decision-making. The key restriction are the adhering to:

  • Costing and not an exact discipline . The output from the ABC system remain as quotes and are depending the subjectivity of a lot of the inputs like described in the earlier part of the this section. The use of price tag averages along with estimates reduces the clear appearance of the price and success information and so results in an important factor limitation inside the use of the GRUNDELEMENTER system (Max, 2007).
  • Potential improper use of information . This disagreement is not become construed in respect of be done purposely. But where information is just not properly directed between functions and operations, the potential is accessible to have mistaken results which then impact on how a information is actually utilised (Crance, Castellano & Roehm, 2001).


You can implement any ABC program for ExxonMobil. A number of a conclusion and additional information steps will be highlighted:

  1. High level draw up of applying was been shown to be possible. Step two is to employ a proper evaluate to follow a full stages when the organisation ended up keen to go ahead.
  2. In-depth process is required to complete some sort of ABC structure implementation ExxonMobil will need to get along with this in addition to assign options in order to make the effort to give the ABC method implemented.
  3. Commitments typemyessays reliable and transparency important for the particular implementation It is critical to get the buy-in and help of top rated management as well as key operators of the organisation.

By these up coming steps, it is possible to move into our next stage of obtaining the B?RNEL?RDOM approach created for ExxonMobil in addition to implemented inside organisation.

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