Time-Driven Activity Based Costing (TDABC)

This assignment delves into the application of Time-Driven Activity Based Costing (TDABC) within the context of Toyota Motor Corporation. Students are tasked with analyzing how TDABC can be implemented in a manufacturing giant like Toyota, considering its advantages, potential challenges, and overall impact on operational efficiency. The assignment encourages critical thinking about cost accounting methods and their practical relevance in real-world business scenarios.

Accounting
Managerial Accounting
1/12/2018

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Contents
Introduction......................................................................................................................................2
About Toyota Motor Corporation....................................................................................................3
Toyota Global Vision..................................................................................................................3
Toyota production system............................................................................................................4
Time-Driven Activity-Based Costing..............................................................................................5
Time equations.............................................................................................................................5
Features of Time-Driven Activity-Based Costing.......................................................................6
Difference between TDABC and Activity- Based Costing and Traditional Costing System.........6
Suitability of TDABC for Toyota Motor Corporation....................................................................8
Conclusion.....................................................................................................................................10
References......................................................................................................................................11

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Introduction
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.

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About 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).

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Toyota Global Vision
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

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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.
Time-Driven Activity-Based Costing
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).

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Time equations
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).
Features of Time-Driven Activity-Based Costing
 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).
Difference between TDABC and Activity- Based Costing and Traditional
Costing System
Basis of
Difference
Traditional Costing
System
Activity-Based Costing Time-Driven Activity-
Based Costing

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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
The decision making
within an organization
The decision making
within an organization

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takes place only at the
product level.
takes place at product
level as this method is not
having any linkage with
the process level.
takes place both at the
product and the process
level.
Suitability of TDABC for Toyota Motor Corporation
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.

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 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).

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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.

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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; 13th 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; 13th
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).

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Toyota, 2017, Company Profile, Accessed on; 13th January 2018, Accessed from
http://www.toyota-global.com/company/profile/
Toyota, 2017, History of Toyota, Accessed on; 13th January 2018, Accessed from
http://www.toyota-global.com/company/history_of_toyota/
Toyota, 2017, Toyota Global Vision, Accessed on; 13th January 2018, Accessed from
http://www.toyotaglobal.com/company/vision_philosophy/toyota_global_vision_2020.html
Toyota, 2017, Toyota Production System, Accessed on; 13th January 2018, Accessed from
http://www.toyota-global.com/company/vision_philosophy/toyota_production_system/
Toyota, 2017, Vision & Philosophy, Accessed on; 13th January 2018, Accessed from
http://www.toyota-global.com/company/vision_philosophy/
Toyota, 2017, Worldwide Operations, Accessed on; 13th 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.