The report has an intention of evaluating the suitability of Time-Driven Activity Based Costing System (TDABC) in the opinion of a graduate consultant used within the management consultancy company. It is gathered that a key consumer of the consultancy company is CSR Limited that is among the renowned manufacturing companies of the company (Balakrishnan, Labro and Soderstrom 2014). The first part of the report pus a great emphasis on elaborating the business conducts of the organization. The second part of the report deals with carrying out detailed analysis of the characteristics and concepts of TDABC. The third section focuses on explaining the differences between the TDABC, ABC along with conventional costing processes. Additionally, the paper will also focus on evaluating the suitability of TDABC in case it is implemented in CSR Limited.
CSR limited Australia has its business that is involved in manufacturing and supplying of building products all over New Zealand and Australia. The organization has its business operations in four major segments including Glass, Aluminum, building products and properly. Its building products encompass lightweight systems like central fiber cement and Cimentel plasterboard (CSR.com.au. 2018). Glass business of the organization includes operations in Viridian, an architectural glass provider along with a producer of float glass along with hard coated performance goods. The business unit of Aluminum is associated with its interest within Gove Aluminum Finance Limited that is deemed to attain an interest within Gove Aluminum Finance Limited that has an interest within Tomago Aluminum Smelter.
In this specific report, CSR Limited Australia is chosen within which the management plans to employ TDABC in the company (Chen et al. 2015). The key products of the company encompass quarry, asphalt, concrete, bricks, concrete placing, masonry, roofing, and hardwood and softwood timber. The segment of this company is a major material and products supplier used in commercial and residential construction within the engineering and roads markets.
It is revealed that there are numerous concern associated with activity-based costing. In order to deal with these issues, TDABC was developed fir this is cheaper, easier and increasingly powerful in comparison to conventional ABC system (Kaplan 2014). In comparison to the same, it is gathered that TDABC system facilitates in simplifying the process of costing through decreasing the requirement for surveying and interviewing employees for allocating resource costs within the business conducts before bringing them down within the cost objects. These cost objects can be in the consumers, orders and products form.
TDABC model facilitates in cost of resources allocation within cost objects. This can be carried out with support of a properly developed framework that needs to anticipated groups and these might be attained without dealing with many difficulties (Kaplan et al. 2014). Therefore, the major characteristics of TDABC encompass the aspects below:
TDABC and ABC system emerged in the year 1980 and Robert Kaplan is deemed to be the founder of such systems. It is evacuated that the conventional costing system was incapable to distribute overhead in a better manner and it is not that capable to recognize the profitable consumers. This is an important cause behind the emergence of the two above models. In addition, activity cost measurement serves as a vita function in comparison to the organization. Conversely, ABC along with TDABC systems attained the ability for computing total consumer profitability (Teece 2014). This can facilitate in attaining advantages for the companies through gathering reliable and suitable information through cost driver realization. Certain cost drivers also includes the following:
For this reason, the major differentiation points among conventional costing, TDABC and ABC systems as explained under:
Thus, the main points of differences between conventional costing, ABC and TDABC systems are discussed briefly as follows:
Traditional costing system:
There are several manufacturing companies in the recent years that employ conventional costing system for allocating manufacturing overhead within the manufactured units (Thomas and Gilbert 2014). The users of this system anticipate that the volume metric serves as a key driver of expenses related with manufacturing overhead. In such system, the accountants consider cost allocation of manufacturing just to the products. The traditional system of accounting does not consider non-manufacturing cost. This is related with manufacturing of a product like administrative costs. The companies employ this costing system majorly within external financial reports as value is offered for total sold cost of goods.
Conversely, conventional system of costing serves as an obsolete costing system as the manufacturing companies are associated with employing computers and machines for attaining high production (Tyagi et al. 2015). The machines along with computers outdate such system for it is involved in employing direct labor hours for calculating costs. This result in improper cost allocation for the direct labor hours is not an appropriate cost driver which can be included in the total product expense. Moreover, if the companies employ this specific system this can result in improper management decisions as it is not capable to consider certain non-manufacturing expenses.
ABC system:
ABC system facilitates in offering a proper insight regarding the product cost, conversely the organizations employ it basically as a supplemental system based on costing. This is relied on certain apportionment employed within the system are different from bases employed within conventional accounting system. Moreover, the ABC system makes sure that all the activities are related with manufacturing of a product associated with activity cost distribution. The allocated cost to all the activities is further apportioned within the necessary products for total production activity (Emmett and Crocker 2016).
The major benefit of such system might be considered with respect to increased costing accuracy. The organizations allocate costs to just the products that is needed for the necessary production activity. Such system decreases product costs allocation that is not that important. Certain other advantages that is considered by the ABC system is cost interpretation for internal management, ability to facilitate benchmarking and improved understanding of expenses related it the overhead. The emergence of ABC system in the company needs additional resources. Conversely, this might be a limitation for the companies those have decreased amount of funds. Lastly, there can be fewer users that might misinterpret certain information through employing such specific system.
Time-Driven Activity-Based Costing (TDABC) system:
TDABC system served as a vital improvement in comparison to ABC system. This is due to the fact that this system considers some advantages that might not be offered by ABC system and these advantages are explained below:
As per the above evaluation of TDABC system along with comparison with two other models, it might be gathered that TDABC model is suitable for CSR Limited in Australia. The cause is that such system offers increased visibility for ability effectiveness along with employing the capability to evaluate demands of future resource (Cooper 2017). CSR Limited is dealing with high rivalry within Australia with Adelaide Brighton Cement and abroad. For this reason, it requires bringing down its production cost. TDABC system facilitates the company in experiencing competitive advantages through apportioning support or indirect cost in a manner which can be reflected by the suitable overview of resource consumption along with its needs from the behalf of consumers and services offered by the company. CSR Limited can manage resources in a better manner through decreasing its expenses that might facilitate in sustaining competitive pricing structure (Emmett and Crocker 2016). Per unit transaction cost of the project along with consumer viewpoints can result in efforts for decreasing these expenses devoid of sacrificing pricing and quality changes relied on such expenses.
Moreover, it is vital to consider the process provided by TDABC on online services in comparison to the ones offered by means of traditional channels impacting management decisions. For online services, CSR Limited’s management might attain cost-based information that encompasses increased indirect expenses like website operations and designing, research and development from being a traditional employee with increased amount of labor (Edmonds et al. 2016). Conversely, the per unit expenses might be drastically lesser in case of online services because of increased market reach that is attained by an online service provider. The physical and geographical locations might have decreased limitations on it. The management of CSR Limited might employ decreased over unit service cost for offering suitable and completive costing for online cement and line products. For this reason, TDABC model might facilitate the company in maintaining cost of offering online services in contract to cost of offering it by means of traditional channels. This can facilitate the management in service determination to be traditionally offered and the ones that are to be offered online (Fullerton, Kennedy and Widener 2014).
In addition, such system offers the management with a better insight regarding overhead expenses as it offers an elaborated information regarding conducts associated with offering traditionally offered along with online services. For this reason, CSR Limited might be capable in taking decisions for enhancing customer base, decrease costs along with improving services.
This system serves as a platform offering important and meaningful information to the managers promptly and devoid of costs (Hines 2014). Rather than considering the business type, the model offers superior and cot-efficient information associated with the cost. This might be deemed superior considering the ABC model. Therefore, implementation of TDABC in CSR Limited might facilitate in decreasing the production cost, increasing revenue base along with enhancing competitive advantages within the industry.
Conclusion:
After the completion of this report, it is gathered that TDABC serves as modern budgeting process which facilitates in easing the process of costing through decreasing the requirement for surveying and interviewing the employees in allocating the resource costs within the conducts before bringing them down within the cost objects. Moreover, TDABC system might work in alignment with consumer relationship management system along with enterprise resource planning. Moreover, it is also analysed that TDABC model is highly suitable for CSR Limited. The major cause is that such system offers increased visibility for capacity efficiencies along with usage with the ability for anticipating demands of future resource.
References:
Balakrishnan, R., Labro, E. and Soderstrom, N.S., 2014. Cost structure and sticky costs. Journal of management accounting research, 26(2), pp.91-116.
CSR.com.au., 2018. Homepage | CsrLimited. [online] Available at: https://www.CSR.com.au/ [Accessed 6 Jan. 2018].
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Cooper, R., 2017. Target costing and value engineering. Routledge.
Emmett, S. and Crocker, B., 2016. The relationship-driven supply chain: creating a culture of collaboration throughout the chain. CRC Press.
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