TD ABC Flashcards
What is time-driven ABC?
A cost management system that uses AUTOMATIC DATA FEEDS from its ERP system to provide managers throughout the system with reports on capacity utilisation and customer profitability.
A TD-ABC system can handle millions of transactions seamlessly… providing managers with more accurate and up-to-date information.
Helps to set priorities for process improvements, rationalise product variety, price customer orders, and manage customer relationships in ways that benefit both parties.
What is wrong with ABC?
EXPENSIVE to BUILD
COMPLEX to SUSTAIN
DIFFICULT to MODIFY
Behavioural and organisational resistance accompanying the implementation of ABC…
Businesses didnt like the idea of acknowledging that customers might not be profitable.
TDABC over ABC?
TDABC eliminates the need to conduct interviews and survey employees.
TDABC assigns resource costs directly to the cost objects using
Requires 2 estimates:
- Cost per minute for the service department
- Minutes used to process each type of item/transaction
E.g. time to process a customer order.
What is the equation used to work out CAPACITY COST RATE?
CCR = Cost of capacity supplied / practical capacity of resources supplied.
Total cost / total number of productive minutes supplied.
What is the 2nd estimate required for TDABC?
Capacity required. I.e. time to perform a transaction.
What is the main power of TDABC?
The main power of TDABC is to predict the future.
How can TDABC be used to help Kanthal?
- TDABC is less costly,
- Less time consuming
- Requires no extensive interview or surveying of employees
- Based on practical capacity used rather than full-capacity –> more realistic info,
- TDABC can be used to predict the future using the standard costs generated by the monthly report.
- Customer admin costs can be assigned in real time to individual customers…
- Standard rates can be used in discussions with customers about acceptance and pricing of new business.
- Highlights the difference between capacity supplied and capacity used.
- Management can use the information about unused capacity and contemplate actions to determine whether and how to reduce the cost of supplying unused resources in subsequent periods.
What are the two estimates required for TDABC?
- Cost per minute for the service department
- Minutes used to process each type of transaction
TDABC easily incorporates…
variation in the time demands made by different types of transactions.
TDABC does not require the simplifying assumption that all transactions, or orders, are the same and require the same amount of time to be processed.
TDABC can incorporate variations in time demands by using…
time equations. Variations are calculated and incorporated using simple algorithms.
Adjustments are easily made to an existing time equation by adding a term… if a customer is particularly complex or an activity is particularly complex, the time equation can be built to cater for complexities… once built, order and transaction information will be gathered and passed through the time equations using a simple algorithm tied to the ERP system.
