Activity Based mostly Costing (ABC) Case Study: Exxonmobil


This particular paper positions an test of the set up of an activity-based costing (ABC) for Exxon Mobil, a global oil company. The discussion within the paper will be structured the following:

  • Setting up the activity-based being for Exxon Mobil That first internet sites presents an overview of activity-based costing and even focuses on just how such a technique could be setting up for Exxon Mobil.
  • Stages needed for designing ABC systems The second section of the exact paper symbolizes the levels involved in the build of an activity-based costing process.
  • Choice of cost operators An important factor inside the set up of activity-based that is system is selecting the cost operators. The third portion of the pieces of paper discusses this particular.
  • Mathematics and Cases The fourth portion presents any calculation for those activity-based priced at for Exxon Mobil.
  • Limitations data from BEGYNDERBOG systems The fifth part of the paper presents the constraints and challenges in the using activity-based pricing.
  • In sum Finally, the past section summarises the controversies presented inside the paper together with highlights one of the keys points to conclude the paper.


Activity-based costing is certainly utilised to raise business systems through behavioural, business as well as accounting tactics, and ‘focuses on expenses associated with things to do, but also analyse whether individuals activities put value, consequently providing a means of understanding how to most effectively decrease costs‘ (Maiga & Jacobs, 2003).

This particular paper talks about specific regions that will help ExxonMobil in putting together an activity-based costing process. It is possible to arranged this up for ExxonMobil of travel its operation but this can require couple of key guidelines in pursuing this approach:

  • Motivation from older management Putting together the BEGYNDERBOG system ‘ll need strong motivation from senior management since there may be obstacles and thoughts raised by just different stakeholders as this method is went after.
  • Transparency in methods In addition to motivation, setting up an ABC procedure will also necessitate that the setup be transparent in its budgetary and working with figures in order to achieve the most indulge in implementing a really system.


There are several critical stages that will organisations really need to follow within designing ABC systems within organisations. One of the keys stages with designing ABC systems are as follows (Allott, 2004):

  • Ascertain scope along with key hobbies performed This stage will require the development of essential objectives as well as activities for departments and then the organisation. The challenge in this cycle is to make sure there aren‘t too many functions that then render typically the analysis like inaccurate presented the aspect required.
  • Apportion immediate staff some assess the organisations‘ resources essential The current administration within the corporations then should assess the assets required to use the key activities defined while in the first step. This point requires the very evaluation of where employees expended their effort, as this will likely be apportioned included in the ABC structure.
  • Increase other strong costs In addition to the costs linked to the staff and their time, some other direct rates will also has to be included contained in the analysis in addition to measurement.
  • Allocate area and corporate expenditure and recognize the key signals produced Typically the outputs for your activities driven in level one should get defined. These outputs must be largely measurable though what could some exercises that won‘t have instantly measurable components. From this, departmental and corporate expenditure can then be allotted.
  • Split up into value-adding in addition to non-value including activities and in addition assess activity-level drivers and cost-input motorists The fourth cycle is to determine the value-adding plus non-value-adding things to do, and also the components that lead to the activity to occur which includes together activity-level owners and cost-input drivers. The main activity-level motorists are relevant to the occurrence of the occurrence of the things to do while the cost-input drivers are generally related to the buying price of performing those activities for the setup. Cost owners are particularly important in planning ABC models and the upcoming section considers this concept even further.
  • Assess unit cost Once every one of the measurements as well as factors were defined, it can be then probable to determine the unit fee for different output procedures. This will next drive the subsequent stage.
  • Use conclusions to determine enhancement opportunities Inside designing plus implementing an ABC technique, there should be well define production opportunities that this organisations will certainly target. This will be based on the studies that result from the evaluation and are crucial, as this will certainly drive those things of the individuals and the enterprise. Thus, those improvement possibilities should be pursuits that are feasible and, all at once, could effect the efficiency of the business significantly, in cases where achieved.

The periods defined on top of are the high-level key development in planning and taking on an ELEMENTARBOG system just for organisations.


Bookmark your favorites in the previous spot on the development of developing an ELEMENTARBOG system, typically the identification regarding cost-input individuals is important from the proper execution of the GRUNDELEMENTER system. This section discusses the selection of cost drivers in larger detail during the context of your ABC method. Cost motorists play a key role because the objective around identifying the charge drivers is going to be able to see how the organisations can manage and manage the costs appropriately and make valuable changes to precisely how these fees drive typically the organisation. The end goal next is to own lower costs for any firm and also better fees and finance performance which may lead to sturdy competitive advantages for organisations versus the competitors in the sector.

There are some principles that are important within the identification with the cost motorists for an ELEMENTARBOG system. Selecting cost people is important for that following reasons:

  • Drive performance of business The ELEMENTARBOG system may be used through the cost you drivers they are driving the effectiveness of the organization.
  • Strengthen internal realizing Having the suitable cost motorists selected for those ABC process will increase the understanding of employees of the value-adding activities and also focus on the actions that advantage the most time frame.
  • Correct external worries Finally, several external stakeholders will need to always be catered to in the choice of cost motorists. The next few paragraphs indicate how this can be.

Other than an internal diagnosis of the main cost owners for an organisation, there are also issues that could enter in to play. Like one of the issues driving selecting cost individuals is exterior pressure in these fee drivers. Supplied the rising focus on air in recent years, the exact pressure to manipulate and handle the environmental will cost you especially in market sectors such as the acrylic sector has grown with traders concerned about future liabilities that would impact the firm as well as the general public, for example the government, worried about the health outcomes that may result of toxic emissions and supplies (Lee, 2005).

These environmental costs might be significant while seen from following instances (Lee, 2005):

  • M. R. Favor had expenses totalling US$50 million over 10 years ago for the environmental remediation
  • Koch Petroleum Class spent major amounts during the period of a few years pertaining to environmental impression and refinery pollution: circa US$7 thousand in 1998, circa US$$8 zillion in 99, and circa US$2 mil in 2100
  • NCH Company charged return in the amount of circa US$16 million for 2000 to get environmental remediation
  • Unocal presented provisions amounting to US$22 million in 2002 for environmental remediation and minimizing earnings
  • On the whole for industrial sectors such as utilities, steel in addition to metals, acrylic, paper, plus chemicals, which inturn deal with environmentally-sensitive areas, prices place ‘environmental expenditures for being annual spending of over 1% for revenues‘

Thus, using the pressure on the surface to manage ecological costs, they have become a cost driver which firms which include Exxon Mobil need to include in an activity-based costing product. The key advantages for including the cost club are below (Lee, 2005):

  • Eco issues keep on being increasingly thinking about by the community and ecological groups throughout the world
  • Environmental decision-making is so critical and information to be able to endure and manipulate this element needs to be compiled by the pertinent firms
  • Any proactive position in evening out environmental expenses can be very therapeutic for firms in these environmentally-sensitive areas particularly ‘in terms connected with risk lessen, prevention involving liabilities, plus the preservation regarding firm reputation‘


On implementing any ABC process in ExxonMobil, it is important to offer an initial can it what the cost drivers regarding Exxon Mobil could be the design of a great ABC procedure. Before maintaining on this course, a number of presumptions have to be stated: (1) that is a high level example of a solution for ExxonMobil as an thorough review is conducted towards properly carry out an ELEMENT?RVIDEN system for those organisation, (2) only rapid estimates usually are presented considering the fact that these are influenced by an outside-in perspective employing existing financial reports, (3) no certain details were provided yet still by the large business.

The above computations are based on quite a few assumptions manufactured for the purpose of proving how running an ABC technique could customize results of the actual performance on the regions and let the organization to subsequently make better conclusions. The assumptions were made up in this scenario plus it could be the various other way around in that the higher quality costs land in the US and even Canada / South America on a. The objective on showing those calculations were to highlight the effect that activity-based costing could in generating a greater understanding of the price that are integrated in the financial records of companies.

The way the prices are next broken up in addition to allocated to unique cost partitions will have an impact on those divisions as well as decisions constructed. The important consideration is that the B?RNEL?RDOM system will need to identify the proper allocation from the costs by using a understanding of some time spent by way of the staff for example other factors that organisation may deem essential in the ELEMENT?RVIDEN system.


The constraints of information by ABC devices can be taken into consideration in only two ways: (1) limitations inside establishing as well as implementing the very ABC products, and (2) limitations on the use of the information and facts resulting from the ABC techniques implemented in a organisation. It looks at all round health limitations.

E. 1 . Constraints in putting together and utilizing the BEGYNDERBOG systems

Amongst the key troubles in applying an activity-based costing product is the ability to gather the correct details for the adequate use of the method. Throughout the associated with the use of the ELEMENTARBOG system, several limitations have found the lucidite. The key disadvantages most often quotation have been down the page:

  • Subjectivity throughout distribution of your energy . The key concern of users from the ABC method was the suitable distribution of your time among the key activities in which employees worked tirelessly on, and the subjectivity in allotting the time increased some priorities and issues in the possibilities reliability with the system (Journal of Accountancy, 2008). Usually, there have been advanced processes that were designed to minimize the subjectivity in the supply of time just by employees, specifically with the solution used in time-driven activity-based priced at with a main benefit around simplifying the method (Lambino, 2007). However , it’s not been well corresponded and there is continue to a general concern about this matter for the ABC system.
  • Complexity involving retrieving information for the ELEMENTARBOG system . Another component that previously had hampered their use of the ABC program has been the normal feeling the fact that retrieval data was way too complex and the input recommended in order to accomplish the process with the ABC procedure was overly demanding (Max, 2008). Automobile overnight point above, there have been additional developments that contain tended that will minimise the very complexity encircling the collection of the facts needed for the ABC method but it’s not been recently accepted commonly though the tendency is transforming.

The 2 limitations set off above would be the key reasons that execution of the ELEMENTARBOG system is limited. Throughout organisations the spot that the ABC procedure has been executed, the two limitations identified currently have affected the use of information churned out by the ELEMENT?RVIDEN system. This is exactly discussed deeper in the next element.

E. 2 . Limitations while in the use of material resulting from ABC systems

In the organisations who have made the decision so that you can implement typically the ABC procedure, there are still disadvantages in the data that need to be proved to be the information is actually utilised in the organisations‘ decision-making. The key limitations are the next:

  • Costing and not an exact scientific discipline . The output from the BEGYNDERBOG system continue as guesses and are impacted by the subjectivity of a few of the inputs because described in the last part of the this. The use of price averages along with estimates minimizes the openness of the cost and earning information and for that reason results in a vital limitation in the use of the ELEMENT?RVIDEN system (Max, 2007).
  • Potential misuse of information . This controversy is not become construed about be done on purpose. But where the information is just not properly attached between exercises and process, the potential is out there to have incorrect results which then impact on the fact that information can be utilised (Crance, Castellano & Roehm, 2001).


You can actually implement some sort of ABC procedure for ExxonMobil. A number of results and additional information steps will be highlighted:

  1. High level produce of putting into action was shown to be possible. Next thing is to use a proper evaluate to follow the complete stages if ever the organisation happen to be keen to go ahead.
  2. Thorough process is complete a good ABC program implementation ExxonMobil will need to entrust to this as well as assign resources in order to push the effort to offer the ABC process implemented.
  3. Motivation and openness important for typically the implementation It is advisable to get the buy-in and service of top rated management and also key executives of the company.

With these following steps, this means move into the next stage of having the B?RNEL?RDOM approach developed for ExxonMobil and implemented inside organisation.