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Overview of Time-driven Activity-based costing method

Question:

Discuss About The Activity Based Costing Service Industries?

Time-driven Activity-based costing methodology is an advanced system of the Activity-based costing method. Traditional ABC method is one of the popular methods in business writing and management circles. Though, this method is time-consuming and costly for the company to implement this method in an organisation. Kaplan and Anderson decided to bring the improvement in the process which is now known as Time-driven Activity-based costing. The report will provide the description related to the concept along with its features.

The company that has been selected for the analysis is Brigham and Women’s hospital. The report talks about the operations and the working of the company along with that how this method is suitable for the company. This method is different from traditional costing system and with the Activity-based costing approach which is discussed in the report.

Brigham Health is a world-wide leader that devote to sustaining and restoring well-being for people across the world. The company is consists of Brigham and Women's Hospital, Women's Physicians Organization, and Women's Faulkner Hospital. BWH is an international leader which is contributing to the improvements in the lives of the world. This hospital is also known as one of the foremost training hospitals of HMS (Harvard Medical School). Thus, the company has the legacy of superiority to continue to rise year after year. BWH consist of the 150 outpatient’s practices with more than 1,200 medical doctors. The company attends patients from New England all the way through the US with 120 countries globally (Brigham and Women’s Hospital, 2016). 

The company has the culture of research and innovation that emphasis on the business practices. BWH emphasis on the development of new and innovative methods to keep the people in optimal health and fight diseases that might threaten their well-being. The company provide the access to the education, information and care through numerous places that consist of the national and international affiliates. BWH is dedicated to offers the highest-quality, family and patient-centered care. The company is an established supporter of Partners Healthcare systems which is one of the greatest prominent incorporated delivery structures in the United States (Partners Healthcare, 2017).

The company financed approximately $4.45 million to upkeep community-led health equity hard work that takes place in the 5 important neighborhoods that include Mattapan, Mission Hill, Dorchester, Roxbury and Jamaica Plain. BWH is known for its specialty in vascular and heart care, neurosurgical and neurologic care, cancer care, arthritis and orthopedic treatment, women's health and the virtually every single other area of adult medicine. BWH is a second leading NIH-financed healthcare center in the nation. The hospital was the first hospital that developed the (CPOE) computerized physician order entry to prevent any kind of the medication errors and now there is an accepted safety practice national and international (Harvard Medical School, 2018).

Operations of Brigham and Women’s Hospital

The mission of the Brigham and women’s hospital is to work for the requirements of the global and native community by delivering the maximum quality healthcare to families and patients. Through research, the company is trying to expand the restrictions of Healthcare. The company’s mission is to coach the next generations of health care experts (Brigham and Women’s Hospital, 2016).

The vision of the Brigham and Women’s Hospital desires to convert the upcoming years of the healthcare through science, research, training and kind-hearted care within the borders and across the world (Brigham and Women’s Hospital, 2016).

Brigham health believes that values are that set belief that guides the decisions and behaviors over time (Brigham and Women’s Hospital, 2016). The values that the company has includes-

  • Integrity
  • Collaboration
  • Inclusion
  • Professionalism
  • Empathy

TDABC method is New Activity-Based costing method which was presented after the improvement in the traditional ABC method. According to Kaplan and Anderson, this is a method on of the simplest method that has the ability to measure accurately the cost to a more targeted level. This method removes the requirement of the interviews and survey that save the time of the managers of the company and they can utilize this time in other activities (Kaplan, and Anderson, 2017). Time-driven ABC method reduces the volume of the data required. This method required the estimations of two things which include: -

  • The applied volume of committed resources and their cost
  • Unit times for carrying out the transactional activities

The time-driven ABC needs fewer resources and time to apply the approach in the organization. It only takes two employees of the company for two days per method that helps the company to load, validate, calculate and report finding and the employees can spend their rest of time in maintaining and organizing the TDABC (Ozyurek and Dinç, 2014). Thus, this method is more effective than the traditional ABC method because in that method there is need of the ten-person team who spend more than 3 weeks to maintain or track the records in ABC model. This method is an accurate time-based algorithm that works as a template and this method is easy to apply for the companies along with that they can customize this method to other plants or event to other companies in the field of the manufacturing and service industry (Gervais, Levant, and Ducrocq, 2010).

The time equation makes simpler the prediction process and provide as far more accurate cost model that was not possible with the implementation of the traditional ABC techniques. Nowadays, many companies started making the use of the ERP systems that already store data on order, distribution, packaging and other characteristics which makes it simpler to implement (Gervais, Levant, and Ducrocq, 2010). The order and the transaction specific data helps the time equation to simply calculate the time required to complete the particular order or activity. TDABC models expand linearly with variations by adding a term in a time equation. This is the best way for the companies to capture the complexities of the business (Szychta, 2010).

Implementing TDABC for Brigham and Women’s Hospital

  • This method provides a true picture to the suppliers for the cost of the products and services offering so that they can better decide on services and prices, make outsource to more specialized companies.
  • TDABC allows the managers of the manufacturing and service companies to enhance their capabilities of budgeting as with the implementation of this method the managers will be able to identify the accurate resource necessity to fulfill the firm’s purposes; overheads are appropriately allocated to cost objects (Anti? and Georgijevski, 2010).
  • This method is helpful for the companies who want to keep the record of the activities and the use of the resources within the organization.
  • This method is one of an essential and financial method for the large service-oriented organization as the implementation of this approach will help the company in achieving the complexity and better accuracy (Dejnega, 2011).

Activity- Based Costing

Time-driven Activity-Based Costing

This method is one of the difficult methods to implement and maintain because in this method the companies need to obtain information through interviews (Adioti, and Valverde, 2013).

This method was introduced to simplify the Activity-Based Costing method by using the time to drive the volume cost rate. This process eliminates the requirement of the interview or surveys.

ABC permits the firms to appropriately assign overhead costs to products and services.

TDABC permits the companies to have improved cost visibility across service types, customer groups, and service operations practices.

ABC method has the problem of not providing the accuracy of the redundant resources as it normally practices the proportion of the resources that have been used for each activity bases.

Time-driven ABC method makes use of the aggregation of time for each activity due to which this method is able to provide more accuracy as compared to the Activity-based costing method.

Traditional costing system

Time-driven Activity-Based Costing

Traditional costing method mostly helps the companies in identifying the overheads cost by dividing cost crossways products that are based on the predicted ratio of resources which include machine time and the space engaged.

TDABC method provides better cost visibility across service types, customer groups, and the service operations processes. 

In this method, the overheads allocated are generally not accurate due to which the companies mostly get the inappropriate anticipations of the costs.

The problem of the cots allocation was fixed with the introduction of the ABC (Activity-Based costing). The improvement in the estimation was possible with the TDABC method as this method provides the accuracy related to the anticipations of the costs (Adioti, and Valverde, 2013).

The implementation of the TDABC (Time-Driven Activity-Based Costing) methodology is suitable for the Brigham and Women’s Hospital as it helps in understanding the compound non-operating room setting of the endoscopy center for the objective of upgrading resource managing and practicing care proposal. The reorganization of the resources can help the hospital in decreasing the waiting times (from approximately 3months to 3 weeks) with this the company will be able to save up to $ 102,000 per year and will enhance the ease of use of the preoperative clinic to an emphasis on greater-risk medical patients. The Brigham and Women’s Hospital can implement the time-driven Activity-based accounting in the main hospital and in its ambulatory site (Morris, et.al, 2017).

  • TDABC is an innovative approach that is suitable for the compound health care system in regards to enhancing the resource value and allocation with the help of organization cost and process information.
  • The implementation of TDABC can take place in non-operating room surroundings. Thus, health care can implement this costing system because hospitals are often not well organized as it involves medical disciplines and multiple locations (Morris, et.al, 2017).
  • The endoscopy suite is one of the non-OR surroundings in which the requirement for anesthesiology services is rising due to increase in the number of patients and complication in the procedure. Hence, the increased demand will enhance the waiting times of patients and to reduce that waiting time TDABC is one of the effective tools. Therefore, the Time-driven ABC is suitable for the healthcare.
  • The implementation of the TDABC method will help the healthcare updating the model of operating state of affairs which include fluctuating a proportion of volume of patients who are getting anaesthesiologist- administered sedation from the foremost hospital to the ambulatory site acknowledge the extended waiting list, enhance resource consumptions and last but not least built a monetary case to validate such changes (Morris, et.al, 2017).
  • The implementation of the TDABC in BWH effects the hiring of a additional triage nurse to support the medical screening with the medical screening and triage of the patients available in the hospital before the process. This change will lead to the net saving of approximately $15,000 (Morris, et.al, 2017).

Conclusion

Time-Driven ABC method is one of the best methods for the multinational manufacturing and services companies as with the help of this method they can easily analyze the cost of the complex business activities of the company. The suitability of TDABC for Brigham and Women’s Hospital is discussed in the report. The implementation of the TDABC in the hospital is essential as this method will save the time as well as the cost of the Brigham and Women’s Hospital. They can utilize their time by devoting their time for the treatment of the other patients. Moreover, the report shows the detailed description of the concept, its features and the difference between the TDABC and Activity- Based Costing and Traditional costing system.

References

Adioti, A.A. and Valverde, R., 2013. Time-driven activity based costing for the improvement of it service operations. International Journal of Business and Management, 9(1), p.109.

Anti?, L. and Georgijevski, M., 2010. Time-driven activity based costing. ECONOMIC, p.497.

Brigham and Women’s Hospital, 2016, About Brigham and Women's Hospital, Accessed on; 16th January 2018, Accessed from https://www.brighamandwomens.org/about_bwh/default.aspx

Brigham and Women’s Hospital, 2016, Brigham Health, Accessed on; 16th January 2018, Accessed from https://www.brighamandwomens.org/About_BWH/brigham-health/default.aspx

Brigham and Women’s Hospital, 2016, BWH Milestones, Accessed on; 16th January 2018, Accessed from https://www.brighamandwomens.org/about_bwh/publicaffairs/aboutbwh/milestones.aspx?sub=3

Brigham and Women’s Hospital, 2016, Strategic Plan, Accessed on; 16th January 2018, Accessed from https://www.brighamandwomens.org/about_bwh/mission.aspx

Dejnega, O., 2011. Method Time Driven Activity Based Costing. Journal of Applied.

Gervais, M., Levant, Y. and Ducrocq, C., 2010. Time-driven activity-based costing (TDABC): An initial appraisal through a longitudinal case study. Journal of Applied Management Accounting Research, 8(2), p.1.

Gervais, M., Levant, Y. and Ducrocq, C., 2010. Time-driven activity-based costing (TDABC): An initial appraisal through a longitudinal case study. Journal of Applied Management Accounting Research, 8(2), p.1.

Harvard Medical School, 2018, Brigham and Women's Hospital, Accessed on; 16th January 2018, Accessed from https://hms.harvard.edu/about-hms/hms-affiliates/brigham-and-womens-hospital

Kaplan, R.S. and Anderson, S.R., 2017, Time Driven Activity Based Costing, Accessed on; 16th January 2018, Accessed from https://hbr.org/2004/11/time-driven-activity-based-costing

Morris, A.J., Feng, A.Y., Nayor, J., Feeley, T.W., Bader, A.M., 2017, Accessed on; 16th January 2018, Accessed from https://catalyst.nejm.org/tertiary-academic-endoscopy-center-tdabc/

Ozyurek, H. and Dinç, Y., 2014. Time-Driven Activity Based Costing. International Journal of Business and Management Studies, 6(1), pp.97-117.

Partners Healthcare, 2017, Brigham and Women's Hospital, Accessed on; 16th January 2018, Accessed from https://www.partners.org/Services/General/Patient-Care/Academic-Medical-Centers/Brigham-and-Womens-Hospital.aspx

Szychta, A., 2010. Time-Driven Activity-Based Costing in Service Industries. Social Sciences (1392-0758), 67(1)

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