“Report Managerial Accounting”
This paper discusses the relevance and suitability of the concept TDABC in regards to firms. In addition to this, TDABC presents the time-driven activity-based costing and it is invented by the R. Kaplan and S. Anderson as a new method.
The purpose of this method is to respond the criticism which occurs in ABC method. It is related to successfully implementing and maintaining the cost for the firm. The crucial benefit that firm achieves with the TDABC is that it addresses the shortcomings of the ABC method (Dalci et al., 2010).
The limitation of ABC method includes the large time of collection of data, critical updating of the system, less manage large data processing capacities etc. Thus, the TDABC method presented as quick and easy costing method which identify the customer profitability and complement the balanced scorecard.
Furthermore, this report addresses the detail description of TDABC and its features (Gervais et al., 2010). Similarly, it will also study that how TDABC differentiate with activity-based costing. At the end, the discussion will be performed in order to identify the suitability of TDABC for the firms.
The client firm for the project report is Crown Resorts. It is an Australian based gaming and entertainment group. It is established in 2015. It initially owns and operates the two leading games group which are Crown Melbourne and Crown Perth. The Crown Resorts since its implementation focus on the ABC costing method for assigning the cost of activity.
On the basis of this method, the company could able to assign the direct cost but it faces difficulties in assign the indirect costs. The indirect cost includes the management and office staff salaries etc (Gover, 2016).
However, it is quite difficult to correctly and timely allocate the cost of activity especially in the case of indirect cost allocation. Therefore, that is why this is the method which is mainly used by the niche market such as manufacturing sector. In regards to reduce the chances of wrong costing, Crown Resorts could use the TDABC method which is considered as an updated version of activity-based costing.
Therefore, it is requiring to identifying its significances or suitability for the firms so that Crown Resorts would use this method for successfully allocate the direct or indirect cost to the activities of the company.
Description of TDABC and its Features
Time-driven activity-based costing is the updated version of the activity-based costing. Basically, the cause of development of TDABC method overcomes the shortcomings of ABC method (Nettelbeck, 2013).
The ABC method helps the manager to manage the limited resources and it is most suitable for the small firms. The difficulties that arise with this method are the rising costs and employee irritation.
So the new approach which is recognized as TDABC would provide various advantages to companies in regards to reduce the resources and cost to the company.
Moreover, this revised method works through estimates the demand for resources which is arising with each transaction, product, and customer instead of simply focusing on the surveys. The market research is quite time-to consume as it involves huge activities and expenses of the company in regards to gather the facts and estimate the cost of action accordingly.
It is estimated that the TDABC method is quite simpler in regards to estimate on the basis of two parameters. Firstly, how much it costs per time unit to supply resources to business for performing the activities. Secondly, how much time it takes to carry out each activity.
This method reduces the limitation of the survey which becomes an advantage for the company in terms to save the time (Stouthuysen et al., 2010). Moreover, the method also helps to reduce the technical problem in the areas of operations or producing work by reducing the extra activities which consume the large time of the company. This new system allows the managers to use the idle time effectively.
In this method, data and time management is the priority in which order, customer, and activity are focused so that time could be managed. Thus, this tool gives the demonstration regards to how managers would obtain the meaningful cost and profitability information in a quick and affordable manner.
On the basis of above study, Here are the main features of TDABC:-
- It helps to address the challenges and issues in costing conditions of every sector whether it is retail, manufacturing, construction etc (Öker and Adıgüzel, 2016).
- It has varied application and significances and it is reflected in the seven-step model.
- TDABC also assist in allocating the both direct and indirect cost to activities.
- This method also supports in the large scale.
Therefore, these are the characteristics which indicate the TDABC method reliability and suitability for the large organization (Hoozée and Bruggeman, 2010). This method not only caters the needs of small enterprise but it also helps the large company.
Ways that differentiate the TDABC with activity-based costing and traditional costing systems
There are different indicators that clearly show the differentiation of TDABC with the activity-based costing and traditional costing systems. The first and foremost differences are the range and scale. In the views of Öker and Özyapici (2013), the ABC method proves to be more useful for the short range or scale work. That’s why it is considered a niche market method.
But, the revised version of ABC method which is Time driven activity-based costing includes different approach. It supports the large scale of work and helps the firm to allocate both direct and indirect cost. So, the scale and longitude is the key difference between the cost activity methods.
Other than that, TDABC method is far more accurate as compare to traditional, ABC method. This can be stated that TDABC not only helps to assign the cost to activities but it also assists to reduce the maximum time of activities which directly allows reducing the total cost of the project.
On another side, traditional and ABC costing are only focus on cost allocation rather than concentrate on the time duration of activities (Hajiha and Alishah, 2011).
It is true that cost increases because of maximum time take in activity. In case activity includes high time duration then it becomes a reason for high cost of the product. So it is necessary to limit the time of activity in order to reduce the cost of the overall product. Thus, this practice makes this method more reliable.
The major difference also occurs in the calculation way for the costing. Both ABC and TDABC assign the cost to the activities which are associated with the product. While in the traditional method, the cost is directly allotted to the product and then it assigns to the activities.
Thus, it is quite simpler but the chances of accuracy tend to less. That’s why the calculation of TDABC is most appropriate in terms of time and cost.
According to Ayvaz and Pehlivanl (2011), the TDABC method is also reliable in the internal and external areas as the change in overhead does have high impact on cost and then product overall cost. So, with the cost assigned to directly to activities make easy for cost manager to estimate the required time and expenses of marketing, administration and accordingly it reduce the cost of each activity.
Due to this, the overall cost of the product also gets the decrease. But, such practice is not applicable to the traditional method as this method supports the action to allocate the cost to the product only then based on assigned cost and sub cost is divided into the activities.
If in case the overhead expenses change then it not only affects the other activities relevancy but also to the product cost. Therefore, it is stated that TDABC method proves to be more suitable even with the overhead change.
In oppose to study of ABC method, Szychta, (2010) argued that this costing method provide an accurate allocation of costs to the product but there is the challenge of under & over costing are also present.
In order to address this limitation, the TDABC costing method contributes high to the companies as this method provide accuracy with time driven cost. Thus, this study clearly indicates that the time driven activity-based costing is far better than the ABC costing and traditional costing method.
Discussion on the suitability of TDABC for firm client
From the above study, it can be discussed TDABC costing method is the revised model of ABC costing. Through this model, the Crown Resort could able to estimate the resource demands which is imposed by each transaction, product or customer.
This method will help the company to save the time of activity though not relying on the employees’ survey. In a similar manner, this method allows the Crowns Resort to integrate the detailed transaction data with the ERP and CRM system.
It means that company with the ERP and CRM system can collect the market information and then define the cost driver of the product. Based on this, time of company in regards to survey and identify the needs of customer tend to be saved. This exercise influences directly to cost in a positive manner.
In support of this study, Kont and Jantson (2011) analyzed that TDABC method is also well suited to the client firm which is Crowns Resort because it will provide the accurate estimation of product cost.
However, costing model perform the calculation based on different areas such as individual order, processes, suppliers, and customers. This allows calculating the right price of the product. At the same time, this method could help the company to maintain the cost and time equation. This is possible because of timely availability of data.
It means that time equation largely depends upon the regular facts availability. In regards to this, CRM and ERP play a supporting system for this costing concept as it guides the manager to assign the cost to the drivers accordingly.
This allows for avoiding the unnecessary activity which is not required to carry out (Hoozée and Bruggeman, 2010). In this manner, company eliminates the extra time and cost and it results in a low price of the product. The right costing method always proves to be relevant for the company in terms to bring the efficiency in operation and attain the large profits.
This costing method could also fit the company different departments. It includes the sales, distribution/ logistics, engineering, quality, and packaging but it will also able to coordinate with the marketing research, advertising and batch manufacturing (Zott and Amit, 2010).
It is identified that the TDABC costing method will prove to be best for all the sectors & industries except the batch manufacturing, process industries, and civic organizations. This model tends to quit easy and inexpensive for the company to update as the result is achieved in the form of efficiency and high customer satisfaction.
On the basis of discussion, it is interpreted that the TDABC provides more benefit to the Crowns Resort in regards to assigning the right cost to drivers at right time with the support of transaction system (Shander et al., 2010). This method brings more quality in costing system. Thus, the result tends to be productive for the company.
From the above study, it is concluded that the TDABC is the well-suited costing method for the client firm such as Crowns Resort. This method helps the firm to successfully assign the cost to the various driver based on the availability of market information.
The right information guides the manager to assign the cost accordingly to activity. However, the online IS system reduces the expenses of market research and its positive effects are quite visible in the outcome of the company.
At the same time, the TDABC costing method also found to be more effective as compared to ABC and traditional costing method. It is because of TDABC method provides assign cost with timely availability of resources and market facts. Hence, TDABC is the most suited and appropriate costing method for the firm like Crowns Resort.
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