Database Reference
In-Depth Information
table 1.4 ( Continued )
Conventional ABC versus time-Driven ABC
Conventional Activity-Based Costing
Time-Driven Activity-Based Costing
Not a universal model; cannot be applied to
other companies even within the same
industries.
Can easily be applied to other companies
in the same or even industries with similar
business processes; hence, useful in M&A
Being based primarily on users' insights and
conjectures cannot act as a correct or
consistent basis for initiatives like business
process re-engineering, benchmarking,
lean management, and enterprise
performance management.
Potentially usable in initiatives like business
process re-engineering, benchmarking,
lean management, enterprise performance
management, balance scorecard, and
supply chain management
customer without an existing credit record. It achieves this through the simple mechanism of alter-
ing the unit time estimates or adding extra terms to the departmental time equation on the basis of
the order's activity characteristics. Thus, TDABC can readily incorporate many more variations and
complexities (in business process efficiencies, product volume and mix, customer order patterns,
and channel mix), which adds accuracy at little additional cost and effort and with fewer number
of equations compared (i.e., without creating an exploding demand for estimates data, storage, or
processing capabilities) than the conventional ABC. TDABC models expand only linearly with
variation and complexity by merely adding terms in the time equation, but a department is still
modeled as one process with one-time equation.
Consequently, the expressions for the total costs presented in the previous section get
modified to
M
M
{
} =
{
(
)}
Activity-based productcosts
(capacitycostrate) *
capacityusage time
l
l
l
=
l
=
1
1
and
M
M
(
)
{
} =
Activity-based customer costs
{
capacitycostrate*
(
capacity usagetime
)}
l
l
l
=
1
l
=
1
SIGNIFICANCE OF TIME-DRIVEN ACTIVITY-BASED
COSTING (TDABC)
TDABC plays an increasingly significant role in strategy and operations of an enter-
prise because of reasons like the following:
1. Time is a decisive factor in all efforts for process improvements, business process
re-engineering (BPR), enterprise performance management (EPM), balanced score-
card (BSC), and so on, because of the criticality of wait times, lead times, cycle times,
Search WWH ::




Custom Search