Week 3 - TDABC and Cost System Implementation

Question 1

Time-Driven ABC

Answer 1

assigns costs to activities and processes based on the time and resources consumed by those activities. TDABC builds upon the principles of Activity-Based Costing (ABC) by incorporating the element of time as a key driver in cost allocation. It involves the measurement and analysis of the actual time required to perform specific activities and then assigns costs to products, services, or customers based on their consumption of these time-driven activities.

Question 2

TDABC Benefits (Kaplan & Anderson, 2004)

3

Answer 2

flexible since adding/refining activities does not require the recalculation of % splits to activity costs. Not burdensome to maintain like ABC

Simplicity: Easier to implement and maintain than ABC, less cost drivers & data

More accurate as incorporates unused capacity costs

Question 3

TDABC Calcs: REMEMBER

Answer 3

Always convert eveyrthing to the same amount

e.g. if costs are given annually, and capacity weekly, but the other is monthly - convert all to monthly

Question 4

Cooper & Kaplan (2004), drawbacks of TDABC

4

Answer 4

Relies heavily on time estimates, must be accurate, Employyes incentivies to lie

Assumes time is predictable, not the case for tasks with high variability e.g. customer service calls - Service vs Manufacturing (better manufacturing e.g. production line more predictable)

Requires regular updates to stay relevant, although is much easier to update than ABC

Managerial resistance from changing from traditional methods