Suitability Of Time-Driven Activity-Based Costing For Adelaide Brighton Ltd

Understanding Costing Methods

In the modern world of business not with standing the size whether the firm is big or small it needs that there should be a clear understanding of the managers regarding the cost. It is necessary to have an understanding of the methods of costing as they would be better able to locate the changes taking place in the trade whenever they originate (Hemmer and Labro 2016). The present study takes into the considerations the TDABC along with the understanding of the essential features. The report will further focus on the ways which will determine the methods under which the TDABC is different from the ABC model costing and the Traditional methods of ABC costing. The study will further assess the costing system regarding the implementation of the model in the Adelaide Brighton Ltd.

The Adelaide Brighton is regarded as the Australia’s leading company that is engaged in the construction of the materials and in the areas of lime manufacturing. Adelaide Brighton Ltd is concerned with the manufacturing and the supplies of wide range of goods that is associated with the construction of the infrastructure, processing of building materials throughout the territories of Australia (Adbri.com.au 2018). The chief activities of the firm included manufacturing, importation and delivery of the lime goods, cement, concrete goods and premixed concrete. Adelaide Brighton has large base of operational facilities that prompted the supply of materials to the customers and facilitated a well-organized production capacity in order to meet the demands of the customers throughout the country. This enabled the organization to provide the supply of the packaged materials and the supply of the logistics throughout the regions of Australia and Asia.

The Activity based methodology of costing is current viewed as the complete method of costing however the model suffers from wide known amount of criticism for the approach undertaken with several such users of the ABC costing have stopped using this method (Prasad 2014). The actual process of ABC costing offers a superior system of costing the variety of products and service however under the new model of Time Driven Activity Based Costing method will have the ability of incorporating the large amount of variations and complications by offering the improved quality of information minus the restrictions linked with the scheme of ABC costing.

The customers of modern day largely place their focus on the business discoveries by generating and offering the wide range of products which largely offer their support to the big order entry and channels of tracking the order at numerous level of technical support. According to the words of Velasquez, Suomala and Järvenpää (2015), there is an increase in the total number of customers. These customers require an appropriate management of customers data along with the administration of profit generated by them.

About Adelaide Brighton Ltd

The ABC method of costing has attracted the attention of distinguished costing methodology among the products that ranges from upper limit, custom and standard products (Hald and Thrane 2016). The system of TDABC helps in offering better information concerning the earnings and the frequency of profits by demonstrating the differences in the cost among the consumers that are having lower demand and ease of service than those that are having higher demand with complex customer preferences.

Depending upon the time needed in performing the activity the method of TDABC is better able to recognize the sum of every unit or procedure together with the allocation of cost to the resource group. As stated by Lanen (2016), it is noted that the demand for TDABC can guess the amount of resources that are released. The TDABC method of costing is able to capture the different feature of activity through time equation that takes time as per the activity and TDABC is observed as the function of diverse features. The below stated are the feature of the Time Driven Activity Based Costing;

1. The primary feature of TDABC costing is very easy to understand and makes the model accurate.
2. The model of TDABC integrates in an efficient way with the information that is available from the ERP and the customer relationship management that makes the system of TDABC vibrant (Cooper 2017).
3. Time Driven Activity Based Costing method drives the cost into the transaction and orders thorough processing of orders, customers and materials.
4. Another feature of TDABC is that it runs on monthly basis to record the economies of current business functions.
5. The model of TDABC helps in offering visibility during the processing of utilization capacity.
6. The model of TDABC is helpful in predicting the demand of resources. This would enable the organization in making the budget for the resource capacity in respect of the anticipated capacity of order and complication.

In the present situation the system of TDABC helps in offering variations of the ABC model because it enables easy execution of the functions that is needed to manufacture goods and service that are sold in the market (Otley 2016). The traditional system of costing distributes the product overhead in relation with the capacity of the cost driver, namely the direct labour hours that is needed to manufacture the product.

A noteworthy element that causes the cost to take place is cost driver such as the machine hours, direct labour hours and direct material hours involved in manufacturing product. Under ABC method of costing, cost occurred in manufacturing the product is allocated for the activities that is necessary to manufacture the item. On the other hand, the model of TDABC helps in easy measurement of the product effectiveness involved in manufacturing the product at given level of available capacity against the consumption capacity (Cooper, Ezzamel and Qu 2017). Arguably the cost equation helps in providing less costly system than the traditional method of ABC costing.

 The Time Driven Activity Based Costing system is regarded as more economically and reasonably efficient than the ABC method of costing. The prime reason for this is that the method simplifies the method of costing and reduces the instances of surveys that are used in ABC method of costing (Mahal and Hossain 2015). The TDABC helps in distributing the cost directly to the cost units. The model of traditional absorption costing helps in distributing the costs generated from the resources through using the capacity cost to ascertain the requirement of resources for each unit of cost.

TDABC Versus ABC and Traditional Costing Methodologies

According to the words of Onat, Anitsal and Anitsal (2014), the model of Time driven activity based costing system only needs time projections to process the orders of customers and it is not mandatory that the cost should be equal. This is due to the fact that the TDABC helps in projecting numerous times depending on the features of application by using the imitation of variables and equations. Whereas in ABC costing method the amount of cost drivers is used in allocating the cost to every department of cost object. Under the TDABC consumptions of resources by the cost activities is not considered and it is not obligatory to distribute this cost. The below stated table provides differences between the TDABC, ABC and Traditional ABC;

ABC	Traditional ABC	Time Driven Activity Based Costing
Under the ABC method of costing numerous activities of overheads are identified	The traditional method of costing helps in allocating the overhead cost to every unit produced.	The Time driven activity based costing method helps in identifying the numerous groups of resources
The method of ABC helps in allocating the overhead cost to numerous activities through the help of resource driver	The model assumes the situations where the matrix of quantity turns into the driver of product overhead.	Projects the sum of overall cost for every resource groups
The ABC method of costing recognizes the cost driver for each of the activities	In the traditional method of costing the managers allocate the cost of productions only to the products (Lee et al. 2015).	Determines the practical ability of every resource group particularly the available working hours and training hours.
The ABC method determines the cost driver for every activity by dividing the total amount of cost activity from the practical amount of activity driver.	The system of traditional accounting is not capable of distributing the non-manufacturing cost associated with the production of the item particularly the management expenditure.	The method computes the cost of each unit of resource group by dividing the amount of cost to each unit of the group through practical capacity.

Applying the model of time driven activity based costing in the client firm of Adelaide Brighton Ltd it can be stated that the model is ideally simple to understand and apply. Additionally, the model is economical and effective than the other models such as the ABC and Traditional ABC. The time driven activity based costing helps in making the costing system easy by eliminating the need of survey and interview of employees (Ahmed and Kannaiah 2016).

The traditional method of costing would help Adelaide Brighton Ltd in distributing the cost of resources to the activities prior to driving them to the cost objects. An important consideration that can be drawn from the analysis is that the mechanism of TDABC would help Adelaide Brighton Ltd in distributing the resources directly to the objects of cost by using the smart set of framework in estimating the profit. The model is helpful in computing the cost that is needed in the supply of resource capacity (Monroy, Nasiri and Peláez 2014). For example, the processing department of the Adelaide Brighton Ltd on implementing the model of TDABC would be able to ascertain the cost used in resources, technology and supervision.

The TDABC makes the use of cost capacity rate in ascertaining the departmental resource cost in the cost unit by ascertaining the demand for the resource capacity required by each cost objects (Öker and Ad?güzel 2016). Considering the example of customer order subdivision, the model of time driven activity based costing would help Adelaide Brighton Ltd in estimating the time needed in processing the customer orders.

The time driven activity based costing assist in stimulating the original process that is used in performing the work for Adelaide Brighton Ltd. The time driven activity based costing would help Adelaide Brighton Ltd in capturing wide number of variations than the conventional model of ABC without creating any demand for data projections, storage and processing of materials (Geiszler, Baker and Lippitt 2017). Adelaide Brighton Ltd on implementing the TDABC will be able to sustain the difficulties instead of using the inaccurate model of ABC for its business activities.

Advantages of TDABC Over Other Costing Models

The model of TDABC would help Adelaide Brighton Ltd in projecting the cost object with the ease and in terms of quantity for each unit of the transactions that is processed in the department.  As stated by Hoozée, and Hansen (2014) there are evidences of several companies that uses the ERP system for storing the data and these data ranges from packaging and delivery method. In respect of the Adelaide Brighton Ltd implementing the model of TDABC would help the company in storing the complex business information in an effective manner for transactions that are fluctuating in nature. As evident in the case of Adelaide Brighton Ltd the TDABC would help in improving the complexity of time equation. Consequently, the TDABC model would help Adelaide Brighton Ltd in capturing more number of variations without creating the exploding demand for estimates of data, storage and processing capabilities.

Conclusion

On arriving at the conclusion, the report has exclusively presented that by using the TDABC an organization like Adelaide Brighton Ltd would be able to embrace the complexity instead of being forced to use the simplified and inaccurate model of ABC. The model would enable the company to avoid the costly, time consuming and subjective activity of the conventional ABC. The TDABC model at the initial stages estimates the historical data however its central power is to help in predicting the future. Systematically the TDABC would assist the managers in overcoming the problems of incorporating the data is ERP and CRM system.

References

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