Database Reference
In-Depth Information
table 1.4
Conventional ABC versus time-Driven ABC
Conventional Activity-Based Costing
Time-Driven Activity-Based Costing
Tedious, costly, and time consuming to
build a model that is error prone, difficult
to validate, and localized model.
Easier, inexpensive, and faster to build an
accurate and enterprise-wide model
Drives cost first to the activities performed
by a department and then assigns the
activity costs down to orders, products, and
customers on the basis of subjective
estimates (based on interviewing and
surveying process) of the quantity of
departmental resources consumed by
various activities.
Drives costs directly to the transactions or
orders using specific characteristics of
particular business processes, products,
and customers
Complexity and variations are incorporated
by adding more activities to the model
increasing its complexity and subjectivity,
resulting in lower accuracy, and creates an
exploding demand for estimates data,
storage, and processing capabilities.
Incorporates complexity and variations that
add accuracy at little additional cost and
effort without creating and exploding
demand for estimates data, storage, and
processing capabilities
Calculates cost driver rates by taking into
account the full-rated capacity of resources
without discounting for idle or unused
resources.
Calculates cost driver rates by taking into
account only the practical capacity of
resources supplied by discounting for idle
or unused resources, rather than the
full-rated capacity of the resources
As most of the data are estimates furnished
by employees in respective areas, it has to
be fed separately into systems for further
processing; data being localized, this model
cannot provide integrated view of
enterprise-wide profitability opportunities.
Integrates well with order and transaction-
specific data already available from
ERP/CRMs like SAP CRM, thus providing
integrated view of enterprise-wide
profitability opportunities
Cannot be easily updated to accommodate
changing or anticipated circumstances.
Can be easily updated by simply estimating
the unit times required or by adding
additional terms in the time equation for
each changed or anticipated activity
Being based primarily on users' insights and
conjectures, cannot provide visibility into
process efficiencies; since it ignores idle or
unused capacity, capacity utilization is at
100% by definition.
Provides transparent visibility to process
efficiencies and capacity utilization
Being already based primarily on users'
insight and conjectures, cannot guide user
with identifying the root cause of problems.
Furnishes granular information to assist
users with identifying the root cause of
problems
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Continued
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