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Overview of Bowral Limited

Question:

Discuss About The International Economics Journal Production?

The main purpose of this report is the assessment of the effectiveness of Time Driven Activity Based Costing method which can be applied in an organization from a view point of agraduate who is entering a managerial firm. The report assumes that the main client of such management firm is Bowral Limited, a leading manufacturing brand of Australia. The first part of the report will be providing a brief overview of the client company Bowral Limited and then the report will be introducing the concept of Time Driven Activity Based Costing (TDABC) (Öker & Özyapici, 2013). Then the discussion will be moving to the salient features of Time Driven Activity Based Costing (TDABC). The next part will focus on the differences and similarities which exists between TDABC, activity Based Costing and Traditional Costing Method. The report will finally be concluding with the assessment whether TDABC is appropriate for the client company which is Bowral Limited.

Boral Limited is a multinational firm, which is engaged in supplying raw material and in construction business of building materials. It has its headquarters in Australia however, it also operates in USA and Asia. In 2017, the sales of the organization has been 4.39 billion AUD and the employee base of the organisation has been 16,000 working across 700 operating sites approximately (Boral.com.au, 2018). There are three operating divisions in Boral, which include Boral Australia, USG Boral and Boral North America. The company has a lot of individuals employed in these three operational divisions of the company.

For this particular report, Boral Australia has been selected, in which the management is planning to implement TDABC within the organisation. The main products of the organisation include concrete, quarry, asphalt. Cement, concrete placing, bricks, roofing, masonry, softwood and hardwood timber. This division of the organisation is a main supplier of materials and products to the commercial and residential construction along with roads and engineering marketing

The method of Activity Based Costing Method has a lot of flaws in the process. In order to overcome the flaws of general activity based costing, TDABC method was developed which is proven to be simpler, cheap and highly convenient in comparison to general Activity Based Costing method. In details, TDABC method saves time by eliminating the interviewing process and surveying of employees for apportionment of resource cost to various activities thereby ensuring that the complexity of the overall costing process is removed (Tanis & Özyapici, 2012). The costs objects of the company can be in the form of orders, customers and products. TDABC method is efficient in apportioning the costs to various resources. The following process is conducted with the help of well designed framework requiring two groups of estimates and the method also ensures that the costing process is free from all complexities. The key features of TDABC method are discussed below:

Introduction of Time Driven Activity Based Costing Method

TDABC is associated with calculating the cost relating to supply of resource capacity. For example, an area of Bowral limited of Australia which is engaged in handling customer orders can use the method of TDABC. TDABC method calculates the cost which are associated with supervision, equipment, technology supplied and resource personnel. The method segregates the total cost of the company on the basis of time available for the workers and the method calculates cost capacity rate (Öker & Ad?güzel, 2016).

TDABC system is related with utilizing capacity cost rate to drive the costs of resources of the department to cost objects by formulating the resource capacity demand which is essential for all cost objects. TDABC requires a projection of time on the basis of which an estimate can be made for the order of the customers. However the requirement of matching every customer order is not necessary under TDABC method. Instead, the method allows the time estimated to vary depends on specific demands which are required. These orders could be manual or automated orders, expedited orders, global orders, orders for fragile products and orders of the new customers not having any existing credit record. for particular orders. Hence, this system simulates the actual procedures utilised in carrying out work across the organisation. The method removes the complexities and variations which are present in conventional ABC system without creating exploding demand in relation to data estimates and storage or processing capacities. Therefore, through TDABC implementation and maintenance Bowral Limited can avoid the complexities which are involved in the traditional ABC costing method or any other method of costing, thereby making the entire costing structure effective and efficient.

The TDABC method and ABC method were both developed in 1980 and the person who is credited with the findings of these two methods is Robert Kaplan. Before the introduction of the above mentioned two costing methods, the companies applied traditional method of costing which was not that much efficient in allocating and identifying costs on the basis of cost objects of the company (Elhamma & Zhang, 2013). Thus a new method was required which could deal with the deficiencies of the traditional costing method. With the introduction of the new methods, the company can now measure the costs which are associated with each and every activity of the business. Both the methods ABC costing and TDABC costing have proven effective in calculating the cost of the business and also the overall profitability of the business. This would enable in benefitting the firms by collecting reliable and rightful information through realisation of the cost drivers. Some of the cost drivers constitute of the following:

  1. Quantity Drivers which are on the basis of quantity, however such driver are not that much accurate.
  2. Duration Drivers which measures durations which is mildly accurate.
  3. Intensity Drivers which has greater accuracy and also increased expenses.

Salient features of Time Driven Activity Based Costing Method

Traditional Costing methods involves allocation of overhead costs on the basis of volume of production resources which is consumed. Under this method the overhead cost is either allocate don the basis of direct labour hours or on the basis of machine hours used. The problem which is associated with this method is that the overhead cost may be much more than the allocations therefore a minor change in the volume of overhead can influence the whole of overhead applied. Since this factor is involved in the traditional method, direct relationship between the overhead cost and volume of production is direct (Meyer et al., 2013). The traditional accounting system does not apportion non-manufacturing expenses, which are associated with the production of an item such as administrative expenses. The firms use this costing system mainly in external financial reports, since value is provided for the overall cost of goods sold.

Nowadays traditional costing system has become obsolete in the system of costing, as most of the work processes uses machines and computers. The introduction of more machinery and computers in the manufacturing process has outdated the traditional costing system as the method uses direct labour cost for allocation purposes. In addition to this if the management of a company uses Traditional costing method then it could lead to ineffective management decisions.

Activity Based Costing tackles the deficiencies of traditional costing method and also ensures that the proper cost distributions is done by the management. The bases of apportionment which the system uses are different from the bases used in the Traditional system of costing. In addition, ABC system considers each activity associated with the production of an item along with distribution of activity cost. The cost allocated to each activity is allocated further to the products necessary for the overall production activity of the business (Phillips & Phillips, 2016).

The main advantage of using Activity Based Costing Method is in the fact that the company which applies ABC costing method is able to achieve greater costing accuracy. The companies allocate cost to the products only which is necessary for the production activity of the business. This system eliminates the allocation of product costs, which are not relevant (Schulze, Seuring & Ewering, 2012). The other benefits of the ABC system which takes the interpretation of cost for internal management and greater understanding of the costs associated with overhead in consideration. The introduction of Activity Based Costing in a business requires lot of extensive resources (Rbaba’h, 2013). However, this could be a drawback for the firms having lower amount of funds. Finally, there might be few users, who could misinterpret information by using this particular system. However this situation is very much rare in nature (Emblemsvåg  & Bras, 2012).

Differences and similarities between TDABC and other costing methods

TDABC methods looks into the few problems which are associated with the Activity Based Costing Method. This is an important development and is considered better than traditional as well as ABC method of cost allocations. The benefits which are associated with using the TDABC method are given below:

  1. TDABC system of Costing can work in collaborations with other systems such as enterprise resources planning and customer relationship management (Nguyen & Aiello, 2013).
  2. The main advantage of using this method is the fastness of the method for processing higher amount of transaction.
  3. This system provides notification to the workers about the unused resources and allow the management to act accordingly.
  4. Lastly the method can be started without appropriate ERP system implementation, which can be used to analyze the costs of the company.

As per the assessment of TDABC system and in comparison with the other two models, it could be found that TDABC model is highly appropriate for Boral Australia. The reason is that the system provides higher visibility to capacity efficiencies and usage along with the capability to estimate future resource demand. Boral ltd has a large number of rivals in Australia with Adelaide Brighton Cement and also has a large number of competitors in foreign countries as well, it needs to cut down its cost of production. TDABC system will enable Bowral ltd in gaining a level of competitive advantage by allocating indirect or support cost in a way that the resulting information of cost reflects a rightful overview of human resource management consumption and resource needs on the part of customers and services of the firm.  Bowral can manage the resources effectively and also gain competitive advantage by following activity based costing (Van Der Aalst, 2013).

In addition, it is important to take into considerations the TDABC method has provided on online services compared to those provided through traditional channels affecting management decisions. TDABC method has a wide impact on the online services of the company and thus will enable the management of Bowral to extend the market of the company. For online services, the management of Boral would have cost-related data likely including higher indirect costs from being a traditional provider with higher amount of labour (Andersson & Titov, 2014). Thus from the above discussions it is clear that the company Bowral Limited will benefit with the introduction and implementation of the TDABC method.

Conclusion

Thus from the above analysis it is clear that with the implementation of the TDABC method the business of Bowral ltd will benefit extensively. In addition, TDABC system could work in collaborations with the system of customer relationship management and enterprise resource planning. Finally, it has been evaluated that TDABC model can be highly efficient and effective if the method is properly implemented and maintained for Boral Australia.

Reference

Andersson, G., & Titov, N. (2014). Advantages and limitations of Internet?based interventions for common mental disorders. World Psychiatry, 13(1), 4-11.

Boral.com.au. (2018). Homepage | Boral. [online] Available at: https://www.boral.com.au/ [Accessed 6 Jan. 2018].

Elhamma, A., & Zhang, Y. I. (2013). The relationship between activity based costing, business strategy and performance in Moroccan enterprises. Accounting and Management Information Systems, 12(1), 22.

Emblemsvåg, J., & Bras, B. (2012). Activity-based cost and environmental management: a different approach to ISO 14000 compliance. Springer Science & Business Media.

Meyer, V., Becker, N., Markantonis, V., Schwarze, R., Van Den Bergh, J., Bouwer, L., ... & Hallegate, S. (2013). Assessing the costs of natural hazards-state of the art and knowledge gaps. Natural Hazards and Earth System Sciences, 13(5), 1351-1373.

Nguyen, T. A., & Aiello, M. (2013). Energy intelligent buildings based on user activity: A survey. Energy and buildings, 56, 244-257.

Öker, F., & Ad?güzel, H. (2016). Time?driven activity?based costing: An implementation in a manufacturing company. Journal of Corporate Accounting & Finance, 27(3), 39-56.

Öker, F., & Özyapici, H. (2013). A new costing model in hospital management: time-driven activity-based costing system. The health care manager, 32(1), 23-36.

Phillips, J. J., & Phillips, P. P. (2016). Handbook of training evaluation and measurement methods. Routledge.

Rbaba’h, A. (2013). The influence of company characteristics factors to activity based costing system implementation. Journal of Education and Vocational Research, 4(2), 36-46.

Schulze, M., Seuring, S., & Ewering, C. (2012). Applying activity-based costing in a supply chain environment. International Journal of Production Economics, 135(2), 716-725.

Tanis, V. N., & Özyapici, H. (2012). The measurement and management of unused capacity in a time driven activity based costing system. Journal of Applied Management Accounting Research, 10(2), 43.

Van Der Aalst, W. M. (2013). Business process management: a comprehensive survey. ISRN Software Engineering, 201

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