Time-Driven Activity-Based Costing (TDABC)
Discuss about the Time Driven Activity Based Costing.
Every company has its way of doing its business. The manner in which costs and accounting are operating dare different among organizations. Activity-based in an accounting a method that spells out the actions that a company involves in and finally enables the assignment of indirect costs to the products. An ABC system is able to establish the relationship between the costs, products and the activities in a company (Cram 2016). The ABC system has been used by several organizations and it is reported that the system was not as capable and easy as it is meant to be. For this reason, the system was developed into Time-based ABC that is reported to be more effective, easy and cost friendly. This essay will look at the improved TDABC and its features. It will also look at the differences between the traditional ABC and the improved TDABC (Campanale, Cinquini and Tenucci 2014). The paper will also look into the a2 milk company and if the TDABC system is suitable for its operations. The method is very useful to a given company since the company can evaluate itself regarding performance and cost-effective. The system is beneficial to the milk company because of its effectiveness in the business sector. If the system is used within the company, the staff and other stakeholders will be able to run the company at a lower running cost but maximum profit. The management and the team will be trained on the implementation before the ABC system is applied within the company. The system is considered to be effective because of its vast application in the number of the given companies (Anand, Balakrishnan and Labro 2018). By use of the TDABC, the expenditure of the company will reduce due to the cut in operation cost.
The name of the firm is a 2 milk company. A 2 milk company limited is one of the leading Australian dairy firm which offers the alternative conventional dairy to people. This is one of the companies in Australia with the leading milk brand .The company was founded in 2000 by the famous farmer Dr. Corran McLachlan was the key founder of the company (?e?evi? and Anti? 2018). The entire processes of the foundation was due to the scientific discoveries on the effects of one beta Casein on the human health. Peterson Howard is also one of the key founders of the a 2 milk company. Peterson Howard was one of the leading dairy farmers and also a shareholder in the cooperative of Fonterra. He was also considered as one of the wealthiest men the in New Zealand. At his study at Cambridge University, Dr. Corran discovered the easiest way to identify the cows which produce milk of high protein. Out of this study, the idea of the formation of a 2 milk company emerged (Huang 2016).
Differences between TDABC and ABC
The discovery was based on the cows which produce milk of the protein type A2, and this was free from the A1 type. The research that led to the formation of a 2 milk company was motivated by the fact that majority of people complained of digestion discomfort from the ordinary milk. The regular cow is known to be producing the protein type A1 which is known for the digestion discomfort. All the above factors contributed to the formation of a 2 milk company. The mission of the company remains the same (Sulaiman, Hannan, Mohamed, Majlan and Daud 2015). That is to spearhead the understanding of the protein type A2.This will enable some people to enjoy the nutrition that comes from the natural milk. The company can help people with the lactose intolerance to experience the real and nutritious milk with no digestive discomfort. Because of its mission, a 2 milk company has received recommendations from different users of the product. Some people do not complain of the digestive discomfort as experienced with the ordinary milk (type A1) (Nguyen 2015). Due to its quality service, the company has expanded and has some branches in different countries. Some of the countries where the company exists include the following: China, Australia, United States of America , United Kingdom and the New Zealand. Finally the 2 milk is considered to be of good health than the ordinary milk because it only has the protein A2 but no A1. This qualifies for its love by many people and the digestive discomfort free.
Time -Drive Activity Based Costing is an approach which involves the calculation of the unit cost in the supply capacity (Cost Rate Capacity) and also the estimation of time spent in activities. It is a new innovative approach which is used in providing the significant cost and information in a business. This is a new version of the ABC accounting management model (Anderson and Sedatole 2013). The TDABC is very useful in improving the value and resource allocation of a company. The Time Driven Activity Based Costing is considered as a useful tool to ABC system. The system does not suffer from any rising cost as compared to the ABC. The employee irritation is also eliminated. The TDABC is mostly preferred because of its analysis depend mostly on the employees survey than the managerial estimates from the staffs. This system has a detailed and a more flexible cost model which is used to capture all the complexity in the operations of a company (Babad and Ramachandran 2013).
Application of TDABC in the a2 Milk Company
In this system, the managers are able to estimate the demands in terms of resources. These may include transactions , the name of the product and the customers . The system uses the two main parameters in its implementation: first, the cost estimated per time on the resource capacity. The system also provides for the accurate costs by allowing the estimate unit time for the complex and also in the specific transaction. The TDABC is known to have been improved by both Anderson and Kaplan in enhancing the functionality of the organizations (Balakrishnan, Hansen, and Labor 2011). Because of its improvement in modeling, the TDABC uses fewer data compared to the old ABC system. It mostly uses time allocation to improve its functionality. The TDABC has some unique features compared to the old ABC. Firstly the new system has a cost estimation per unit time of the production capacity. The system also employs an estimation of unit times of all the activities (Balakrishnan, Labor and Sivaramakrishnan 2012). The Time-Drive Activity Based Costing is very simple and easy to implement than the old ABC due to its model and the less number of data it has.
The previous system of ABC was difficult and complicated to many organizations. The model incurred high costs (Balakrishnan, Labro and Sivaramakrishnan 2012). These costs were seen when it came to interviewing and surveying people for the model. Some of the best characteristics of the time driven by ABC are:
- It can be installed quickly and quickly.
- Its estimation is quick compared to the old ABC
Both the Time drive ABC and ABC are essential tools used to improve the efficiency of the management in an organization. The Time-driven ABC is considered to be an improvement of the old ABC. Some difference exists between the Time Driven Activity Based Costing and the old Activity Based Costing (Dalci, Tanis and Kosan 2010). Firstly regarding implementation, ABC become challenging to implement in the complex activities and also very costly during the update in a very dynamic environment, in comparison to the Time Driven Activity Based Costing. For this reason, the TDABC is considered useful in the large organizations. Secondly, the Time Driven Activity Based Costing has a time allocation of resources directly to the products as compared to the Activity Based Costing which uses a two-stage method during the distribution of the resources related to cost activities and the product (Datar and Gupta. 2014).
This shows that Time Driven Activity Based Costing (TDABC) is suitable for complex analysis compared to the Activity Based Costing (ABC). Also, the Time Driven Activity Based Costing performs more than the ABC in the traceable activities while Activity Based Costing also performs better than TDABC if the actions are more traceable to products than activities. But when both the detectable are very high, the ABC is considered to be of greater importance than TDABC (Everaert and Bruggeman 2007). With the old ABC, it is believed that it uses the invoice based analysis as compared to the Time Driven Activity Based Costing which uses the time allocation of the activity as the primary base.
Benefits of TDABC
The new ABC management approach is one of the best tools to be used in the management of organizations. For the case of the 2 milk company, the method is considered to be useful because it will boost both the performance and production of the company. The system has some benefits it will bring to the company. Some of the benefits include the following:
The new ABC approach will enable a 2 milk company to reveal what the company will be able to handle there is a distinction between the supplied capacity and the used one (Everaert, Bruggeman, Sarens, Anderson and Levant 2008). Through the calculation of the time allocation in carrying activities of the company and also linking it to a more precise cost, this grants the company personnel and insight of management. The TDABC also helps the company in identifying and reviewing the unused capacity which can be used in the facilitation of the appropriate reallocation of time. The company is also going to benefit by giving the idea of the changes taking place within the company's workload.
Through the implementation of the TDABC, a 2 milk company will be able to benefit from any complexity that may arise. The growth of a company is guaranteed by the quality of the products offered and its customer relations (Homburg 2011). A 2 milk company being of the most preferred companies in Australia is expected to grow both in size and on the management levels. Any complex changes associated with the company will be handled by the implementation of the TDABC. Some of the changes may include the salary increment and addition of machine within the company. By doing this, the company will be able to analyze its dynamic cost overview rather than the standard manual evaluation which is always done on a specific period on a quarterly basis (Hoozée, Vermeire and Bruggeman 2012).
The system will also help the company in making right decisions regarding cost and profitability in production. Because of its nature in handling complex issues, the company can negotiate with the customers and the staffs. Right choices regarding salary increment and other changes will be catered for by the implementation of this tool in the company (Hwang, Evans and Hegde 2013). Apart from these, the company will be able to have the accurate costs which are easy to follow for any transaction made. Since the system is more insightful, flexible but cheaper to install and run, the company can analyze the cost distribution to a particular customer by empowering the relationship between them. The company should, therefore, implement the use of TDABC within its operations to realize a maximum profit and excellent customer relationship.
I, therefore, recommend full implementation of the Time Driven Activity Based Costing in a 2 milk company for the company to realize its full production. Different staffs and managers within the company should also be trained on the usability of the approach (Innes and Mitchell 2015). The company should ensure that the implementation and simulation of the programs to this system are done by the experts. The company should understand the existing information and also develop the strategy which will be used to collect processes, resources, and activities of the real-time information to improve the efficiency. The company should also focus on the future changes in technology with the real-time system.
Due to the number of advantages discussed above, TDABC is more effective regarding running the companies than the old ABC system. The system is cost-effective, easy to run and able to handle complex activities, unlike the old ABC. Through the implementation of the New ABC, a 2 milk company will save a lot from the running and production cost. All the decisions made by the company will be the right ones (Jones and Dugdale 2012). With proper training of the staff on the new changes and requirements of the system, the company will be able to achieve its objectives regarding Time-Drive Activity Based Costing.
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