Time-Driven Activity-Based Costing And Its Suitability For Toyota Motor Corporation

Toyota Motor Corporation

Discuss whether Time-Driven Activity-Based costing is suitable for the Toyota Motor Corporation or not. 

Time-Driven Activity-Based costing is an advanced method of ABC (Activity-Based costing). The report shows whether Time-Driven Activity-Based costing is suitable for the Toyota Motor Corporation or not. The report will talk about the Time-Driven Activity-Based costing concept and its features. This is the fact that the TDABC is different than the ABC method and traditional costing system. Furthermore, the report includes the suitability of TDABC costing method for the Toyota Motor Corporation.

Toyota Motor Corporation is a Japanese Multinational automotive manufacturing corporation with the headquarters in Aichi. Since, the time when company came into the existence Toyota has sought to contribute to a more prosperous society through manufacturing of vehicles (Bloomberg, 2018). Toyota Motor Corporation manufactures, assembles, designs and sells minivans, passenger vehicles, and commercial vehicles. Along with this the company sells the related parts and accessories of the products. The company has completed 75 years and now the company is celebrating its 75 years and showing its progress in the last three-quarter century (Toyota, 2017). Toyota Industries Corporation came into the existence in the year 1926, November. This was the time when the company started the manufacturing and deals of spinning and weaving machines, industrial automobiles along with the logistics (Toyota, 2017).

Toyota is one of the world’ largest automobile manufacturer along with this the company is a leading light in the sales of the hybrid electric automobiles. Toyota was the first company who produce more than 10 million vehicles per year since 2012, at the same time the company presented the production of the 200-million vehicles (Toyota, 2017). By the year 2009, the company listed around 70 diverse models that are traded under its brand which include sedans, coupes, vans, trucks, hybrids, and crossovers. By the end of December 2016, the company operates its business operations with 53 foreign manufacturing organizations in 28 countries and regions across the world. The company automobiles are traded in more than 170 regions and countries (Toyota, 2017).

The vision of the company is to lead the way to the future of freedom of movement, enriching lives globally with the harmless and accountable way of moving people. Toyota commits to deliver the quality with the modernization and respect for the planet. The aim of the company is to surpass expectations and be pleased with a smile (Toyota, 2017). The company believes that they will meet the challenging objectives by involving talent and passion of people who have faith in the fact that there is always a better way. Toyota has been guiding philosophies to produce dependable automobiles and sustainable development of society by employing high-quality innovative products (Toyota, 2017).

Toyota Production System

Toyota production system is stepped in the philosophy of the comprehensive elimination of all the waste. The production control system of the company has been founded based on several years of constant developments. The aim of the Toyota is to make the vehicles ordered by the customer’s ineffective and quickest way in order to supply the automobiles as soon as possible (Toyota, 2017).

The production system of Toyota is created on two theories; “Jidoka” and “Just-in-Time”. Jidoka means when a problem takes place when the equipment stops instantly that helps the business to escape the manufacturing of the defective products. The concept of Just-in-time is the process in which the production takes place in the continuous flow (Toyota, 2017). Through Just-in-Time, the company can eliminate the complete waste, inconsistencies and unreasonable requirement in the production line. The vehicles provided by the company to their customer are known for its quality. The company is able to fulfill its commitment to quality. Toyota production system can effectively and quickly produce vehicles of sound quality that helps the company in fulfilling and meeting the expectations of the customers and ultimately leads to the customer’s satisfaction (Toyota, 2017). This is possible due to the use of the simple philosophies of Just-in-Time and Jidoka.

Activity-based costing is a costing practice that recognizes undertakings within an organization and allocates the cost of every activity along with capitals to all products and services. ABC is helping many companies in identifying the cost and profit enhancement opportunities through lower-cost product designs, process improvement and rationalized product variety. To make this process simpler there is a new approach of ABC that is TDABC (Time-Driven Activity-Based Costing). The simplification is now possible because of the approach time-driven ABC.  In the year 2007, Rebert Kaplan, a Harvard Business School professor presented this concept of the Time-Driven ABC (Kaplan and Anderson, 2017).

TDABC is a simpler way to estimate the resource demands considering the particular transactions, product or the customers. For a particular group of resources, there is need of the approximations of the two parameters which include the cost per time unity of Supplying resource capacity and the unit times of consumption of resources capacity by customers, products, services. Time-driven ABC offers more exact cost-driven rated by permitting unit times to be predicted even for compound and focussed transactions (Dejnega, 2011). This new ABC approach eliminated the required of time-consuming surveys and interviews process which is defined as the resource pools. This method only relies on the direct observation of processes. This approach precisely accounts for the difficulties of business transactions (like the variation in the operational transactions) with the use of the time equation (Ozyurek and Dinç, 2014).

Activity-Based Costing

Time-driven ABC simply integrates variation in the time demands made by the various categories of transactions. The time equation is beneficial for the organizations as with the use of the time equation the company can precisely reflect the time comprises in a certain process. It removes the requirement of tracking the various activities to account for the different costs related to the single activity. TDABC model captures the accuracy of the resource demands from various processes by adding extra terms to the departmental time equation from its ability (Adioti and Valverde, 2013).

• TDABC system is stress-free to update and organise the use of the time equations that are supported by the ERP system of today’s (Kaplan and Anderson, 2017).
• Managers of the companies find it easy to update the capacity cost rates and the unit-time approximations as working state of affairs change.
• Time-Driven Activity-Based Costing system is easily updated to show the variations in processes of business, resource cost, and the ordered variety.
• This model is one of the effective systems to handle millions of transactions in business, real-time reporting and the fast processing time (Dejnega, 2011).

Basis of Difference	Traditional Costing System	Activity-Based Costing	Time-Driven Activity-Based Costing
Definition of concept	Traditional costing allocates the manufacturing overhead based on the volume of a cost driver. For instance, the number of direct labor hours desirable to produce a product.	Activity-based costing assigns the amount of the producing a product according to the activities required to produce an item (Zimmerman and Yahya-Zadeh, 2011).	Time-driven ABC method identifies the process and department ability and considering that allocate the cost of the volume of resource groups on the costs objects depending on the needed time to accomplish the activity.
Accuracy	The traditional costing system is less accurate than the other two models. In this method, there is lack of the precise indirect cost to products.	ABC model is accurate than the traditional costing system but it is relatively less accurate then the new model. This costing system provides a more precise breakdown of indirect cost than the traditional costing system (Monroy, Nasiri, and Peláez, 2014).	A Time-driven model provides the more accurate costing information as compared to the other two methods.
Decision making	The decision making within an organization takes place only at the product level.	The decision making within an organization takes place at product level as this method is not having any linkage with the process level.	The decision making within an organization takes place both at the product and the process level.

The TDABC (Time-Driven Activity-based costing) is suitable for the Toyota Motor Corporation for enhancing the productivity of the company at low cost and in less time. The application of the TDABC  in the company is effective which can be analyzed with the help of the benefits that the company is going to get after the implementation of TDABC.

• The company will be able to save time with the application of the Time-driven Activity-based costing due to the removal of the interviews and surveys. Toyota will make use of the direct observations of processing times. This will save the time of the managers of the company and they can make use of this time in the production of the products (Szychta, 2010).
• TDABC method is effective for the companies to make use of the numerous of suppliers and processes. Toyota Motor Corporation is one of the companies in which this method can be used and will bring effectiveness in the process.
• Toyota can make use of this innovative approach to deliver meaningful cost and process information in the complex system of the company. With the help of TDABC, the company will be able to enhance the resource allocation and value.
• TDABC helps the Toyota to decrease the processing time that is essential to churn through the facts by consuming records feeds from ERP systems. This will save the time of the managers of the Toyota and they can utilize their time in other activities (Adeoti, and Valverde, 2014).
• Toyota managers will be able to get the accurate picture of the over/under capacity by articulating capacity in units of time. Through, this company will be able to get the accurate data or information for the capacity which will further help the company in the processing of products.
• Time-driven ABC is more systematic approach than ABC, Toyota can make use of this process to evaluate the past activity levels and to determine the month with the largest sum of orders controlled without overtime, poor quality, unnecessary intervals or strained personnel.
• The implementation of the TDABC method helps the Toyota motor corporation in saving the cost. The company will be able to save its cost as the process eliminates the costly process of the research which is involved in the ABC method. The research is essential in order to collect the data or information on the cost allocation of resources and activities before directing it to the cost object (Gervais, Levant, and Ducrocq, 2010).

Conclusion

The report throws light on the time-driven ABC method and its suitability to Toyota Motor Corporation. Time-driven ABC method will be suitable for the company as it saves money, time and efforts of the company. This method is very effective that helps the company in enhancing the productivity of the product. This method is simpler than the ABC method and it is easy to install. Most of the companies who have the complex process system make use of this approach. Similarly, Toyota Motor Corporation process is complex but with the implementation of the TDABC, the company can manage its operations smoothly.

References

Adeoti, A.A. and Valverde, R., 2014. Time-Driven Activity Based Costing for the Improvement of IT Service Operations. International Journal of Business and Management, 9(1).

Bloomberg, 2018, Company Overview of Toyota Motor Corporation, Accessed on; 13^th January 2018, Accessed from https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=319676

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.

Kaplan, R.S. and Anderson, S.R., 2017, Time Driven Activity Based Costing, Accessed on; 13^th  January 2018, Accessed from https://hbr.org/2004/11/time-driven-activity-based-costing

Monroy, C.R., Nasiri, A. and Peláez, M.Á., 2014. Activity Based Costing, Time-Driven Activity Based Costing and Lean Accounting: Differences among three accounting systems’ approach to manufacturing. In Annals of Industrial Engineering 2012 (pp. 11-17). Springer London.

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

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

Toyota, 2017, Company Profile, Accessed on; 13^th January 2018, Accessed from https://www.toyota-global.com/company/profile/

Toyota, 2017, History of Toyota, Accessed on; 13^th January 2018, Accessed from https://www.toyota-global.com/company/history_of_toyota/

Toyota, 2017, Toyota Global Vision, Accessed on; 13^th January 2018, Accessed from https://www.toyotaglobal.com/company/vision_philosophy/toyota_global_vision_2020.html

Toyota, 2017, Toyota Production System, Accessed on; 13^th January 2018, Accessed from https://www.toyota-global.com/company/vision_philosophy/toyota_production_system/

Toyota, 2017, Vision & Philosophy, Accessed on; 13^th January 2018, Accessed from https://www.toyota-global.com/company/vision_philosophy/

Toyota, 2017, Worldwide Operations, Accessed on; 13^th January 2018, Accessed from https://newsroom.toyota.co.jp/en/corporate/companyinformation/worldwide/

Zimmerman, J.L. and Yahya-Zadeh, M., 2011. Accounting for decision making and control. Issues in Accounting Education, 26(1), pp.258-259.